Why CFOs should be the movers and shakers of ESG

The role of the chief financial officer (CFO) has evolved considerably in the past two years, with many finance leaders seeing their responsibilities expanded and transformed. Throughout the challenges of lockdowns, supply chain disruptions and global uncertainty, the CFO has consistently been called to the helm as an adaptable, resilient leader and provider of stability in ever-changing circumstances.

However, the best finance leaders have long possessed a broad skillset that extends far beyond balance sheet management. CFOs are regularly required to provide strategic recommendations to the CEO and work closely with executive leaders across all departments, making influencing skills and the ability to collaborate cross-functionally essential to the role.

In today’s hybrid world, modern CFOs are also expected to be well versed in technical matters such as cybersecurity and the digitalisation and automation of finance processes. James Fowler, Business Director at Michael Page Finance, commented:

When organisations are looking for a new CFO, they seek finance professionals who are capable of dealing with a range of new strategic priorities, including new regulations, optimising large volumes of data, market volatility and technology adoption.

One growing trend that is particularly shaping the CFO role is the rise of environmental, social and corporate governance (ESG) as a key business priority. While in the past, efforts to support ESG have typically been perceived as having little bottom-line benefit, in recent years that notion has been discredited. Today, business leaders recognise that ESG impacts financial resilience and performance, placing it squarely in the domain of the CFO.

How has the CFO position evolved?

The CFO's role has developed significantly in the past two years, becoming even more closely knit with different functions such as IT and HR. This transversal nature, combined with the finance department’s expertise in measuring and reporting, places the CFO in prime position to drive ESG efforts across the business. Striving to reach ESG targets is key to building financial resilience through the creation of sustainable long-term value.

Many of the skills needed to drive ESG outcomes, such as risk management and cost optimisation, already exist in finance teams. In addition, committing to ESG goals has been shown to improve business performance, making this area a natural fit for the CFO.

With a variety of ESG frameworks to choose from, CFOs must decide which metrics to measure and how. Establishing a dedicated task force can help financial leaders identify tailored actions for companies to make the biggest positive impact, whether by using energy and resources more efficiently, building social credibility, or ensuring transparency in governance.

With ESG a growing priority, the CFO will need to work closely with fellow leaders to foster cross-team collaboration. The best candidates should demonstrate an ability to translate data into effective action plans and persuade others to come on board.

Finance and ESG: The perfect partnership

A survey by Accenture indicates that 68% of CFOs globally take responsibility for their organisation’s ESG performance. There is good reason for this match. James commented:

Many of the skillsets that are and will be most important in driving ESG outcomes can already be found in finance teams, such as monitoring and reporting, risk management and cost optimisation.

In other words, when it comes to translating metrics and measurements into real change, no one is better equipped for the job than the CFO. But why should organisations focus on ESG at all?

Why is ESG so important?

First of all, implementing an ESG strategy is critical to building a strong, durable company. The numbers show that sustainability is good for business: the Business & Sustainable Development Commission reported that organisations committing to sustainability will have generated at least $12 trillion in savings and new revenues by 2030 in the areas of energy, cities, food and health. Companies that actively support ESG initiatives are also boosting their potential to attract investors. According to the International Institute for Sustainable Development, sustainable investing in developed countries rose 68% from 2014 to 2019.

Furthermore, the world has witnessed a global sea change in consumer values. Issues of corporate responsibility and sustainability have been put under the spotlight, with many customers pledging loyalty to companies with impressive ESG credentials. A strong ESG track record can also contribute to building an attractive employee value proposition, helping organisations to attract, engage and retain top talent.

Developing an ESG strategy to deliver long-term value

With the ability to steer resource allocation and accountability, finance leaders are well placed to spearhead the process of setting ESG goals and measuring progress.

Shaun Smith, Senior Independent Non-Executive Director of Epwin Group Plc, observes,

The CFO has long been responsible for understanding the regulatory environment, collating and reporting management and financial information, and allocating business resources. As a leader who grasps the full responsibility of capturing ESG information, working with internal and external stakeholders to set and monitor appropriate targets, the CFO is in a key position to help set and drive an organisation’s ESG strategy aimed at delivering sustainable long-term shareholder value.

Nonetheless, defining an ESG strategy is far from straightforward. A variety of different reporting frameworks exist, ranging from basic mandatory reporting imposed by certain countries or regions to wide-ranging frameworks such as the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB), which maps 77 industry-specific metrics. From greenhouse gas emissions to ethics and safety, the CFO must determine which measurements are the most useful for evaluating and reporting their company’s ESG performance.

Finance leaders should educate themselves on the ESG landscape while homing in on the specific areas in which their organisation can make the most impact. To better analyse the mechanics of the business, CFOs can establish task forces or working groups dedicated to tracking ESG repercussions and the effects of new initiatives.

Ultimately, ESG metrics are inextricably linked to financial metrics. A push towards more responsible practices also drives the business towards long-term stability, efficiency and profitability. By creating sustainable internal processes and promoting transparent reporting, the modern CFO paves the way for a resilient future for employees, stakeholders and shareholders alike.

Driving change across the board

When hiring a new CFO, a key consideration should be candidates’ ability to lead ESG efforts and drive success. Already in many cases the de facto head of ESG monitoring and reporting, the CFO undoubtedly relies on skills such as accounting, data analysis, and risk management. However, equally important is the ability to translate numbers into language. Finance leaders require emotional intelligence and excellent communication skills in order to conceptualise and defend their ESG strategy and gain cross-departmental support through data-based arguments.

The modern CFO can be expected to work closely with the CEO in the planning and execution of ESG initiatives. Recruiters should therefore prioritise candidates with a history of leadership and effective collaboration at the C-suite level. In an age of increased transparency, it is all the more critical to find candidates with a track record of integrity and trustworthiness backed up by previous references. The best candidates should also demonstrate knowledge of ESG trends and the initiative to transform such trends into action.

While not all CFOs currently have ESG within their scope, ESG credentials and experience could soon become an essential part of the necessary CFO skillset. A willingness to engage with this core business area is key. James confirms:

As the importance of ESG grows, finance professionals will play an ever-greater role in driving awareness of ESG data, measuring impacts and reporting to key stakeholders. CFOs with proven experience of integrating ESG into finance team priorities will be in huge demand in the near future.

What's next?

At Michael Page Finance, we are experts at sourcing finance leaders with the capacity to meet the business challenges of today, and of tomorrow. For an introductory conversation with one of our expert consultants, get in touch today.

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