The Evolving Role of CFOs in Driving ESG Initiatives

According to BDO Middle Market CFO Outlook Survey, 64% of chief financial officers (CFOs) believe environmental, social and governance (ESG) adoption will improve their organization’s long-term financial performance. However, for sustainability initiatives to succeed, ESG needs to be a cross-functional collaboration. Finance leaders must play a leading role in advancing their organization’s ESG strategy as they have access to large amounts of organizational data and influence over budget and business strategy. CFOs must lead efforts to identify, measure and report ESG factors, integrate ESG risks into overall enterprise risk management, and collaborate with risk leaders to address both strategy and oversight around issues like climate, workplace matters, and reputation.

CFOs must also navigate new metrics as ESG reporting will soon escalate from best practice to a regulatory mandate for certain entities. Organizations with international operations may already face sustainability reporting requirements. Once the SEC finalizes its proposed climate change disclosures, publicly traded U.S. companies will be required to disclose the impact of material climate risks on their business, operations, value chain and strategy, and greenhouse gas emissions data. Private entities and nonprofit organizations can use this as a basis to look at what may become a focus area of their stakeholders and determine whether to voluntarily adopt ESG reporting. CFOs must collaborate with the organization’s sustainability leader to assess the significance of ESG risks and determine stakeholder materiality, nonfinancial ESG priorities, industry-specific standards and disclosure of best practices.

Finally, CFOs need to embed ESG into their own decision-making processes, drive accountability and take the lead in transforming ESG strategy from vague values to tangible action. CFOs must ensure that ESG initiatives are implemented with an eye on the bottom line by striking a balance between targeted, socially responsible cost- reduction initiatives and smart spending to fuel sustainable growth. History has shown that organizations with sustainable business models generally grow faster than those without them, and sustainable business model innovation is quickly becoming necessary to attract and retain ESG-conscious stakeholders.

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