The role of finance teams in sustainability

Our key takeaway: Chief Financial Officers (CFOs) play a central role in driving decision-making and progress within companies. The University of Cambridge Institute for Sustainability Leadership (CISL) believes this makes CFOs and their teams well-situated to help the company adapt to a “complex and uncertain” external landscape and the imperative to shift to a sustainable economy. Finance functions can draw on their existing tools and knowledge while integrating new ways of thinking about the role of the business. This can include moving from a shareholder focus to a stakeholder focus, understanding and integrating new types of data to capture sustainability impacts alongside traditional financial data, forecasting based on emerging and future issues rather than past issues, and working cross-functionally with other departments to embed people and planet considerations into decision-making. CISL identifies the key enablers that will allow a mindset change to happen: capacity-building and knowledge about sustainability topics; access to good data, especially on greenhouse gas emissions and impacts on people and ecosystems; the right processes and software allowing for the integration of sustainability and financial information; new methodologies and accounting standards that integrate sustainability considerations; coherent standards, regulations and frameworks; and collaboration and sharing with peers at other companies to share best practices and learnings.

The University of Cambridge Institute for Sustainability Leadership (CISL) published Broadening the Horizon: How CFOs and Finance Functions Can Help Drive Corporate Sustainability (February 2024):

• A change of mindset is needed: The role of the Chief Financial Officer (CFO) already encompasses many different capabilities and responsibilities. CISL points out that CFOs and their teams “are well placed to absorb additional data/information responsibilities and are a logical channel for sustainability-related reporting, analysis and business partnering support.” As the landscape around companies shifts—climate change and environmental pressures, social licence to operate, increased calls for transparency from stakeholders including investors, more voluntary and regulatory reporting requirements—finance functions are already moving “from a ‘passive’ to an ‘active mindset’ that seeks to finance low carbon assets and business models aligned with a sustainable economy.” To keep pace with changes, CFOs will need to change their mindset in a variety of different ways. For example, this necessitates a shift from a shareholder focus to a stakeholder focus; from investments for financial value to investments for broader long-term financial, social and environmental value; from reactive forecasting based on past performance to proactive planning in a “turbulent and complex future”; and from a financial focus to a more holistic view of operations and their impacts on people and planet. CISL calls on CFOs to foster “a shift towards a culture that puts sustainability at the core of strategic and operational priorities and decisions.”
  

• Shifting to a new way of working: To reach the needed mindset change, finance functions can set their sights on actionable ways to adapt. For example, it may make sense “for the brief of the CFO and the Finance Function to be expanded to include aspects of sustainability leadership, strategy, planning, reporting, decision support and oversight.” Finance teams will also need to develop new knowledge and capabilities to understand key environmental and social issues connected with the business. Access to new types of data and sustainability-related KPIs will support this shift, but CFOs are cautioned that this data will differ from traditional financial data. As a result, they will need to create new processes and adapt to new modes of tracking and analysis that account for diverse data sets. Finance teams will also need to gain exposure to new areas of the business, especially teams working on sustainability topics. Cross-functional engagement and integration of sustainability into finance processes will help break down silos. CFOs should also be prepared to make transformational changes to adapt to the new mindset, “which in turn implies that many companies will need to define and implement change projects/programmes to effect the desired end goals.”
  

• Six key enablers: The report highlights key enablers that will be necessary to help CFOs and their teams adapt to a changing landscape and a shift in their role within the business. These include: (1) “Sustainability knowledge and professional skills development supported by educational establishment and relevant professional bodies”; (2) “Access to relevant data, particularly on Scope 3 emissions and social and ecosystem impacts”; (3) “Systems and software to enable the integration of sustainability and financial information”; (4) “Conceptual and technical developments to define methodologies and standards in specific accounting areas”; (5) “Coherence of standards, regulations and frameworks globally to avoid Finance Functions spending all their resources keeping up to date with changing frameworks at the expense of driving sustainability improvements”; and (6) “Collaboration and sharing from leading companies of their learnings among each other and with those who follow, rather than each company having to start from scratch.”