Will CFOs become CVOs in 2024?

The amount of new responsibilities that have been thrown at CFOs over the last 5 years has been more than any other member of the C-Suite.

With a growing focus on social engagement, environmental responsibility, and increased governance and reporting, the CFO’s role is gradually evolving into a new kind of role: the Chief Value Officer (CVO).

Research from the Association of Chartered Certified Accountants (ACCA) shows that ESG is considered a key contributor to corporate value, making it worthy of the same level of scrutiny as financial reports. As investors and company boards look to CFOs for guidance on finance matters, there is a growing move to bring ESG reporting under the CFO’s scope of work. This shift is driven by the belief that better ESG performance enables value creation.

However, are businesses doing enough in the ESG arena? A recent global survey of finance leaders found that 75% of finance teams have already taken on ESG risks and issues as part of their role. But there are more pockets of value to be found.

Companies like Unilever (global) were able to reduce $1.27 billion in costs throughout its operations. It achieved this by focusing on sustainable sourcing and addressing the risk of climate change. For example, the company moved into regenerative agriculture, it reduced risk where agricultural supplies were threatened by climate change.

Yet, many businesses are only in the earliest stages of defining and implementing ESG controls. Similarly, there has been a growing trend of investors withdrawing billions from ESG funds and some firms rebranding or even closing their ESG-focused offerings.

According to data from Morningstar, investors withdrew $2.7 billion from ESG funds in Q3 2023, marking the fourth consecutive quarter of outflows from these investments. The Wall Street Journal reports that in 2023 investors have pulled out more than $14B from sustainable funds.

A bigger integration role

So, what should CFOs be teaching their teams to take note of in the ESG arena? Here are a few key points:

1. Understanding ESG controls

CFOs should educate their teams on the importance of ESG controls and how they can be applied to ESG performance data and reporting. This includes understanding the regulatory requirements for ESG reporting and how to implement controls that increase integrity and accuracy.

With options like the CFA Institute Certificate in ESG Investing, Global Reporting Initiative (GRI) Sustainability Reporting Certification, CDP Climate Change Course, PRI Academy ESG Integration Course, and International Association for Sustainable Economy (IASE), there is no shortage of choice.

ESG certifications enhance decision-making abilities and improve understanding of sustainability-related issues. They also  open doors to career opportunities in sustainable finance and enhance professional credentials.

2. Interacting with key players in ESG

CFOs should encourage their teams to collaborate with leaders of non-financial departments on critical ESG topics. This includes discussing investments for collecting and consolidating relevant ESG data, attracting and retaining talent, and creating a cohesive narrative about the company’s ESG objectives.

By pooling resources, expertise, and data, they can ensure the accurate collection and consolidation of ESG data. This enables thorough analysis and reporting, which is crucial for identifying risks, measuring performance, and making informed decisions.

Similarly, ESG issues are increasingly important to employees, especially the younger generation. Collaborating with non-financial leaders helps CFOs understand the priorities and expectations of current and prospective employees regarding ESG practices. By aligning financial and non-financial strategies, organisations can create an attractive and purpose-driven work environment that attracts and retains top talent, enhancing overall organisational success.

Furthermore, by involving leaders of non-financial departments in discussions, CFOs can develop a cohesive narrative that highlights the organisation’s commitment to ESG principles. This narrative can be used to engage employees, investors, customers, and other stakeholders, building trust and enhancing the organisation’s reputation.

3. Ensuring ESG initiatives receive investment

CFOs should teach their teams how to prioritize ESG investments and ensure they align with the organization’s overall ESG strategy. This includes working closely with other stakeholders in the business to create sustainable strategies that drive revenue, decrease costs, and meet stakeholders’ expectations.

In terms of external investments and capital allocation, as CFOs become more aware of the environmental and social impacts of their investments, they are increasingly seeking out investment products that align with their values. That said, the ESG economics and associated costs must be made transparent.

CFOs should expect to see more rigorous ESG standards, greater transparency from fund managers, and a more nuanced understanding of the relationship between ESG and financial performance.

The future of ESG integration

CFOs play a crucial role in advancing their organization’s ESG strategy by integrating it into the company’s overall strategy and operations. As Chief Value Officers, CFOs can effectively navigate the complexities of ESG and leverage it as a tool for value creation.

By prioritising ESG controls and educating their teams on their importance, CFOs can ensure the accuracy and integrity of ESG performance data and reporting.  They should collaborate with leaders of non-financial departments to gain a broader perspective and improve decision-making.

CFOs can also align ESG initiatives with the company’s overall strategy, driving sustainable growth and enhancing risk management. By embracing ESG as an integral part of their company’s DNA, CFOs can lead their organisations towards a more sustainable future.

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