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SATURDAY, November 26, 2022
The CFO as the driver of Sustainability

The CFO as the driver of Sustainability

TUESDAY, July 20, 2021

Sustainability has a variety of impacts – and now that competitive advantage is at risk, companies can no longer afford to ignore it. The ESG (Environmental, Social, and Governance) issues are not only important to company’s profitability goals, but also regulatory requirements for compliance with non-financial (ESG) requirements.

As ESG issues are all interconnected and are relevant for several departments, companies need to designate one overarching position to steer sustainability prerequisites, identify opportunities, connect the dots and communicate the derived insights across the entire organisation.

Companies need to expand the role of chief finance officer (CFO) to include sustainability issues, if they want to satisfy all internal and external demands as well as ensure long-term success. CFO are not only key stakeholders in a company's successful transition to a sustainable enterprise, they are predestined to take the lead thanks to their organisational network and in-depth overview of data, processes and reports. In order to make it more clear in CFO expanding role, we can see the Characterisation of the CFO based on the model “Four Faces of the CFO”.

1. Catalyst : Implementing strategy and steering operations

CFOs can stimulate and drive timely transition, not only within the Flfinance department, but also across the entire organisation. Using the power of the purse strings, they can prioritise initiatives that add value to the company. CFOs can also promote the transition to sustainability by rethinking their company’s underlying performance model to be aligned with the organisation sustainability strategies. Ensuring that the non-financial KPIs become a central pillar of the incentive system, CFO can create more drive towards sustainability within the organisation.

2. Strategist : Setting strategic goals, making decisions and deriving finance strategy

CFOs have a key role in the strategy development and help steer the future direction of the company. They are vital in providing financial leadership and aligning business and financial strategies. We are seeing the shift in the CFO role around the world as a result, encompassing a broader mandate through increased involvement in sustainability strategies and investments. CFOs must use their core finance skills from financial analysis and resource allocation to reporting systems as part of the transition to a sustainable enterprise. As key executives, CFOs can help quantify the financial value that is created with investments in sustainability and resolve potential conflicts that come from embedding sustainability into the corporate strategy.

3. Steward : Managing compliance and control systems

It is the CFO’s job to protect the vital assets of a company, to ensure compliance with various financial regulations, to close the books and to communicate value and risk issues to investors, boards, and other stakeholders. CFOs also have a key role to play in making sure that the sustainability information is relevant, compliant, and accurate. In addition, CFOs must ensure that the company has understood and complied with the increasingly complex sustainability legislation in order to avoid penalties. It is also essential to develop a good understanding of the most pressing ESG issues and quantify their impact on long-term performance. By expanding the process of risk identification, CFO can make sure they address and measure sustainability related risks. The entire C-suite needs to be involved in this process, because sustainability risks can arise in all areas of the company. Once quantified, it is important to separate the material issues to manage sustainability in the most effective way.

4. Operator: the skills, quality and efficiency of the finance function

Demands for more reliable sustainability information are increasing. Finance departments have a key role to play in ensuring companies can report non-financial information. In this sense, the CFO’s overview of both financial and non-financial performance is unique. Moreover, finance departments need to integrate new systems, new flows of data and new data sources. Finance professionals need to be equipped with sufficient knowledge of ESG issues and the related legislation as well as data modelling capabilities – while still keeping their expenses at an acceptable level. And as ESG impacts factor into more C-suite decisions, the finance team must be able to quickly access, transform and interpret this vital data.

In summary, regardless of your industry or business model, sustainability has become one of the corporate success factors for the future. That said, finance departments are the essential departments to transform and pave the way for a sustainable enterprise. CFO who are head of finance departments will have to change their role. Using the "Four Faces of the CFO" as describe above, which is assist CFO to define strategy and evaluate the financial impacts of sustainability initiatives to ensure that the company stays on track.

(Kasiti Ketsuriyonk is partner, Audit and Assurance, Deloitte Thailand)