The CFO and Sustainable Finance Part II

Including effective sustainability concepts into the financial strategy of companies is a major challenge CFOs face today.

The implementation of sustainable business models presents several aspects to consider. Among them, new skills that must be acquired to meet the requirements, complying with reporting obligations, complications arising from using non-financial indicators and compliance with the different global and local regulations stand out. In this article we will address the skills that CFOs must develop to get the most out of these initiatives. Here is more on the second aspect to consider:

The CFO and sustainable finance: reporting

Managing the concepts of sustainability within the financial strategy of companies, is the challenge that CFOs increasingly face in companies.

Among those challenges is reporting. Using non-financial indicators to measure progress and to comply with different global and local regulations makes sustainable finance reporting more cumbersome than straightforward financial reporting. The following addresses the reporting needs that sustainability demands and that CFOs should master to meet the expectations of stakeholders.

Proactive and effective communication of a company’s impact strategies, sustainability commitments and investments, are the main aspects of integrating the Sustainable Development Goals (SDGs) into corporate finance. Financial markets take them into account when allocating capital to the most effective sustainability solutions. Sustainability reporting, especially for investors, focuses on environmental, social and governance (ESG) risks that can affect a company’s risk-adjusted returns. Its mere enumeration is not enough. It must also be supported by proactive and systematic investments in sustainability solutions.

To ensure the proper functioning of capital markets and a more sustainable allocation of resources, companies compete for capital through proactive communication of relevant actions, including goals, detailed plans, and investments to achieve sustainable goals. The CFOs should explain how these initiatives will help create long-term value for the company and its investors.

The disclosure of periodic reporting should include financial Key Performance Indicators (KPIs) complemented with information and data of a non-financial nature.

Examples of non-financial KPIs

Equality of salaries paid, board of directors composition, reduction and elimination of accidents at work, staff training on sensitive issues, improvement of the health and well-being of employees, contracting suppliers that offer decent conditions to their employees, elimination of single-use plastics, incorporation of biodegradable materials, reductions in CO2 emissions from own activities and from suppliers, increase of the green income, reduction of the impact of operations on biodiversity, reduction in waste generation, green certification of buildings and facilities.

Examples of financial KPIs

Maintain a healthy stability of the balance sheet, discipline when investing capital aimed at achieving the SDG, focus on value creation, strengthen the relationship with the market based on ESG criteria, investment in innovation and digitalization projects, issuance of corporate debt bonds and equity aligned with the SDG.

For help preparing KPIs visit Bernie Smith’s library at CFO.University, Bernie Smith’s Library

Coming soon, Part III in this series from Gustavo.

Here is Part I of Gustavo’s four part series, The CFO and Sustainable Finance Part I


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