ESG eshuffles CFOs’ Priorities: Deal Makers or Deal Breakers?

The role of CFOs is expanding, and sustainability matters are playing an increasingly important part in their decisions. Being responsible for trillions of dollars of business investments worldwide, today’s CFOs should use their power wisely and see the integration of climate and other ESG aspects in their tasks and responsibilities as an opportunity to generate competitive advantages, anticipate the financial impacts of ESG and hence ensure long-term business success. This article showcases the benefits of incorporating ESG in CFOs’ responsibilities and provides a 5-step roadmap of how to do that successfully.

How sustainability is re-shaping the role of CFOs

In recent years, it has become evident that sustainability should be rooted at the core of an organisation’s strategy to ensure long-term success and is therefore strongly intertwined with a variety of departments and roles, including the Board and Senior Management.

Organisations face increasingly stricter regulatory requirements and expectations from a variety of stake- and shareholders: investors express concerns how climate change might impact the value of the company’s assets, value chain partners want to get more insights into ESG data and potential future employees decide whether the organisation’s sustainability-related activities and ethical behaviour are aligned with their values. The growing pressure was reflected in Edelman’s 2023 Trust Barometer where more than 80% of respondents stated that they expect top leadership to take a stance on issues such as climate change, treatment of employees or discrimination.

By the nature of their role, Chief Financial Officers (CFOs) already bring many capabilities, skills and knowledge in form of financial expertise, budget allocation, strategic planning, risk assessment, communication and leadership to the table, which – once paired with ESG knowledge – make them the perfect advocates to further accelerate ESG performance within their organisation. In fact, without their buy-in, no real change will take place, making them the new deal breakers or makers of the sustainable transition.

The importance of CFO involvement in ESG and especially climate issues
Climate is becoming one of the top priorities of each CFO. In line with the European Union’s Green Deal’s climate change objectives and target to make the EU climate neutral by 2050, a variety of frameworks and standards have entered the scene:

• Corporate Sustainability Reporting Directive (CSRD): The CSRD’s overall goal is to increase transparency on ESG matters and harmonise reporting to facilitate strategic decision-making. Climate change plays a central role in this framework with a whole section dedicated to it (ESRS E1). A fundamental part of the CSRD/ESRS requirements is a double materiality assessment which assesses an organisation’s impact on society and the environment as well as outlines how a company’s material topics affect its finances and business performance, i.e., through impacts on revenues, reputation, or access to capital. The financial impact assessment can hence be used as a tool for the CFO to monetise ESG impacts.
• Task Force on Climate-related Financial Disclosures (TCFD): The recommendations of the TCFD are an internationally recognised framework providing guidance on climate risk and opportunity disclosure, requiring companies to assess potential climate risks, both of physical (i.e., storms or floods) as well as transitional (i.e., increased CO2 prices) nature and to conduct scenario analysis to ensure future business survival. Especially CFOs can benefit from the TCFD analysis by gaining a better understanding of future climate-related costs, for instance through stranded assets or supply chain disruptions.
• EU Taxonomy: The EU Taxonomy plays an integral part in the EU’s sustainable finance framework aimed at directing investments to the economic activities most needed for the green transition. It defines criteria for sustainable economic activities, i.e., to be aligned with a net zero trajectory by 2050. Although challenging, overseeing the data collection processes required for Taxonomy reporting enables CFOs to create transparency, demonstrate how they create value for all stakeholders and attract investment.

Although the aforementioned legislative requirements, recommendations and frameworks are different from each other, they have several aspects in common:

1. They require steering, overview and control from someone who possesses the needed management skills and an extensive cross-divisional and cross-business unit network to activate the right internal and external stakeholders. Especially someone who bridges the gap to the Board is needed for impactful implementation.
2. They need a manager who is experienced in assuring the accuracy of key data points as well as someone with expertise in risk management and scenario planning to derive a strategy based on the findings, allocate budgets, steer decision-making and underpin investments by business cases. Accurate and transparent reporting needs to be a familiar concept.
3. They need someone who can monetise non-financial data while at the same time possessing the right communication skills to translate numbers into convincing arguments to ensure stakeholder buy-in and successful implementation of sustainability strategies and initiatives.

All those are skills that CFOs already possess, placing them at the forefront of successfully driving ESG projects. While some CFOs may see this as an additional burden, it is an opportunity to not only improve their organisation’s long-term performance, but also to strengthen their position within the company as an indispensable factor that can lead the organisation through its ESG journey.

But what is even more important: CFOs will no longer be able to avoid ESG matters, and especially the topic of climate change. In fact, they are at the heart of the sustainable transition - now it is up to them to take on this challenge and make their businesses future-fit.

Wondering how CFOs can successfully steer sustainability performance in practise?

Find a 5-step guidance at the top of this article to better understand how CFOs can successfully manage the sustainable transition. Get in touch with Nicolas dae Toledo, at nicolas@finchandbeak.com or call +31 6 28 02 18 80 to discuss how Finch & Beak could support you to strengthen leadership in ESG at executive and Board level.