- January 19, 2023
How CFOs can play a prime role in steering a sustainable way of doing business
Mr. Kaushik Mitra writes on how business leaders, especially CFOs, can embed sustainability agenda into their business strategy.
Gone are the days when people used to say that it’s an exciting time to be in the world of finance. Understanding the background of all the colossal challenges businesses are facing today, that statement might appear a little counterintuitive. Considering the inflation which is at a 40-year high, putting a curb on gross margins, and rising interest rates, everything together makes it super expensive for consumers and businesses to manage their debt. On the other side, there is a constant fall in stock valuations which is blocking off access to equity financing. All these factors are making finance professionals go through challenging times.
For a long time, finance business leaders were only focused on three areas which were to minimize costs, maximize profits, and multiply shareholder wealth. These three ends were often achieved at the expense of environmental health and employee well-being whereas sustainability was pushed to take a back seat. Business leaders were just simply satisfied by achieving targets and profits.
With a goal to create a more sustainable way of doing business, today, enterprises around the globe, both in the public and private sectors, are working together to implement new environmental, social, and governance (ESG) frameworks. Companies can help contribute to solving sustainability-related challenges that transcend the world of business, such as climate change and human rights issues, by simply adopting ESG standards.
Consumers are actually seeing supporting companies that care about sustainability and spending where their values are. A recent No Planet B Survey indicates that 96% of people believe sustainability and social factors are more important than ever, whereas 85% of people would withdraw their relationship with a brand that does not take social initiatives and sustainability seriously. Consumers’ brand loyalty generally disintegrates when they sense their values don’t align with the organizations they support.
It’s not only the consumers who demand change but investors as well who care profoundly about ESG issues. Financial institutions, from retail banks to asset management firms, are disinvesting from the fossil fuel and mining industries, for example, and are investing in companies with sustainable business practices and environment-friendly products. Enterprises that struggle to pace up with this trend risk driving up their cost of capital drastically. With equity markets falling and interest rates rising, decreasing the cost of capital is vital to achieving a competitive advantage.
Companies must find an even way to standardize, collect, and aggregate data from across the company to report their ESG impact to internal and external stakeholders. But reporting is just a part of ESG—setting targets; developing a plan and ensuring that the organization achieves those targets that are critical to the success of ESG initiatives. This is where finance leaders come in to work directly with their counterparts in the supply chain, HR, and operations to link plans across the organization. Companies can use scenario planning to model various initiatives—along with built-in AI and machine learning—to track results and find new ways to improve with a single source of truth for ESG reporting. Business leaders can ensure all departments are aligned and work towards achieving their ESG goals by embedding ESG planning across all operational and financial plans. However, ESG reporting is bigger than just fulfilling new regulations. It’s an opportunity for organizations to build trust with their employees, customers, communities, and shareholders. ESG reports are a revelation of how dedicated any organization is to environmental stewardship, in the same way as annual or quarterly financial statements reveal a company’s financial health.
Undertaking sustainability challenges may appear overwhelming, but implementing an ESG reporting and planning framework allows CFOs to get the most out of a skill set they already possess. As finance leaders already have expertise in complying with regulations, reporting to stakeholders, aggregating data, establishing internal controls, and running scenarios, in several ways, ESG framework and its establishment is also a natural fit.
All this can only come to action when leaders educate themselves on the basics of ESG. They can also collaborate with peers across departments (marketing, operations, human resources, IT) to construct a coherent strategy and explore ways in which technology can be leveraged for planning, compliance and reporting.
Meet the author:
Kaushik Mitra is a Senior Director – Cloud ERP at Oracle India. He has worked with Oracle for close to 18 years, a significant part of which was spent managing Oracle Applications and Cloud Technologies.