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3 Reasons CFOs Are Well-Positioned To Support Their Organization’s ESG Success
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For Your Business Paul McDonald June 10, 2024

3 Reasons CFOs Are Well-Positioned to Support Their Organization’s ESG Success

As the role of the chief financial officer (CFO) continues to evolve, today’s CFOs find they are involved in everything from digital transformation to talent development initiatives. Increasingly, that list includes helping the company prepare for a future where the continuous management and accurate reporting of environmental, social and governance (ESG) issues.

A recent global survey of finance leaders found that 75% of finance teams have already taken on ESG risk and issues as part of their role and that many now recognize the strong connection between ESG adoption and the long-term financial performance of the business. And a Harvard Business School study of more than 2,000 U.S. companies helps to underscore that having an ESG focus can create real value: Researchers found that organizations that had improved on material ESG issues significantly outperformed their competitors.

Also, ESG reporting is serious business. Nearly all large global companies (95%) today are disclosing ESG information, according to a benchmarking study from the International Federation of Accountants, American Institute of CPAs (AICPA) and the Chartered Institute of Management Accountants (CIMA). And while that same study found only 65% of companies are obtaining assurance and verification over some of the ESG information they provide, the percentage has been trending upward in recent years.

Expect that trajectory to continue, too. As the benchmarking study notes, “Assurance enhances trust and confidence in ESG information, and the systems and controls used to collect and report data.” Companies need to earn that trust and confidence from stakeholders — from institutional investors to employees — who are demanding ESG transparency. And there are regulatory pressures to boot, including in the U.S., where the Securities and Exchange Commission is expected to soon finalize rules for climate-related disclosures. 

Regulatory mandates, and the potential financial implications of noncompliance, are enough to catapult CFOs to the front line of helping their companies build successful ESG programs, processes and practices. And even if they aren’t expected to take the lead on owning ESG in their organization, here are three more reasons these executives are well-positioned to help the business succeed at ESG:

1. CFOs Understand Internal Controls

CFOs know more than anyone else in the organization about internal controls and regulatory reporting — aside from internal audit, perhaps. While ESG controls are nonfinancial, the internal control over financial reporting process used for Sarbanes-Oxley (SOX) compliance can also be applied to ESG performance data and reporting.

Many businesses are only in the earliest stages of defining and implementing ESG controls. But taking a proactive approach now toward strengthening ESG data collection and disclosure processes can be a valuable exercise in the long run. CFOs with SOX experience have a lot to offer in this area, including insight into how to implement controls that can increase integrity and accuracy without undermining operational efficiency or driving up costs exponentially.

2. CFOs Already Interact With Key Players in ESG

The overall evolution of the CFO’s role has included increased collaboration with the leaders of many nonfinancial departments. That means the stage is set for CFOs to help drive productive conversations with their C-suite peers on a wide array of critical ESG topics, including:

  • What investments the business should make to build a technology ecosystem for collecting and consolidating relevant ESG data from across the organization
  • What the business is doing to attract, retain and develop talent and promote workers’ well-being
  • How the business can create and communicate a cohesive narrative about its ESG objectives and the progress it’s making toward achieving them

Through these discussions, the CFO can help the organization to focus its ESG goals and strategy, choose relevant key performance indicators, and more. And, as a recent Financial Management article notes, CFOs have the expertise needed to “enhance the connectivity of sustainability information from different functions and external sources” to create a more integrated reporting process for ESG.

3. CFOs Can Ensure ESG Initiatives Receive Investment

ESG initiatives, executed well, can help businesses drive top-line growth and reduce costs over the long term — but they require investment before they can deliver those returns.

CFOs are in an ideal position to help the business prioritize its ESG investments, and make sure that they are worth the financial commitment and align with the organization’s overall ESG strategy. Additionally, they can work closely with other stakeholders in the business — from supply chain management to product development — to create sustainable strategies that can help drive revenue, decrease costs and importantly, meet stakeholders’ expectations.

While many CFOs would prefer not to have more added to their already overloaded plates, they will need to make ample room for ESG. More than that, they must recognize and embrace sustainability as a driver of returns, according to Gartner. The firm predicts that the next and imminent stage in the ESG evolution for many companies will be driving “sustainability transformation” by making ROI a core focus of their ESG strategies — and CFOs will be at the heart of supporting that shift.

 

This article was written by Paul McDonald from Forbes and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.

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