Across the c-suite traditional roles are being impacted by the call for sustainability. No longer is our environmental welfare only a consideration for CSOs, but it is now adapting the CFO role in businesses globally too. Change is all around us; but it’s how we learn to thrive amongst this change that sets us apart. And there is perhaps no opportunity as important, and as lucrative, as embracing environmental sustainability. So why should CFO’s welcome this change? And how will adapting set them apart? Here’s our take.
1. ESG Risk Management: A Core Element of Sustainable Practices in Finance
As we enter into 2024, ESG risk is increasingly being linked to financial risk; backed by a correlation becoming clear between financial growth and strong ESG performance. This means that companies with robust ESG linked practices are more resilient and well positioned for long term success. By integrating sustainable practices into daily operations, CFOs are able to better identify and mitigate these risks; and as global ESG legislation gains momentum and strength, the CFO is perfectly positioned to ensure compliance.
Companies that pay attention to environmental, social, and governance concerns do not experience a drag on value creation—in fact, quite the opposite. A strong ESG proposition correlates with higher equity returns, from both a tilt and momentum perspective. McKinsey, 2019
By going one step further in utilising ESG data, businesses can transform operations, identifying areas that are well suited to sustainable change and even opening doors to new product offerings. With these opportunities taken into consideration, there really is no reason for ESG factors to be left as a ‘stand-alone’ initiative.
2. Cost Savings through Sustainable Practices in Finance
At the end of the day, the bottom line is what matters – and rightly so for the CFO. But once the cost savings that can be achieved via sustainable practices are realised, the distinction between ‘the right thing to do for the planet’ and ‘the right thing to do for the company’, becomes blurred.
Unfortunately, the areas we most need sustainable initiatives implemented in are often the ones that are highly ingrained in our operational set ups, CFOs may need to challenge long-held views and outdated systems to highlight the cost savings that can be achieved through sustainable practices.
3. Enhancing Capital Acquisition through Sustainability
CFOs are finding themselves at the forefront of a revolution, one where sustainability is the key driver of capital acquisition. This shift presents CFOs with a unique opportunity to redefine their role, turning environmental consciousness into a strategic advantage.
When CFOs integrate sustainability into their strategic planning, they tap into new pools of capital. Investors and financiers are increasingly drawn to companies that demonstrate a commitment to sustainable practices. By aligning investment and customer retention strategies with specific ESG metrics, CFOs can create a compelling narrative for potential investors.
89 percent of investors consider ESG issues in some form as part of their investment approach. Capital Group, 2022
Additionally, in re-assessing supply chains for their environmental impact, CFOs who prioritise sustainability are achieving greater operational efficiencies. This approach not only aligns with environmental goals but also streamlines processes, leading to cost savings and enhanced overall performance.
4. Building Brand Reputation: CFOs as Sustainability champions
Employees, customers, and financial stakeholders are demanding more accountability in ESG matters. Employees prefer to work for companies with strong social and environmental consciences. Customers favour businesses that proactively shape ESG best practices and avoid those treating employees, communities, or the environment poorly.
These statements are facts; globally, across industries, and are a huge part of the reason environmental concern is spreading across c-suites. CFOs should recognise these statements for what they are – opportunities.
84% of customers say that poor environmental practices will alienate them from a brand or company. TheRoundUp, 2023
As we know, strong brand reputation is increasingly tied to a company’s commitment to environmentally sustainable practices. The CFOs involvement in ESG initiatives not only meets the growing demands of stakeholders for ethical and environmental responsibility but also drives financial performance and health.
By leading with ESG data analysis, CFOs are identifying sustainable growth opportunities and risk mitigation strategies and are now at the heart of building a brand that resonates with value-driven consumers, investors, and employees.
5. The Long-Term Impact of Sustainable Practices in Finance
By adopting a long-term strategy with an emphasis on 3-5 year forecasts, CFOs create a nuanced and comprehensive vision of their companies’ futures. This approach not only acknowledges the immediate impacts and benefits of sustainability initiatives but also integrates them into the strategic roadmap for long-term value creation.
Simultaneously, taking a long-term approach redefines risk management to include both tangible and intangible factors, ensuring a balanced approach that evaluates challenges and opportunities inherent in sustainable practices. This view reinforces the CFO’s role as an architect of sustainable, resilient growth, ensuring decisions made today align with the company’s broader ESG goals and long-term success.
A CFO for The Future…
This transformation is about more than just adapting to environmental concerns; it’s about redefining the essence of value creation in the business world. CFOs who embrace this change are positioning their organisations not only for financial success but also as leaders in a sustainable future.
As we move forward, the role of the CFO as a champion of sustainability will continue to grow in importance. Their ability to balance immediate financial objectives with long-term sustainable goals will set apart companies that thrive from those that merely survive. The journey towards sustainability is a journey towards innovation, resilience, and long-term value creation, with CFOs leading the way.
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About Connect Earth:
Founded in 2021, Connect Earth is a London-based environmental data company that democratises easy access to sustainability data. With its carbon tracking API technology, Connect Earth is on a mission to empower consumers and SMEs to make sustainable choices and bridge the gap between intent, knowledge and action. Connect Earth supports financial institutions in offering their customers transparent insight into the climate impact of their spending.