VUCA stands for “Volatility, Uncertainty, Complexity, and Ambiguity” and it describes the constant, unpredictable change that is now the norm globally. The advent of pandemic exposed the frailty of our ecosystem, and its rippling effects still lingers worldwide. As part of the Business Round table statement on “Purpose” of a corporation, US based C-suite states that while companies serve their corporate purpose, they share a commitment to all stakeholders (deliver value to customers, deal fairly with suppliers, invest in employees, and support the communities). Today, leadership is strongly re-looking at their business models, business resiliency and resource dependency. They are taking steps towards sustainable business practices by adopting an integrated approach to supply chain and sustainability.
Bringing focus to timebound and actionable goals helps to improve planets and people’s health, enhance wellbeing and contribute to a socially inclusive world. A recent study by Deloitte says that the CFO’s (Chief Financial Officer) office is the best suited to manage this. It alters the role of the CFO and their team. They play a vital role in managing change and building a sustainable business model. A CFO’s office can help the businesses recognize risk and compliance, whilst pursuing the opportunities associated with sustainability for profitability and revenue generation. With evolving regulatory requirements on disclosures, the role of the CFO’s office and its team in non-financial reporting is fast catching up globally.
This new profiling covers two key areas:
- Value Creation
- Value Preservation
Value Creation: Unlocking the value hidden in sustainability requires action in the following areas:
- Sustainability as part of the business strategy: ESG (Environmental, Social and Governance) initiatives cannot be run by a centralised approach as multiple functional departments such as procurement, supply chain, sales & marketing, would be involved in the development of sustainability plan and finance teams have a great opportunity to orchestrate this process organisation-wide.
- Bringing accountability to sustainability: The finance team should set quantitative performance indicators that are tangible holding relevant teams accountable for delivering results/business outcomes.
- Collaboration in a connected supply chain: By seeking collaboration across the supply chain, the impact of sustainability/ESG related programs can be significantly amplified with partnerships. Finance team plays a key role in helping structure innovative partnerships with critical players in the extended supply chain.
Value Preservation: Bringing more transparency and reliability in ESG reporting requires building systems and processes to ensure accurate non-financial reporting of the same quality as financial reporting in areas such as:
- Risk & Compliance: ESG risks become more evident with businesses facing new kinds of risks. Some of these have the potential cause financial or reputational risk and have penal consequences. This requires clear attention from the CFO’s office and Risk Management department to identify risk paraments and build mitigation plans around them.
- ESG reporting/ Sustainability Reporting: The CFO’s office should take the initiative on ESG reporting/SR by adopting the standards and measurements like the GRI (Global Reporting Initiatives) standards, SASB (Sustainability Accounting Standards Board) with efficient collection and management of environmental and corporate social responsibility (CSR) data. They need to automate the collection, consolidation and management of data to monitor and track key metrics. This can bring alignment and convergence across reporting frameworks to ensure uniform disclosure methodology for investors and ease the pressure on companies.
The use of advanced technologies like blockchain, artificial intelligence and machine learning for authenticating source of data and timely and accurate financial reporting is becoming mainstream today. The maturity of these technologies helps cater to newer disclosure requirements on sustainability from multi-tier, multi-geography, multi-party environments.
Following in line with the Paris Agreement and related national commitments, Sustainability Reporting requires a myriad of information to be provided which is non-financial in nature such as data on CO2 emissions, water discharge and usages, energy/power consumption etc. Distributed Ledger Technology helps to capture this data from source, authenticate/verify the data, provide an audit trail and ensure enforcement of governance/ control framework. The CFO’s office should become the torch bearer to build expertise and capabilities in sustainability/ESG area by leveraging latest technologies.
