The CFO and Sustainable Finance Part IV
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 Parts I-III of this series I addressed these aspects. In the final part I address the challenges and opportunities for CFOs in these new business models.
The CFO and sustainable finance: challenges and opportunities
The implementation of sustainable business models presents several aspects to consider. Among them, the skills that the CFO must apply in management, reporting, the difficulties of non-financial indicators and compliance with the different global and local regulations, stand out.
Most of the topics included in the ESG criteria have been initiated by the environmental component as a response to the effects of climate change. Recently Social aspects have grown in relevance and are having a bigger impact on business decisions. Issues related to corporate governance continue to be inspired due to scandals reported by control bodies.
KPMG[1] has compiled a list of the key challenges that CFOs will face in the coming years of responding to the challenges and requirements markets and investors are demanding. These challenges offer opportunities for CFOs to lead certain actions related to ESG criteria, which will be value creating for their companies.
• Climate taxonomy: new implications and upcoming challenges
• Accounting and reporting implications of risks arising from climate change
• New ESG reporting requirements
• The vision of the financial auditor in face of these new demands
• Advantage of ESG funding and investment opportunities
• Inclusion of ESG criteria in the management control models
However, McKinsey[2] presents a more critical side to the application of ESG criteria in the companies. The report raises a series of obstacles, limitations and conflicts that help the CFO to properly assess the different actions that companies implement to comply with ESG criteria.
• ESG is not desirable, because it is a distraction
• ESG is not feasible because it is intrinsically too difficult
• ESG is not measurable, at least to any practicable degree
• Even when ESG can be measured, there is no meaningful relationship with financial performance
Despite a widespread idea that CFOs are executives with a strict financial focus within their companies, CFOs have moved beyond their traditional role, building bridges across the organization. It’s now common to see CFOs acting as co-pilots to the CEO and taking an executive leadership with the CEO in the board of director’s room. There is no disagreement that CFOs are still responsible for the finances of their companies. But CFOs can also tackle new issues facing businesses today, like steering the ESG reporting and compliance of the company and ensuring the sustainability of the organization. The need for learning and adapting to new rules and requirements is a top priority for CFOs.
To read Part I of Gustavo’s 4-part series go here: The CFO and Sustainable Finance Part I
[1] https://www.tendencias.kpmg.es/2022/06/seis-desafios-se-enfrenta-cfo-reto-esg/
[2] https://www.mckinsey.com/business-functions/sustainability/our-insights/does-esg-really-matter-and-why?
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