As a chief financial officer (CFO), you call the shots on all things money. You’ve got your eye on the bottom line, but what you may not realise is just how lucrative your company’s environmental, social, and governance (ESG) goals can be. In fact, studies show that “The overwhelming weight of accumulated research finds that 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.”

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However, many CFOs are willing to postpone ESG investments in favour of near-term goals. Understandable given the uncertain economic situation we seem to constantly be in, but not ideal for long-term growth and success (not to mention the ever-increasing threat of the climate crisis).

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In this article, we’ll discuss why CFOs should pay heed to their ESG managers and adopt a more ESG-friendly mindset when making financial decisions. We’ll also outline how they can leverage their leadership to maximise the impact of ESG initiatives. 

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ESG: more than reporting

Historically, ESG reporting has been viewed as just a requirement for businesses and corporations – something to check off the long list of to-do’s. The underlying purpose of ESG reporting is to encourage companies to adopt eco-friendly, ethical, and safe practices that bring prosperity to the communities they serve – including the wider global community. 

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But that’s not all. ESG can also open new doors for businesses, especially when creating value, making it inseparable from financial success – a reality that will only become more and more clear over the next few years. 

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Beyond compliance

ESG reporting’s fundamental purpose is to meet compliance requirements. However, it’s also an opportunity for companies to identify what more can be done. If it weren’t for those reporting requirements, leadership in companies may not be able to make crucial decisions that ultimately reduce their carbon emissions and, perhaps more meaningful for the CFO, reduce costs.  

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Financial materiality

Financial materiality may be the most relevant piece of ESG reporting for CFOs. A growing number of financial experts realise that certain ESG criteria are financially material. Indeed, according to a recent survey by Ernst & Young, ESG metrics and measurement took the top spot for CFOs’ and finance leaders' priority. Encouraging!  Simply put, ESG adoption is strongly linked with a company’s financial performance, at least in the long run. 

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ESG-linked factors like greenhouse gas emissions, energy usage, waste output, supply chain management, investor demands, diversity percentage and recruitment are directly or indirectly linked with a company's financial performance. This is all the more important for CFOs and their teams looking to bring in investment. As interest in sustainable investment grows and financed emissions come under the microscope, ESG reports are fast becoming a deciding factor for investors and fund managers looking to make better-informed long-term investment decisions.

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Reputation and brand loyalty

And it’s not just on the corporate side of the fence. Consumers today are far more aware of the climate crisis and prefer spending on brands committed to going green. Bain & Company’s report found that 71% of European consumers want sustainable products. 

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So, no matter what industry you’re operating in, the changing consumer expectations and behaviour will impact your business. Companies with transparent ESG reporting and ambitious emissions targets will likely earn preference over others. 

How CFOs can influence ESG success

CFOs are perfectly positioned to materialise their organisation’s success with ESG initiatives and, at the same time, improve financial performance both in the short and long term. Here’s how.

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Collaborate with ESG managers

If you’ve got an ESG manager, use them! They know their industry – and it’s a complicated one.  They should be your point of contact for all things ESG – from keeping tabs on changing regulations to identifying new opportunities. A dedicated ESG manager ensures you comply with applicable regulations and have valuable data to make decisions, and employing that knowledge and data already puts you ahead of the competition.

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Engage all stakeholders, including the ESG manager, and hear what they say about relevant issues. Hold meetings directly with your ESG manager to gain insights into the company’s ESG performance, as in where it’s at and where it needs to be. They might well be sitting on a treasure trove of information that, put to use wisely, could boost company performance. 

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No ESG manager, but need to get to grips with EU legislation? Not a problem. Check out our website for the latest details on ESG legislation.

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Consider the ESG impact of financial decisions

As the CFO, you’re in the position to make the financial decisions for the company. Going forward, step back and evaluate how your decisions impact ESG factors. Will investing in sustainable packaging cost more right now – but boost sales in the long term? From approval of funds for new projects to budgetary cuts for the bottom line, ensure that the ESG impact is analysed in advance and accounted for with the implementation. 

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Make climate targets central in financial strategy

Armed with the numbers from ESG reports, you can pivot the organisation’s financial strategy to embrace ambitious climate goals. Such policy changes prepare the organisation better for the future and showcase commitment towards positive change.

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Incorporating ESG goals into financial targets ensures every project and move creates value without compromising on the environment or social issues. From Whole Foods to Tesla, many successful enterprises have managed to blur the lines between sustainability and profitability. Moreover, as CFO, you can secure and redirect investments toward ESG initiatives within your organisation. 

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Take the lead

If you’re the CFO of a company, you have the power to excel in – and surpass – your functions as a leader (while also driving positive change for the climate). Engage with your ESG manager and treat ESG reports as valuable data for financial decision-making. It’s the future. 

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Carbon accounting, a vital component of ESG reporting, will clarify where your company stands with its emissions and where it needs to go. You can redirect resources to ensure environmental initiatives are financed accordingly. To make sound decisions, you need accurate data on carbon accounting. This is where comundo comes in with its advanced technology for reporting energy consumption in properties. 

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For any business, especially those with significant real estate investments, accurate data on energy consumption is necessary for meeting reporting requirements and taking initiatives to reduce energy-related emissions.