CFOs Are Now Key Players in Sustainability Strategies

The Chief Sustainability Officer (CSO) role has become an accepted part of the C-suite in recent years as regular sustainability reporting is now a best practice for the largest U.S. publicly-traded companies. According to executive search firm Spencer Stuart, in 2023 more than half of the Fortune 500 had a CSO and/or chief inclusion and diversity officer (57% and 59%, respectively).

At the same time, the Chief Financial Officer (CFO) has taken on increased importance in sustainability reporting and disclosure, with more disclosure being mandated or soon to be mandated by the European Union, the U.S. Securities and Exchange Commission (SEC), the State of California, and other government organizations. Our Top Stories in this issue highlight the growing responsibilities that CFOs have for ensuring the accuracy of ESG data, aligning sustainability strategies with financial objectives, and navigating fast-changing reporting requirements.

Natalie Runyon of Thomson Reuters Institute writes that “it’s crucial for CFOs to navigate complex regulatory landscapes, integrate ESG factors into capital allocation, and embed sustainability into company DNA to drive long-term value creation and mitigate risk.” She quotes Brad Sparks, Executive Director of the UK-based foundation Accounting for Sustainability, who says CFOs today are particularly concerned with:

• Meeting regulatory requirements— guaranteeing that ESG data collected is complete and reliable enough to meet the stringent demands of regulatory bodies.
• Establishing internal controls— ensuring robust internal data control mechanisms for accurate external reporting and for making informed internal reports to aid in management decision-making.
• Harmonizing reporting standards— navigating the fragmented alphabet soup of current voluntary reporting standards across different jurisdictions and customer demands, particularly for multinational companies.

To assist CFOs in meeting these challenges, Thomson Reuters reports that over the last 24 months more companies have been creating the position of ESG or sustainability controller. This new role, usually staffed with individuals from finance and accounting teams, is responsible for establishing a robust ESG data management system, integrating sustainability into capital allocation, and expanding the lens through which capital decisions are made to include the sustainability perspective.

In our other Top Story, international accounting firm KPMG recently issued an Insight piece discussing the integral role that CFOs are playing in non-financial sustainability reporting and how it impacts the bottom line. In particular, CFOs are increasingly responsible for “the measurement, analysis, and communication of sustainability performance (both internally and externally) transparently against diverse reporting frameworks, requiring a cautious unbiased approach to prevent overstating and over-committing.”

KMPG states that the materiality of ESG risks is a major challenge, with CFOs facilitating assurance over external reporting by working with internal audit teams and external auditors and strengthening control environments. In addition, KPMG highlights the crucial role that CFOs play in “integrating sustainability goals with financial strategies, which would contribute to long-term profitability and shareholder value.” CFOs across various sectors are evaluating the financial impacts of sustainability investments, such as investing in renewable energy projects and implementing energy-efficient technologies, seeking to balance short-term costs with long-term benefits.

The G&A team works with many CFOs and other finance and accounting executives as part of our efforts to help companies enhance their sustainability reporting. We are available to provide guidance to the entire C-suite on navigating the continually evolving landscape of ESG disclosure requirements. Email us at info@ga-institute.com.

This is just the introduction of G&A's Sustainability Highlights newsletter this week. Click here to view the full issue.