Are finance professionals about to add a new sustainability string to their bow?
AS the sustainability movement continues to gather speed, businesses across the world are beginning to realise they are going to need to make significant changes to ensure they are the right side of climate policy, as well as doing their part to save the planet. Fingers are being pointed towards the finance professionals to steer the sustainability ship. And there is good reason for this.
Finance professionals generally carry a reputation as trusted advisers and as their bread and butter usually involves collecting, measuring, summarising, and reporting all business activities, they are likely to be best placed to analyse the risks and opportunities businesses face.
According to recent surveys of chartered accountants, 55 per cent believe that accountants have a great deal of responsibility in relation to sustainability and 60 per cent of businesses surveyed in Northern Ireland have taken steps to address ESG.
Sustainability is both a risk and an opportunity. And the risk of taking no action might be greater in the long run, as stakeholders are increasingly demanding more than just financial reward from businesses. According to Bloomberg, approximately $120 billion flowed into ESG-focused exchange-traded funds in 2021, signalling that investors are betting on growth for businesses with the best credentials in this area.
But it's not just the stakeholders that are supporting this movement. It is now high on the agenda for investors, employees and professionals alike.
Furthermore, there are moves to introduce global standards for reporting on sustainability matters and finance professionals will need to ensure business disclosures are meeting their requirements not just for regulatory requirements but also for procurement as suppliers increasingly look to the ESG credentials of supply chain partners.
Unlike the rest of the UK, Northern Ireland has yet to legislate its carbon reduction targets but there are two Climate Bills currently going through the Assembly. When legally binding targets are in place, significant changes across businesses will be needed to achieve these targets.
To tackle the problem, the first step each business will need to make is to take stock and measure their own environmental impact. A recent Harvard Business Review discussed how finance professionals are starting to find themselves in a hybrid position between finance and sustainability, doing boundary work and bridging the gap by teaching themselves about sustainability.
Chief sustainability officers are not yet common, but even in businesses where this position exists, they usually serve the purpose of being an expert on sustainability issues themselves, rather than having the skills required to measure and report the businesses actual environmental impact. This means that while they may help set the goalposts, the measuring itself will likely fall to the finance professionals.
The Economist refers to 2021 as “the year when climate and sustainability entered the mainstream”. This year, the focus will shift to the implementation of the changes called for last year, meaning that businesses will need to examine their strategic plans and start to act.
The CFO will be central in this and will need to analyse the cost and return of proposed ESG investments. There will be rewards for outflows as increasing resilience to sustainability risks is expected to result in increased investor confidence and brand reputation. Greater efficiency will lead to financial savings and good publicity is anticipated for the businesses who embrace this area.
There is a growing sentiment that businesses that don't act on this issue will be left behind, generating the wrong kind of publicity as a result and potentially losing future investments.
From this perspective, it is self-serving for businesses to start implementing carbon reduction measures now, reaping the benefits by being ahead of the curve and gaining competitive advantage over those who don't respond quickly enough. Your CFO might just be the person to talk to.
:: Zara Duffy is head of Chartered Accountants Northern Ireland