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With the Corporate Sustainability Reporting Directive (CSRD), 49,000 companies in the EU will have to report retroactively on their sustainability activities in 2024 from 2025. The aim of the directive is to put sustainability reporting on a par with financial reporting. This is on the table of the Chief Financial Officer (CFO), which is increasingly also becoming part of non-financial reporting.
The development of the CFO in the area of sustainability
Over the past decades, the role of the CFO has evolved significantly. Whereas CFOs used to be mainly concerned with balance sheets and profits, today's CFOs are visionaries who deal with strategic decision-making in line with ESG (environmental, social and corporate governance) criteria and integrate sustainability into corporate growth.
The increasing importance of sustainability due to political regulations as well as public pressure mean that CFOs must take a sustainability-oriented approach to decision-making. To enable strong financial performance, science-based sustainability information must be incorporated into their decisions. In doing so, today's CFOs are working closely with Chief Executive Officers (CEOs), Chief Sustainability Officers (CSOs) and board members to develop a sustainable business model.
EU reporting standards oblige CFOs to act sustainably
Historically, the position of a CFO was defined by a focus on measuring, managing and reporting financial performance, whereas today CFOs are taking on broader responsibilities directly related to the company's sustainability and ESG goals. One reason for this is the upcoming EU reporting regulations, such as the CSRD, which will result in financial penalties for non-compliance. Therefore, it is true that CFOs are taking the lead on sustainability and ESG goals and ultimately future-proofing companies by funding financial risks as well as creating long-term value.
Investors demand sustainable action from companies
Not only mandatory reporting, but also investor preferences and values are aligning with sustainability ¹. 65 percent of investors expect ESG to become a standard practice in the next few years ².
ESG has an impact on corporate finance
The same applies to lending, because despite rising costs and financing hurdles, the issue of sustainability is moving into the focus of banks ³. The worse the ESG rating, the more expensive the loan. A study by Deloitte shows that 58 percent of credit managers expect lending volumes to increase in the medium term and 59 percent in the long term due to the relevance of ESG criteria ³. Companies that do not consider ESG criteria will be affected by a very high cost of capital and will not be able to afford their business in the future ².
To earn trust from internal and external stakeholders, CFOs must leverage the extensive capabilities of the finance function. By using a variety of financial tools, whether forecasting, budgeting or resource allocation, CFOs can place a fundamental focus on sustainability factors. This can ensure that factors are at the forefront of all business-related value creation decisions.
Sustainable companies benefit from competitive advantages
ESG is thus becoming an essential part of companies' long-term strategy and is delivering benefits: Companies that get involved benefit from increased employee motivation, an improved image, reduced costs and a better competitive position ³.
How can the CFO do justice to the new role?
- Not only the CFO, but also every employee of a company should be equipped with the necessary knowledge to meet the evolving requirements of sustainability
- Sustainability must be integrated holistically into every aspect and area of a company. An effective strategy requires alignment across the entire company.
- To ensure that the transition to a sustainability strategy is as simple and efficient as possible, technology should be used. Planted's all-in-one sustainability platform offers a potential solution that can be used to calculate the CO2 balance in a TÜV-certified manner and succeed in automated data verification. In this way, auditors can easily verify that data has been collected correctly through reliable third-party verification.
CSO and CFO - What's the difference?
For companies that have a Chief Sustainability Officer (CSO), the calculation, analysis, management and reporting of sustainability is often his responsibility. His or her job is to define the company's sustainability vision. CFOs, on the other hand, translate that vision into financially measurable goals. Collaboration between the positions is thus essential to achieve both financial and sustainability business goals. If a company does not have a CSO, the responsibility for sustainability often lies with someone further below the C-level, without direct contact to the board. This is where the CFO comes in. Due to his or her influence on important business decisions and direct involvement with key stakeholders, the CFO must ensure that a company achieves its climate goals.
Risk management and value enhancement go hand in hand with climate protection
The age in which CFOs were seen as merely financial officers is thus over. In today's business world, where CSRD, ESG and CO2 balance are gaining importance, CFOs are critical to implementing sustainability strategies that protect both the planet and the internal balance sheet. It's not just about climate protection, but also about risk management and value enhancement.
Want to learn more about how your company can minimize financial risks through sustainability? Schedule a demo with Planted now.
Sources:
¹ Investors see sustainability as a future priority for companies - EXIST - Start-ups from science
³ Many conditions are attached to new corporate loans | springerprofessional.de
