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Why CFOs are key to a sustainable future

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8 minute read 07 Jan 2022
Related topics
CFO agenda
Consulting
Future of corporate reporting
Financial accounting advisory services
Climate change and sustainability services
Sustainability

The finance function has a critical role in helping the business it serves play a part in building a more sustainable future.

In brief
  • Companies must act to meet stakeholder expectations and remain competitive in the more sustainable, low-carbon economy of the future.
  • We explore the benefits of successfully transitioning to a more sustainable business model.
  • Learn how the finance function can play a critical role in successfully enabling sustainability transformation.

How EY can help

Organisations can no longer ignore the physical, market and regulatory impacts of climate change. Increasing stakeholder pressure means that organisations need to play a more significant role in building a sustainable future.

 

In this article, we explore why Chief Financial Officers (CFOs) must play a leading role in tackling the sustainability challenge, the benefits of transitioning to a sustainable business model and how the finance function can enable this vital change.

 

Sustainability is the new market disruptor

Climate change and sustainability are forcing people to think differently and as a result, stakeholder priorities are changing. Increasingly, stakeholders are demanding more from organisations than a commitment to short-term profitability and are questioning how much of a company’s value is reflected in its financial reports. To address this, the so-called triple bottom line (an accounting concept which recognises value generation in terms of people, planet and profit) has led to a definition of ‘value’ which, as outlined in our article detailing why ESG is important for investors, includes both financial and nonfinancial value drivers.

 

‘Long-term value’ is created by focussing on a broader set of stakeholders, with a distinct purpose in mind, to sustain a business for the long term. It represents a more comprehensive reflection of value, recognising the impacts (both positive and negative) of an organisation’s activity.

 

Every organisation is going to need to adapt, to understand what this change in value perception means to them, and to pivot what they do today to support wider environmental, social and governance (ESG) outcomes in the future. This where the CFO comes in.

Once it is recognized that ‘business as usual’ is unsustainable it follows naturally that those organizations which start to develop resilient business models will be the ones that succeed.

HRH The Prince of Wales (1)

Download the full report: Why CFOs are key to a sustainable future (PDF)

Register to download
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Chapter

The role of CFOs in enabling sustainability transformation

The scope of finance function support will undoubtedly change, but its core role will not.

CFOs have traditionally been responsible for managing financial value and reporting to key stakeholders. Therefore, CFOs will have a vital role in supporting organisations in navigating expanding views and expectations around value creation, and responding to stakeholder demands for more insight on ESG. Doing this successfully requires embedding ESG principles into organisation-wide strategy, to deliver enhanced resiliency and relevancy as an organisation. Therefore, the CFO will have two leading roles:

  • As a C-suite member, to support senior management to build sustainability into organisational strategy and drive integration across all business functions, so that sustainability is truly embedded throughout the organisation.
  • As a function leader, to embed sustainability across all areas of the finance domain, as highlighted in ‘The CFO Universe’ below.

Sustainability and ‘The CFO Universe’

Our work with CFOs has identified sustainability as critical to ‘The CFO Universe’. How is sustainability disrupting the CFO agenda?

sustainble-fincance-diagram

The shift to a business model that embeds sustainability does not fundamentally change the role of the finance function, but it does extend the scope of focus and support that finance provides, for example, sourcing funding options for green initiatives, evaluating business cases that include nonfinancial value, and reporting on ESG-performance metrics. Achieving this will mean reconsidering all finance activity through the lens of sustainability, including updating policies, processes and data, and upskilling teams to build a sustainability-aligned finance function fit for the future.

However, this also comes at a time when finance functions are under ever-increasing pressure to cut costs. So why change now?

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Chapter

The advantages of transitioning to a sustainable business model

Six ways in which businesses can benefit from successfully transitioning to a sustainable business model.

The transition to Net Zero is creating the greatest commercial opportunity of our age.

