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Men in Suits
  • Directors' Institute

The Critical Role of CFOs in ESG Reporting: Time to Act is Now

Updated: Jun 28, 2023

Introduction

The landscape of business and investment is undergoing a seismic shift. Bloomberg Intelligence predicts that worldwide Environmental, Social, and Governance (ESG) assets under management will surpass $53 trillion by 2025, underscoring the growing importance of corporate ESG reporting. According to a PwC study, 79% of investors factor ESG reporting into their decisions, and almost half are likely to divest from businesses lacking meaningful ESG action.


These trends are prompting organizations to intensify their ESG reporting efforts. However, a crucial question remains: Who among corporate leaders is most suited to oversee this vital task? Based on a recent Accenture survey, 68% of executives believe the CFO should bear the ultimate responsibility for ESG. Yet, an EY survey reveals that only 3% of firms assign major ESG reporting responsibility to their finance staff.


In this context, I'll elaborate on why CFOs are ideally positioned to steer ESG reporting and why this shift in ownership must begin immediately.

Esg Reporting

Why CFOs are Essential to ESG Reporting


The 360-Degree Organizational Perspective

CFOs hold a comprehensive, 360-degree perspective crucial for ESG reporting. Traditionally, they ensure the alignment of money, staffing, and resources with the company's strategic business and cultural initiatives through budgeting. This broad perspective is further deepened by the essential role they've played in navigating disruptions over the past few years, like the COVID-19 pandemic, inflation, supply chain issues, and geopolitical turmoil.


The Cross-Functional Collaboration

ESG reporting demands the same kind of cross-functional collaboration that CFOs use in quarterly and annual financial reporting. As a central figure, the CFO collaborates with various departments, businesses, regions, and teams to collect metrics and data that reflect the company's performance against key strategic priorities. Furthermore, partnering with the CIO's office allows for efficient data collection and analysis, a critical component of effective ESG reporting.


The Compliance Expertise

With regulatory bodies such as the U.S. SEC and EU mandating more stringent ESG reporting requirements, a new level of rigour must be applied. CFOs, with their experience in ensuring compliance with complex financial regulations, are well-placed to guide businesses in meeting these ESG disclosure standards. They can establish ESG indicators to validate financial projections provided by the CEO, while working with internal teams to ensure feasibility and alignment with stated objectives.


The Trust and Competitive Advantage

ESG reporting presents an opportunity to build investor, consumer, and employee trust and competitive advantage. CFOs are already tasked with ensuring that corporate budget processes align with a business's values and culture. Their in-depth understanding of the company's economics, sector-defining trends, and their role as a thought leadership partner to the CEO and board position them to guide a coherent ESG strategy aligned with the overall business strategy. They are in the best position to link financial and ESG reporting to enhance credibility, trust, and competitive advantage.


The Sustainability Advocacy

To move away from an ESG compliance-only mindset, companies need to demonstrate how ESG initiatives and financial performance intersect. CFOs are ideally positioned to use technology to integrate ESG data and KPIs into financial and operational planning, enabling better decision-making and risk mitigation while optimizing resources.


Conclusion

Today, enterprises failing to deliver ESG results are perceived as poor investments. Accurate ESG reporting is crucial for satisfying regulatory obligations, influencing ESG credit ratings, and enhancing a company's reputation among sustainability-minded investors.


The moment is now for CFOs to embrace their evolving role and reestablish themselves as strategic business partners and digital enablers by leading not only the financial but also the ESG reporting process. With their comprehensive perspective, cross-functional collaboration skills, compliance expertise, and ability to inspire trust, CFOs are uniquely positioned to usher in a new era of sustainable business practices. As the urgency for meaningful ESG action continues to mount, the time for CFOs to lead the charge is now.

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