The CFO and Sustainable Finance Part III

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 third aspect to consider:

The CFO and sustainable finance: the regulations

The concepts of sustainability applied to their company’s financial strategy a challenge CFOs increasingly face in their role.

As noted earlier compliance with the different global and local regulations presents the CFO with a new set of challenges.

Sustainability concepts gained relevance in 2015 with the Paris Agreement to limit temperature rise to between 1.5 and 2 degrees by 2100, and with the approval of the 17 Sustainable Development Goals (SDGs) as a global agenda for the year 2030.

The trend has accelerated with the need for companies to lead and adapt to a carbon neutral economy by 2050, and with the increase in investment demand with environmental, social and governance (ESG) criteria. Sustainability management has generated in companies an increasing demand for non-financial information, which is as important as accounting information.

The Global Reporting Initiative (GRI), the main standard for preparing sustainability reports, emerged in 1997 in Boston (United States) in response to the Exxon Valdez oil tanker accident and to encourage companies to take responsibility for their economic, social, and environmental. In 2000, GRI published the first guide for the preparation of sustainability reports, after which three newer versions arrived until the G4 Guide (2013). In 2016, it launched 36 interrelated modules on economic, environmental, and social matters, which are utilized by most companies to report their actions and impacts on sustainability.

A decade ago, the International Integrated Reporting Council (IIRC) started promoting the integrated reporting with the intention of balancing financial and non-financial information with great acceptance in the United Kingdom, Europe, and South Africa.

The Value Reporting Foundation, born from the merger of the IIRC and the Sustainability Accounting Standards Board (SASB), aims to help companies manage their impacts on society and to investors to better understand how to manage their ESG risks, promoting the framework integrated reporting and SASB standards.

The World Economic Forum (WEF) also contributed to the integrated reporting of sustainability. In 2017, 140 CEOs of the world’s leading companies promoted the International Business Council (IBC). During the 2020 Davos Forum, the Stakeholder Capitalism Metrics guide was introduced with the intention of catalyzing the convergence, simplification and standardization of nonfinancial information linked to the SDGs.

Since 2018, information on sustainability has gained importance and companies are obliged to present their performance and commitments to sustainable development, especially to investors and stakeholders. In Europe, for instance, the European Parliament and the Commission have published regulations for sustainability related disclosures for banks and insurance companies.[1] This has led to sustainability departments continuing to grow, coordinating the business strategies of companies.

Coming soon, Part IV in this series from Gustavo.

[1] https://www.managementsolutions.com/en/publications-and-events/regulatory-notes/technical-notes-on-regulations/esg-reporting-disclosure


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