As standard-setters, such as the SASB, GRI, TCFD which are international institutions, like the World Economic Forum, they have been working together to achieve convergence and harmonization of ESG disclosure requirements across sectors. It is noticed that pressure grows on CFOs to get involved in the ESG conversation, in order to improve corporate strategy and operations, address short-term risks and long-term opportunities.
A growing number of recent studies suggest that there is a strong correlation between sustainability and financial performance. Research evidence outlines that strong corporate performance on ESG factors correlates positively with improved cost of capital and financial performance. While investors are eager to find hidden value in new market opportunities with companies that report forward-looking performance and put the management of ESG factors at the core of their business strategy and operations, the role of the CFO in navigating ESG issues is clearly coming into focus. Although corporate sustainability strategies are elevating, CFOs’ contribution remains questionable.
As the economic consequences of the pandemic are expected to be dire and adverse, global spillovers effects are likely to take place. CFOs have to take due account of ESG considerations when making investment decisions to help their company operate effectively over the long-term.
As institutional investors are regularly calling for more disclosure from companies on ESG matters, in 2021 the pressure for greater transparency is gradually intensifying. CFOs are aligned with strategic and operational goals across the business structure, including planning and resource allocation, product-development, production, sales, procurement and supply chain. Thus, they are well positioned to cross-check sustainability data and financial performance indicators of the company, defining the way in which the ESG factors could create value.
To build long-term profitability and increase transparency, it is important that CFOs get up to speed on monitoring the latest developments on ESG initiatives and learning how to reap clear benefits in the form of operational efficiencies and tangible financial results from ESG programs. Optimizing resources allocation for training, development and risk management of the supply chain could significantly contribute to that end.
CFOs and finance teams are increasingly expected to be effective and comfortable in navigating ESG factors and investor requirements. The more CFOs are beginning to understand the financial dimension of ESG risks, the better they engage in monitoring and proactively address these challenges. Thus, demonstration of the financial materiality of ESG factor gets crucial.
Successful address of these challenges promotes more prosperous economic systems that benefit all stakeholders and create more stable and resilient markets within which, companies operate. ESG indicators can be the basis of sustainability disclosure that tracks and allows improvement on the issues that are most tied to the company’s environmental and social impact and most material to its financial performance.
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