How Can CFOs Drive Sustainability in Businesses?
In line with the evolution of the profession towards better inclusion of sustainability in accounting practices, a new role is appearing: the sustainability accountant reporting to the CFO.
Doreen Remmen November 6, 2020
Senior Vice President of Operations and Chief Financial Officer, IMA
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Risk is something that every business must deal with, and, as the past 12 months have proven, the risk is often due to circumstances beyond our control. December 2019 witnessed one of the biggest Australian bushfires, followed by Indonesian floods in January 2020, a volcanic eruption in the Philippines, locust swarms in East Africa, the Middle East and Asia, and epic wildfires in the western United States. And, of course, there is the novel coronavirus pandemic which still grips the world. The resilience of a company in the face of such events depends mainly on the sustainability that has been built into its business processes, community relationships, and tangible and intangible assets.
The value of an organization far exceeds what financial statements show. As much as eighty per cent of the valuation of a company depends on the worth of its intangible assets. A growing focus on integrated reporting (commonly understood as the merger of financial and nonfinancial reporting) is having a profound impact on the accountancy profession. Historically, accountants have struggled to account for and systematically integrate nonfinancial value into financial reports. That is now changing, as an increasing number of companies have begun to include the monitoring of environmental, social and corporate governance performance (the key sustainability metrics) in their strategic reviews.
Conservation efforts around the world are now increasingly supported by businesses big and small as they align their organizational goals with environmental goals. Companies are gradually shifting priorities to meet these demands in a way that drives value. Risk management and cost reduction are key drivers of a company’s sustainability agenda. According to an EY survey, “One key reason for growing CFO involvement is the growing scrutiny of company sustainability issues by equity analysts.”
One may think that nonfinancial reporting is primarily the objective of marketing teams and the CEO, and something removed from the domain of the finance team. However, members of the finance function, led by the CFO, have a critical role to play to make the task of sustainability business-relevant, aligning this mandate with the organization’s long-term goals. Sustainability reporting is a complex, multi-layered challenge that requires a tactical approach that finance professionals with analytical skills are best suited to lead. Other teams may lack formal processes and adequate infrastructure, including resources and standardized tools, policies, data collection and analysis software, that are readily available to the finance teams.
In line with the evolution of the profession towards better inclusion of sustainability in accounting practices, a new role is appearing: the sustainability accountant reporting to the CFO. The role encompasses reporting on a broad range of themes, such as managing carbon footprint and assessing social impact. The leaders in the field are participating in the creation of nonfinancial reporting and sustainability accounting standards.
Thanks to their accounting background, sustainability accountants are expected to bridge the rigour and language of accounting to the complexity of sustainability. The role supports better inclusion of social and environmental concerns in the day-to-day practices of the organization. To be successful, the sustainability accountant must also be able to communicate the added value of their position to the organization, both internally and externally.
The creation of this new position is of significant benefit to the profession. The immensity of the task makes it unlikely that traditional CFOs will directly manage the social and environmental performance of their organizations. Sustainability accountants are a necessary intermediary for addressing such an extensive and evolving landscape. This is an essential evolution as CFOs expand their responsibilities to encompass sustainability and become chief value officers. More than ever, companies need the finance team to provide intelligent, timely, and authoritative insights that better inform their decisions. The CFO sets the tone within the department and can drive the culture in a way that permits finance function professionals to serve as change agents within the organization. The CFO can drive the right culture by articulating and embodying the organization’s purpose and values.