International bodies, communities and individuals, are demanding that businesses look beyond profits to environmental and social impacts. Many firms have allied with the United Nations to help achieve its Sustainable Development Goals (SDGs).
But businesses are established based on profit and many traditional business practices that used to take in huge profits, now need to be reviewed. CFO’s are the financial think tank of the company and if sustainable business practices will remain viable, finance and accounting must partner with business sustainability teams.
What is Meant by Sustainability in Business
With dire warnings of global warming and its predicted catastrophic consequences, sustainability has moved from just a buzzword to an actual expectation.
A balanced understanding of sustainable business reflects an understanding that enterprise resources like energy, water, forest and humans are not unlimited. It also takes the capacity of the planet to absorb the solid and gaseous production waste into consideration.
Issues like climate change, deforestation, corruption, gender and ethnic diversity, and fair labor have now business concerns. Firms are changing priorities and restrategizing to approach these demands in a way that drives value for the company and the public.
The CFO as a Driver of Business Sustainability
The biggest challenge that sustainable business initiatives encounter is profitability. It is rather difficult to convince boards of directors or CEOs to adopt some new eco-friendly or socially responsible way of doing things if there’s nothing to link it to financial results. CFOs are in the best position to identify sustainability metrics that align with the business purpose
Although standard measurement is still a challenge, significant research consulting firms and academics have established connections between sustainable business practices and fewer bankruptcies, higher market value, fewer regulatory inquiries and expected revenue.
Often, corporate social responsibility (CSR) teams collect large amounts of data on the company’s sustainability. But they lack the expertise required to interpret this data in accounting and finance terms. This is what the CFO and their teams bring to business sustainability.
The Challenges to Effective Partnering With Sustainable Business Teams
Overextended finance function
The CFO is already responsible for compliance and regulation and participating in sustainable business projects and reporting may be seen as burdensome.
It is observed that business sustainability teams typically lack the kind of standardized processes, policies and data collection and analysis tools that finance teams are used to. This may be a cause of frustration for the finance team.
Materiality, disclosure and capital are terms commonly used by both the finance and the sustainable business teams. However, both teams use these terms with different interpretations or implications. This technical language barrier can make partnerships cumbersome.
Being a finance professional does not automatically make the CFO an expert in sustainable business practices. Both are two entirely different business functions and finance teams may feel out of their depth.
Finance Partnering Framework to Integrate Sustainable Business
The framework consists of three components and each has three pragmatic actions.These pragmatic actions can greatly improve internal strategic alliances between the finance function and the sustainable business function.
Create The Mandate
Action 1– Drive The Right Culture
The companies that have recorded successful integration of business sustainability reveal that senior leadership, through words and actions were major catalysts. The CFO is a member of the senior leadership and is in a position to drive the culture toward business sustainability by articulating and embodying the organization’s purpose and values.
Action 2 – Secure Buy-in
In several companies, the CFO has facilitated the sustainability partnering process through vibrant collaboration. They do this via introductory meetings, knowledge-sharing sessions and setting up a cross-departmental task force to promote accountability and measure progress toward shared goals.
Action 3 – Highlight Your Proof Points
The finance team led by the CFO can help the sustainability team link project goals to financial performance. For example, when the CFO is able to connect higher customer retention with a proposal to buy carbon offsets. They establish the validity of the project and demonstrate how their insights on sustainable business creates value.
Deploy The Talent
Action 4 – Measure What Matters
When it comes to the value of sustainability, determining what to measure is not the easiest thing. The finance team, however, can help the sustainable business team make the process of identifying the right metrics highly effective. For example, companies are converting their carbon emissions, which is a non-financial value to a monetary cost and that data has resulted in millions of dollars saved through clean energy initiatives.
Action 5 – Simplify The Technology
Sustainable business teams still lack the sophisticated technologies that finance teams use. The CFO can work with necessary teams to help integrate sustainable business data into the company’s enterprise resource planning (ERP) system.
Action 6 – Sort The Data
With their accounting competencies, the finance team can improve the value of sustainable business data. They can set up policies, coding practices, taxonomies, and systems that allow both the finance and sustainable business team to identify and gather data that is useful for enterprise decision-making.
Fix The Information
Action 7 – Create Effective Structures
Due to the workload on the accounting team, they may be reluctant to actively collaborate with the sustainable
business team. The CFO can create structures that bring the finance and sustainable business teams closer. These structures include regular meetings by the established cross-functional teams.
Action 8 – Plan for Capabilities That Matter
CFOs must build capacity in themselves and their teams to be able to handle the evolving demands of business sustainability. As a committed partner in business innovation, long-term planning and strategy, the CFO must be capable of balancing the responsibilities of reporting, controllership and compliance.
Action 9 – Change The Finance Mind-set
The CFO should understand that unless his team members can see the importance of sustainability and understand the tasks set before the sustainable business team, a partnership may not produce the best results. There is a need to educate the finance team on sustainable business issues.
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