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CFOs can drive the push to sustainability

Finance leaders chase zero for the first time
as global focus on green initiatives widens


By Amit Verma, Regional Lead and Senior Director, Office of CFO Solutions, SAP APJ

Chasing zero in the finance world? Yes, you heard that right, even though the concept itself might sound like a contradiction in terms.

Let me reassure you that it’s not a classic oxymoron, because it actually makes perfect sense for finance leaders to chase zero in one case – when it comes to sustainability. And there is a twofold need here – not just to create a world of zero emissions, zero waste and zero inequality, but also to report it adequately.

There is fresh global context here, in the aftermath of Glasgow’s recently concluded COP26, the climate summit attended by 25,000 delegates from 200 countries. The most significant aspect for me was the fact that around 450 major organisations who – according to the BBC – control a cumulative total of $US130 trillion, “agreed to back clean technology and direct finance away from fossil fuel-burning industries”.

Private companies made significant pledges in Glasgow, with a view to accelerating net zero targets and providing finance for green technology. This stance was also mirrored by a recent poll in 28 countries across eight different regions, when SAP and Qualtrics worked with the World Economic Forum (WEF) to gauge perceptions on sustainability and climate change. One strong stat to emerge from this was that 61% of business professionals agree that environmental sustainability will be financially relevant in the future.

It’s also significant to note the parallel timeline between COP26 and a major initiative announced by SAP, known for its strong commitment to sustainability and the circular economy. A new cloud-native software solution called SAP Responsible Design and Production will enable companies to design products sustainably, utilising circular economy principles, while complying with increasingly stringent regulatory data requirements on product packaging and plastics. Scott Russell, Executive Board Member at SAP and head of Customer Success, called this a “gold-standard’ solution” and one that will enable our customers “to deliver circular products and achieve a regenerative economy.”

The path forward, after the Glasgow summit

Taking all these highlights of the past fortnight into consideration, and basing them on my own finance background, I will now discuss the importance of sustainability from a CFO’s perspective, with a special focus on why this is important for CFOs and how they are in the best position to drive sustainability within their organisations.

Let’s tackle a major question: Why is sustainability reporting critical for a CFO? In today's environment, CFOs’ tracking and reporting must not be limited only to economic performance, but should also take a broader lens that includes societal and environmental performance in order to drive business success. This has become even more relevant in the wake of the COVID-19 pandemic, as public awareness of the world’s environmental, social, and governance challenges has grown—and with it, the demand for businesses and policymakers to take meaningful and verifiable action.

These demands, highlighted by the pandemic, have made sustainability a CFO imperative. Global leaders have pointed out that a separate sustainability strategy may no longer be sufficient and that it needs to be brought under a much broader overall corporate path.

Instead, companies must now ensure that their entire business strategy is sustainable, as is the overall footprint of their operations. CFOs will experience an impact on their organisations’ cost of capital too. In the near future, a company's financing rates will be directly linked to its environmental, social and corporate governance (ESG) performance. Financial institutions will not only consider the normal basic indicators such as revenues, costs and profits for granting a loan, but ESG performance will inevitably also be considered as a key part of that rigorous appraisal process.

Broadly speaking, when I first entered the corporate world, sustainability was not a defining element on the radar of global business, nor was it an integral factor in planning or projections. I’m glad that this balance has changed, slowly but surely. I see this issue on two levels, the professional level and the personal level. As professionals, we are all aware of protecting the planet that nurtures us, while on the purely personal level, we must ensure that the businesses (or business units) we run are firmly aligned with sustainable goals. This will ensure that our children and succeeding generations live and work in a world that is far more environmentally aware than it was in the 1980s and 1990s.

Balancing ESG issues with profitability

With this in mind, there are costs associated with sustainability reporting, but companies that embed sustainability into their core business processes consistently outperform their competitors and will only continue to do so in the future.

CFOs are in a strong position to drive sustainability because they have a bird’s-eye view of how and where monetary resources flow within the organisation. That knowledge is the foundation that gives CFOs a clear understanding of the costs and resources required for the different initiatives of their organisations, including the sustainability initiatives.

While I do not regard CFOs as the sole stakeholders in this regard, they can certainly take the lead, thanks to their organisational networks and their in-depth overview of data, processes and reports. In addition, CFOs have the professional toolkit to align ESG issues with the company’s profitability goals.

Digital technologies will accelerate a CFO’s journey by delivering the visibility and velocity required to inform and drive better business decisions through embedded, validated, real-time data. Visibility into relevant metrics across every line of business will equip CFOs with the insights required to comply with new regulations, safeguard their licenses to operate, meet increasing stakeholder expectations, cut costs and recognise opportunities for innovation and business transformation.

Moving forward, a digital transformation architecture and a roadmap that enables sustainability efforts will become fundamental to every company’s evolving business strategy.

My own role at SAP is to guide CFOs on their respective digital transformation journeys and one of the key components now is ESG reporting — part of that is to guide them on selecting a digital technology that enables end-to-end visibility and real-time data with insights to identify levers and options for driving corrective and enhanced action that take financial, social and environmental valuation into account.

That digital technology also needs to offer a greater degree of granularity in reporting and a higher level of transparency around ESG performance.

Let’s chase zero in finance and create a world of zero emissions, zero waste and zero inequality and report it adequately. ESG is a financial matter—something that needs to be accurately tracked and measured and its results quantified. These are areas where the CFO thrives and must take ownership. Remember, we can’t control what we can’t measure. And we can’t measure what we can’t monitor.

Amit’s column was updated after a shorter version appeared on FutureCFO.net

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