The shifting focus of Modern CFO's: Sustainability
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Over the last few decades, the role of the CFO has undergone a profound shift. The CFO of today and tomorrow must be able to recognize the importance and the impact of becoming more sustainable. But how?
In this newsletter, we shed light on the following:
Different stakeholders to satisfy in terms of sustainability
Measures needed to be taken to be more sustainable as the CFO
How can CFOs be more sustainable?
CFOs are not only key stakeholders in a company's successful transition to a sustainable enterprise, they are predestined to take the lead.
-”The CFO as the Driver of Sustainability” from Delloite
Different stakeholders to satisfy in terms of sustainability
The role of the CFO is critical. Yet, on top of an already demanding and fast-evolving role, many CFOs have also taken on the responsibility of delivering complex business-wide transformation. And while most finance leaders are used to managing change, the sustainability revolution is creating new challenges they have not seen before.
It is becoming increasingly difficult to deny that the traditional role of finance, particularly the CFO, needs a refresh to keep up with the changing business climate, evolving customer requirements, and moving expectations from society.
Pardon the inconvenient truth, but up until recently, sustainability, much like Corporate Social Responsibility, was more often talked about than acted upon. In 2017 however, being sustainable is no longer a matter of lip service
-Dr Jens Madrian (CFO & CCO at Reactive Technologie)
There is increasing pressure to satisfy various stakeholders, such as
Compliance with Government’s non-financial (ESG) requirements
Customers prefer buying sustainable products
According to a recent study, 70% of people would cancel their relationship with a brand that does not take sustainability and social initiatives seriously.
Investors prefer to monetize sustainable issues and solve them as a part of the organization’s strategy.
Financial institutions, from asset management firms to retail banks, are funneling capital away from the mining and fossil fuel industries, for example, and are putting it towards companies with eco-friendly products and sustainable business practices.
Measures needed to be taken to be more sustainable as the CFO
According to this report by Delloite on the role of CFOs as drivers of sustainability in the organization, even though organizations are becoming more sustainable, CFOs are still behind on incorporating sustainable issues to satisfy demand and ensure long-term success.
Here is what they are lacking:
Regulatory know-how about sustainability
E.g., how ESG criteria are defined. This undermines the credibility of companies’ well-intentioned sustainability efforts internally as well as externally.
Analytics to source, aggregate and interpret sustainability-related data
This would enable companies to give investors and manage the information they need to make decisions.
The ability to monetize non-financial sustainability data
This would allow companies to incorporate sustainability issues into their strategy and monitor whether that strategy has been executed.
Sustainability criteria as part of performance management
This would provide more incentive to affect change – after all, ‘only what gets measured gets managed.’
Tools to incorporate sustainability data into standardized ERP structures to make it easier for auditors to verify.
Scenario-based, cross-divisional planning of sustainability-related factors, e.g., CO2 penalties or climate risks to operations.
Internal controls regarding ESG and a recognition among risk managers that sustainability risks are, in fact, material.
Meeting the expectations of the governments and other stakeholders will be impossible without the tools to track and analyze sustainability metrics.
How can CFOs do this?
Identify the most relevant ESG issues and metrics.
Translates sustainability into monetary terms to incorporate in organizational strategy
Over time evaluate efforts and outcomes to ensure that the company stays on track.
Make sure the company can issue compelling, high-quality reports on sustainability by gaining broad expertise.
Are you ready to be a CFO?
The CFO is one of the most critical actors in running a business.
They must be able to manage business finances, identify and implement cost-effective solutions, and develop a strategy to maximize profits.
CFOs must also be strong managers with the ability to motivate employees.
Create and implement effective strategies
Communicate effectively with all levels of management within an organization
Make decisions based on evidence and data.
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