Companies, institutional investors and asset managers are embracing sustainability in their daily practice. New sustainability regulations and frameworks will change the information flows within the organisation. Sustainability reporting should not be a simple box-checking exercise.
Sustainability data will move closer to the CFO’s team and not only be integrated in disclosures and reportings but also be considered in the strategic decision-making process. In the best case scenario the CSO and CFO will work together to tackle sustainability challenges together.
CFO involvement is asked for by regulators, standard setters and authors of sustainability frameworks. Some CFOs might still believe ESG and sustainability are outside their mandate of managing financial data the market might see this differently and it might impact the overall value of the business.
The cooperation of the CFO in the context of sustainability is not limited to working with the CSO but also with human resources, sales management and operations.
Sustainability is not “box-checking”
David Blood, Senior Partner, Generation Investment Management: “We must do a better job defining sustainability and ESG. We must drive towards a greater understanding of how to report around sustainability, both understanding companies as well as the impact of the portfolio.”
“There is a sense that sustainable investing is always a win-win. It’s not. There are trade-offs often. The challenge is that it doesn’t lend itself to simply a box-checking exercise. It’s more complicated than that. We’re going to have to drive to greater understanding, greater standards, and greater rigor in terms of how we think about sustainbility and ESG”, as explained by David Blood who was interviewed by David M. Rubenstein in his new book “How To Invest – Masters on the Craft”, published 2022 (David M. Rubenstein, Co-founder of The Carlyle Group and New York Times Bestselling Author).
Another challenge: time frame
CFOs face the challenge to link global ESG impacts like climate change and loss of biodiversity to tangible business risks of the company. Sustainability risks might be longer-term in nature and therefore not match financial reporting intervals. Advanced sustainability accounting methods need to be developed to not only handle a range of metrics but also the critical time component.
It will be up to the CFO to organize and manage the data flow within the company to create a transparent set of disclosures and reports that will allow analysts, asset owners and asset managers to value the business.
| All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.