CFOs might be who organisations need to take ESG to new heights

IT’S NOT surprising to expect organisations to incorporate some form of ESG concept into their business plans. The constant chatter around achieving carbon neutrality or doing more to improve our society is becoming louder and more urgent.

However, the reality is there are businesses that beg to differ. A NTUC LearningHub report saw only 24 per cent of business leaders in Singapore mention that their organisations have already undertaken sustainability initiatives. Aside from insufficient budget, this lack of urgency is also due to a lack of clarity as to who should spearhead a company’s sustainability efforts. Some 39 per cent believe it should be a C-suite responsibility while 59 per cent saw it as that of a sustainability committee.

While it might seem natural to assume that the C-suite or an ESG committee should spearhead ESG efforts, business leaders today recognise that ESG impacts financial performance and resilience, positioning it in the domain of the chief financial officer. Thus we see the rise of the CFO’s role in shaping and leading the ESG agenda, working with fellow leaders to foster cross-team collaboration.

The ESG ambassadors companies need?

CFOs are traditionally known to oversee a company’s finance and accounting dealings. But changing business environments have evolved their roles to play a bigger importance in strategic planning. Their expertise in financial data such as implementing processes and reporting would be helpful in developing ESG frameworks and systems.

In fact, BlackLine’s recent survey revealed that C-suites in Singapore saw that CFOs should take the lead in helping businesses be accountable in the areas of ESG reporting, more so than CEOs. But CEOs are still expected to help businesses successfully meet their ESG goals compared to CFOs. And CFOs in Singapore themselves also believed they are accountable in helping their companies successfully navigate ESG reporting and meeting ESG goals.

For a start, organisations need to enable their CFOs and their finance & accounting (F&A) teams to take on more strategic work beyond manual accounting and reporting. This could involve upskilling and training CFOs and F&A teams to be better equipped in implementing and measuring ESG efforts. Such initiatives could potentially result in more pathways for the F&A career such as that of the chief finance and sustainability officer, a role which could have significant importance as ESG continues to top business agendas.

If CFOs are the company’s ESG ambassadors, what about ESG reporting?

Given that CFOs and F&A teams are responsible for a company’s financial reporting, the onus on ESG reporting could also fall on them if CFOs were to assume the role of the organisation’s ESG ambassador. However, evolving guidance and standards in ESG can be a challenge for CFOs and F&A teams to keep up with reporting requirements. In fact, the BlackLine study revealed that 46 per cent of CFOs in Singapore find complying with new and changing ESG regulations to be the biggest pain point in their finance function currently.

Moreover, many organisations might still be working out the kinks involved in data collection and setting up a framework for ESG reporting. This is on top of ensuring that reports need to clearly capture the metrics used, policies implemented and results from said efforts.

To effectively streamline processes, companies should consider deploying modern accounting technologies to simplify and automate existing finance processes. Automation helps improve the team’s access to real-time data, which is critical in timely decision-making and accurate reporting around ESG activities. Automating the reporting process can also help promote efficiency in communicating any ESG risk control management concerns across the entire workspace. By automating processes that could span weeks if done manually, F&A teams can free up their time to focus on strategic tasks such as innovation and advisory work.

Risks of falling behind on ESG initiatives

Incorporating ESG can widen an organisation’s competitive moat but compliance is key. Failing to comply with prevailing ESG standards may risk inaccurate reporting and result in a negative impact on the bottom line. In addition, investor confidence could also be affected given that more stakeholders are assessing a company’s ESG risks and initiatives as a testing ground for potential investments.

Keeping up with current and evolving ESG regulations may seem arduous but is doable and necessary. According to KPMG’s latest report findings, the sustainability reporting rate of the top 100 companies in Singapore grew to 100 per cent in 2022, compared to 81 per cent two years back. This is progress but more companies need to get on board. Organisations, with the help of CFOs and F&A teams, need to identify the complexities that could hinder ESG from being seamlessly implemented and reported, and solve them.

The uncertain economic climate and possible recession might hinder investments in ESG strategies next year. But given the importance of ESG and the mandate for organisations to do good and give back, companies will need to learn how to prioritise ESG amidst the economic headwinds. This could be a challenging task for CFOs but one for which they’ll need to stretch themselves beyond traditional accounting work and into a role where their decision-making could help companies thrive and be more resilient.

The writer is senior vice president, finance solutions and technology, at BlackLine