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Turning values into value: why the CFO should lead their private business’s ESG journey
In her blog post in this series on ESG for private businesses, my colleague Shelley Gilberg mapped out a number of environmental, social, and governance (ESG) maturity profiles for leaders to consider. These organisational personas begin from a minimalist or pragmatist stance before progressing to strategist and ultimately trailblazer.
As Shelley highlighted, a prerequisite for navigating this journey successfully is deciding who in the business should lead the way. It’s vital to identify an individual who’s explicitly accountable for encouraging and driving sustainability forward. In other words, the most challenging aspect isn’t the ‘what’– but the ‘who’.
The need for ESG leadership…
Based on my client conversations, this question of who will lead on ESG is especially pressing for private businesses. And its urgency is further underlined by PwC research. In our research on family businesses, to be published in March 2023, 60% of respondents said they haven’t nominated a specific person to lead on ESG.
What’s more, private businesses often have a greater need than publicly-listed companies to raise their game around achieving their ESG ambitions. Evidence? In PwC’s newly-published 26th Annual Global CEO Survey, we asked CEOs to rate their own company’s progress towards developing a data-driven, enterprise-level strategy for reducing emissions and mitigating climate risks. Around 25% of private business CEOs said they were not planning to do this – more than double the 11% average among public businesses.
…opens up major opportunities for the CFO
Taken together, such findings clearly indicate that there’s an ESG leadership gap in private businesses. But who should step up to the plate to fill it? In my view, it should be the CFO.
Why? From a business standpoint, if your firm is currently in the early stages of its sustainability journey, then the basic minimum it must be undertaking on ESG is complying with the relevant regulations and the respective reporting. This is an activity that sits squarely within the CFO’s remit and areas of expertise – meaning the CFO needs to be closely involved in overseeing the ESG agenda.
Also, as a private business moves further up the ESG maturity curve, its focus will expand beyond compliance to include cost efficiencies, and then to changing its business model, products and customer orientation. These are all areas that require a bedrock of sound regulatory compliance, and where the CFO must play a key role.
The same logic applies if we take a functional view of ESG, starting from the top-level strategy that shapes transformation of the business and in turn reporting using relevant key performance indicators (KPIs). The reporting aspect – for which the CFO is naturally responsible – is effectively the end-product of the other elements. But from the perspective of the CFO, simply focusing on reporting without looking to influence the initial strategy discussion is fruitless: they need to help set the strategic North Star that will guide what will be reported and how.
Time to take the driver’s seat
The inescapable conclusion? Whatever the stage, pace or direction of a private company’s ESG journey – and whether you take a business or functional view of what that journey involves – the CFO will sooner or later have to gain expertise in sustainability, and ultimately assume leadership of the ESG agenda.
Since this must happen eventually, sooner is clearly better. So, as CFO, you should actively initiate the ESG strategy and transformation discussion in your company, and put yourself in the driver's seat before others in the business do it for you. This is both an opportunity and a responsibility. Indeed, I think it’s fair to say that within the next three years, it will become difficult to be appointed as a CFO if you can’t demonstrate that you have expertise and leadership capability with regard to sustainability.
Crucially, this expansion of the CFO’s role plays to the core purpose of private and family businesses: translating the values of the owners into value in various forms, ranging from financial to societal. As those embedded values guide the formulation of the strategy, which then feeds into business transformation and finally reporting, the CFO’s role throughout is to demonstrate and grow the value of the company. As ESG becomes increasingly pivotal to value creation, sustainability must also move to front and centre for the CFO.
Join our webinar
If you are interested in finding out more about ESG, join us for our forthcoming webinar: Why and how private businesses should prioritise ESG in 2023. Register here.
Find out more about Private Business and ESG
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