Mark Carney

UN Special Envoy on Climate Action and Finance (2)

Finance function leaders can deliver a number of benefits for the businesses they serve by supporting the transition to a business model more aligned with sustainability and a low-carbon future. Whilst we explore the benefits in detail in the full report, these include:

  1. Increased investor confidence
    a. Increased share price
    b. Access to a lower cost of capital
  2.  Financial savings through greater efficiency
  3. Enhanced brand reputation
  4. Increased operational resilience
  5. Competitive advantage over those who do not act quickly enough
  6. Attraction and retention of talent
The vital role that finance must play in supporting a successful transition to a more sustainable business model presents an exciting opportunity to attract new talent to the finance profession.

Clive Webb

Senior Insights — Association of Chartered Certified Accountants (ACCA)

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Chapter

How the finance function can enable this vital change

There are a number of ways in which the finance function can enable successful sustainability transformation.

I’m now convinced. Finance teams will play a pivotal role in driving the transition to a low-carbon world, by applying our discipline, rigour and mindset to the challenge.

Graeme Gibson

CFO Edinburgh Airport — Accounting For Sustainability (A4S) Academy Alumus

The finance function is ideally placed to enable this vital transformation given its scope of influence over key decisions and processes. According to the CFO universe, these are:

  • Fund the business and manage the investor community
  • Allocate resources, plan the business and drive performance
  • Control the business and operate processes
  • Comply with fiscal and regulatory requirements, and manage regulators

To successfully deliver sustainability transformation, the finance function’s operating model will need to pivot to adopt new processes, build the right capability and leverage technology, to act as a true business partner and support their organisation to navigate towards a triple bottom line.

For more detail about how the finance function can enable successful sustainability transformation please register to download our report.

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Chapter

Next steps to building a sustainability-aligned finance function

Determine your readiness for these changes with a rapid maturity assessment.

Ultimately, at the heart of every sustainability transformation is a finance challenge — how do you turn your organisation green, without going into the red?

The greater the sustainability appetite and ambition of the finance function, the better positioned it will be to support its organisation in solving this critical question.

CFOs will need to support the translation of their organisation’s sustainability strategy into tangible actions, from implementing changes in reporting requirements through to driving cultural change in value-based decision-making.

Ultimately, the CFO has a crucial role to play in developing many of the practical steps required across the organisation to deliver the vital changes needed.

In doing so, this can support the wider aims of CFOs by modernising the finance function.

Organisations that act proactively and rapidly on climate change and decarbonisation will be best placed to capture the value-creation opportunities from sustainability.

Steve Varley

EY Global Senior Advisor

The EY DNA of the CFO found that 73% of CFOs cited ‘changing the culture of [their] team is a major priority’ and 71% of CFOs agreed that ‘traditional back-office behaviours and mindsets in finance are slowing the modernisation of the function.’ Therefore, the changes required by sustainability present a real opportunity for the finance function to lean into this change, redefine itself as the custodians of value for the organisation and become a true business partner, supporting their organisation to navigate the crucial changes ahead.

By running a rapid maturity assessment of your finance function to compare it against EY’s sustainability-aligned future finance operating model, we can help you to determine your readiness for these changes.

We believe that the finance function has a rightful place at the heart of sustainability transformation. Are you ready for the challenge? To get our recommended seven priority actions for CFOs to prepare for this transformation please register to download our report.

Special thanks to Dom Hollis, Carolyn Cole, Matt Bell, Rebecca Farmer, Ben Castell and Brian Hatton for their contributions to this report.


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    Summary

    Businesses are under pressure from a wide variety of stakeholders to play a greater role in driving sustainability. Part of this involves introspection — to look at how businesses themselves can become more sustainable. To do this, businesses need to transform aspects of their operations. As with most business transformation initiatives, the finance function should be front and centre to help the business it serves play a greater role in building a sustainable future.

    About this article

    Authors

    Related topics
    CFO agenda
    Consulting
    Future of corporate reporting
    Financial accounting advisory services
    Climate change and sustainability services
    Sustainability

    Related content

    How internal controls could drive finance function transformation

    Find out how to use internal controls as a driver for wider finance function transformation. Read more.

    Ben Castell

      EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.