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From complying with ESG reporting requirements like the CSRD to double materiality assessments and reducing greenhouse gas emissions. Here’s how the finance function can execute a successful sustainability strategy.
With the recent surge of ESG reporting requirements, companies are under intense pressure to disclose and do more. Many are taking a hard look at how they can drive sustainability initiatives, who in the organization is better suited to do so and how to adapt. In turn, sustainability’s center of gravity is shifting to the chief financial officer (CFO) and the finance function (including the ESG controller) because they have the technical acumen to produce reliable ESG reporting and align sustainability initiatives with long-term planning and capital allocation.
CFOs already hold one of the most challenging positions within the C-suite. They juggle financial stability with strategic vision and transformation. While they specialize in corporate reporting, they aren’t just number crunchers anymore. They’re relationship builders and tech-savvy innovators who are crucial to the organization’s long-term viability. And now they are also playing a larger role in allocating the capital that can allow companies to execute their sustainability strategy.
To meet the increase in their responsibilities, CFOs are leveraging technology and data to help improve risk assessment, forecasting, product pricing, cash flow and identify areas of growth their companies may have previously missed. And they’re doing all this while navigating a maze of tax laws and global regulations –– including those around sustainability.
Sustainability’s center of gravity is shifting to the chief financial officer and the finance function (including the ESG controller) because they have the technical acumen to produce reliable ESG reporting and align sustainability initiatives with long-term planning and capital allocation.
How CFOs can set the tone for sustainability success
Many companies are just now processing the massive commitments needed to comply with new disclosure regulations and the imperative for a well-developed sustainability strategy. The do-nothing approach? Not an option. This urgency is pushing leaders to execute on sustainability and to do it fast.
To meet these requirements, the finance function should acquire and develop new skills and collaborate across business functions. CFOs may help execute complex projects such as sourcing reliable ESG data, measuring and managing greenhouse gas emissions and reducing resource waste. They are a key voice for determining funding needs for these capital projects. In this high-stakes environment, CFOs should swiftly grasp the potential business impacts of sustainability and be laser-focused on the activities that contribute the most value.
Here are seven steps CFOs can take to meet sustainability goals and requirements.
- Take ownership for compliance with global disclosure rules. The European Union’s Corporate Sustainability Reporting Directive (CSRD) has greatly expanded the amount of information companies must disclose in their filings. Moreover, over time, it requires that the data be assured. (Our sustainability reporting guide can help you determine which regulations are in scope and what you need to report as you plan compliance.) While CSRD might be grabbing most of the headlines, don’t overlook other critical regulations like the SEC’s recently adopted climate disclosure rules, California’s climate reporting requirements, the Carbon Border Adjustment Mechanism tariff and the Corporate Sustainability Due Diligence Directive, which largely focuses on human rights.
Develop a long-term sustainability strategy. Start by pinpointing your organization’s material impacts, risks, and opportunities. Set ambitious yet achievable abatement goals by calculating baseline emissions and projecting future increases as your business grows. Integrate the plan into budgeting and strategic decisions, from product design to procurement and build accountability by holding functional leaders to key performance indicators. When making capital allocation decisions, develop an internal cost of carbon and determine the investment, resources, timing and headcount necessary for carrying out these projects. Short-term wins are great, but make sure you’re earmarking funds for longer-term projects that can promote lasting impact.
Think beyond costs as you make strategic technology investments. Let’s face it: sustainability comes with costs. Effective technology is critical for acquiring, collecting and storing ESG data and your organization should have confidence that the information in its systems is thorough and reliable. But here is the kicker — you may not need to invest in new technology platforms to be successful. You probably can use many existing platforms to achieve most of your goals.
Leverage sustainability data to gain new insights into the business. As CFOs fine tune and technologically-enable their sustainability reporting strategies, they should gain greater confidence in the story the data tells. This could lead to powerful insights into new products and services, cost-cutting opportunities, supply chain enhancements and more.
Turn your finance function green. Reimagine team roles and upskill staff on sustainability. Some team members will often report to the ESG controller driving compliance efforts. With fresh skills and knowledge, they can effectively collaborate across business functions and champion the strategic importance of sustainability.
Invest your money wisely and don’t forget potential tax savings. US policy changes are creating significant opportunities for companies to invest in capital infrastructure projects and programs. While the availability of grants, incentives and tax credits is constantly changing—notably, the availability of tax credits may be affected by the outcome of the 2024 elections—policies such as the Inflation Reduction Act can help your company accelerate its climate transition plans by defraying some costs. Be sure to include the tax function’s perspective before making strategic decisions.
Keep asking “what’s next?” Even if you’re ready to address current environmental and social disclosure mandates, you should be prepared for whatever may come next. For example, new policies on deforestation, sustainable packaging, greenwashing, human rights and nature and biodiversity.
Need help staying on top of it all?
PwC is here to help, whether it’s understanding upcoming reporting requirements and deadlines or how to select and sequence decarbonization projects. Later this month, we’ll publish our CFO Playbook for getting sustainability right.
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