A new report from EY How can CFOs be confident in value creation without confidence in reporting? offers interesting perspectives based on new survey data. CFOs are doing more than they ever have – moving from purely managing numbers to being in the middle of corporate strategy development, implementation, monitoring and communication.
“’We’re in an age where CFOs are expected to balance multiple priorities in parallel,’ says Myles Corson, EY Global and Americas Strategy and Markets Leader, Financial Accounting Advisory Services. ‘Their responsibilities today extend far beyond the traditional focus of the role. They are expected to accelerate the transformation of finance by unleashing the potential of talent and new technologies. At the same time, they are focused on driving enterprise-wide performance; in particular, balancing short-term performance with long-term value-creation.’
… Sustainability is the most prominent area of focus, and CFOs can play a central role in integrating sustainability risks and opportunities into decision-making, and the allocation of resources and capital against key priorities.”
Unfortunately, EY’s report indicates a critical gap exists between work CSOs are doing/how they communicate and how CFOs view those efforts.
- Fewer than half of finance leaders (47%) think it’s “very likely” that their organization will deliver against their major sustainability priorities and meet stated targets, such as achieving net zero on time.
- More than half of finance leaders (55%) feel sustainability reporting in their industry risks being perceived as including elements of greenwashing.
- Nearly all finance leaders (96%) report some problems with the nonfinancial data they receive for reporting, from varying data formats (39%) to data inconsistencies (35%).
Why the pessimism?
“’As CFOs become more involved in sustainability reporting, their awareness of the immaturity of the reporting mechanisms used in the nonfinancial area has grown,’ suggests Matt Bell, EY Global Climate Change and Sustainability Services Leader. ‘While it’s relatively easy for an organization to put in place an ambitious sustainability target, once finance leaders start drilling into the data — and they see how much needs to be done to bridge to a target — their conservative tendency perhaps starts to kick in, with a healthy skepticism about the organization’s ability to hit those commitments.’”
The most important words there are “healthy skepticism” and here’s why:
- CSOs tend to be overly optimistic and believe companies must be pushed forward with aggressive goals, oftentimes without due recognition of business limitations.
- CFOs know there is a historical lack of robust internal controls for voluntary ESG/sustainability data and reporting.
ESG/sustainability leaders, staff and advisors: You should be on a first name basis with your company’s CFO. CSOs must talk the CFO’s language and have a deep understanding of their needs/concerns. Rather than fearing their “healthy skepticism,” embrace it as part of your vetting process and internal controls. Their input makes your program stronger. Plans, strategies, goals, financial estimates, data and disclosures that survive CFO scrutiny will very likely survive CEO and Board scrutiny as well.
Members can learn more about sustainability governance here.
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