Traditionally, sustainability has mainly fallen within the purview of the Chief Financial Officer (CFO) in terms of reporting. The CFO often has access to the necessary information and numbers for reporting purposes. “However, reporting is inherently backward-looking. In the future, sustainability should be increasingly integrated into the company's financial strategy”, says Leonard Breukers, a sustainability expert from Azets Insight, a provider of financial management consulting services.
Implementing a sustainability strategy often requires investments, so it is essential for it to align with the financial strategy. The CFO needs to understand how sustainability goals impact the company's investments and financial instruments.
The strategic link between sustainability and financial management has traditionally been thin. Now, we must shift our focus from hindsight through reporting to foresight. Sustainability goals are long-term, often spanning several decades, while financial management in publicly traded companies has traditionally had a short-term, even quarterly, focus. However, implementing sustainability goals requires investments along the way. Therefore, establishing a strong connection between these two aspects is crucial.
Large companies lead and the small ones follow
The IFRS standard requires large companies to make concrete sustainability commitments. These companies must already start making decisions regarding their sustainability investments.
Companies do not operate in a vacuum. Instead of focusing on individual entities, it is important to understand that they form part of business ecosystems. When large companies are required to report on sustainability, smaller companies also need to adhere to their standards and requirements. This ensures transparency throughout the entire supply chain and allows for a comprehensive examination of the entire business ecosystem.
It is true that large companies' financial management departments have generally been better prepared for the requirements brought about by directives compared to small and medium-sized enterprises (SMEs) who may not have the same level of resources and infrastructure. In this context, SMEs can leverage the expertise of accounting firms as they often possess relevant knowledge and experience.
Bringing key stakeholders together
With the implementation of the IFRS standard, sustainability influences the significance of sustainability issues in the context of CFO decision-making and reporting. It is therefore advisable for financial management to promptly gather key stakeholders together, including the persons responsible for sustainability, the CEO, the controller, as well as representatives from communications and HR.
The group needs to then create a roadmap: what are the aspects of the sustainability strategy that impact the finances? What types of investments are forthcoming? What reporting requirements are on the horizon, and can they be automated in any way? This is a relatively demanding task.
CFO - Do at least these things:
1. Familiarize yourself with the legislation that applies to your company.
2. If your company has reporting responsibilities, ensure that your information systems are in order.
3. If you don't have the necessary knowledge yourself, seek someone who does and can provide assistance.
Is sustainability reporting on your agenda and but unsure where to start or how to progress? Our team of sustainability experts at Azets is ready to assist. Reach out to us for a personalized discussion about your specific needs.