The looming economic downturn means CFOs must keep sustainability top of mind by incorporating it into their financial planning and decision-making processes, and also viewing it as a long-term investment rather than a cost
The constant reality of economic uncertainty means the ability to maintain financial stability has become even more crucial for any business than ever before.
Added to the CFO’s responsibilities of ensuring the financial health of their organisation, they must now also consider the impact of their actions on the environment, society, and governance (ESG).
But at a time when businesses are at their most vulnerable, how can CFOs ensure ESG is a priority in the business?
“It is a balancing act and requires a strategic and holistic approach to balancing financial stability with sustainability,” says India based finance leader and strategist Nikhil Agarwal.
Agarwal, who is the head of FP&A at Browser Stack, warned more “vulnerable” organisations would be unlikely to prioritise sustainability this year.
“If you are vulnerable, then nothing matters—not even sustainability, and you’re only trying to ride this out in some way or another, specifically in the tech space,” he says.
“And the CFO at that point is primarily focused on creating that runway and taking whatever decisions he has to take, and in that case, nothing will matter; the show must go on.”
He said this meant some CFOs could fall into the trap of doing “lip service.”
“As a CFO, I would rather give a neutral statement if I’m not going to do something about it than actually give a pro ESG statement and not do anything about it,” says Agarwal, cautioning that CFOs who appear indecisive might get pushback.
He added that while people expect the CFO to be transparent about how they are affecting sustainability, there was also an expectation for CFOs to fulfil their duties in every aspect.
With ESG regulations becoming increasingly important, investors are looking for companies that operate in a sustainable and responsible manner.
Investors have also come to view companies that comply with ESG regulations as less risky investments and more likely to withstand regulatory changes and market fluctuations.
According to former ASOS CFO and Shape Beyond founder Helen Ashton, who also serves as JD Sports’ audit chair, this has seen the evolution of the CFO’s role, which is no longer just about churning out numbers.
Ashton says her time in the CFO’s hot seat showed that the CFO also has to ensure that the business meets its purpose.
“And that purpose is not just about the outcome of the financials. That is also a combination of all of the other important business metrics, such as sustainability.
“There are a lot of accountants or CFOs that don’t recognise that their job is to deliver on the numbers, but actually that is just a package of a much larger suite of other metrics and other things that you want to deliver within the business. It was much more of a holistic view than just a financial view,” says Ashton.
ESG factors can have a significant impact on a company’s long-term performance and resilience. Environmental factors, such as a company’s carbon footprint, can affect its costs and regulatory compliance. Social factors, such as workplace diversity and human rights, can affect its reputation and ability to attract and retain talent. Governance factors, such as a company’s transparency and ethical behaviour, can affect its risk profile and ability to attract and retain investors.
As a result, investors are increasingly incorporating ESG considerations into their investment decisions and expecting companies to disclose information on their ESG performance. This trend is expected to continue in the future, as more investors, particularly institutional investors, incorporate ESG considerations into their investment decisions.
Ashton says conversations with investors have revealed that more and more investors are no longer talking about finances alone but other metrics as well.
“This should force CFOs to think more broadly, but I still believe that unless this is absolutely in the purpose of the organisation you’re in, quite often, you’ll see lip service,” Ashton says, adding that CFOs can take a different approach.
She adds that CFOs can produce numbers but also know whether that makes a difference or not, stating that often this is largely dependent on purpose and what the wider executive team considers important within the organisation.
Ashton concludes that truly pushing the ESG agenda would require the full support of the CEO.
“CFOs are busy people. They’re absolutely busy people, and there’s always a long list of things that you’ve got to try to get your head around and do.
“When it comes to something like ESG or some of these larger challenges, I think a lot of that comes down to how strong or what the purpose is within an organization,” says Ashton, adding that her time at ASOS demonstrated that a strong purpose and business sustainability go hand in hand.
“In fact, that was one of the things that the CEO was really involved with, and as a result, it was natural for me as the CFO for that to be high on my agenda,” says Ashton.
