Doing better business: The CFO wears a new hat

CFO’s are increasingly looking at Sustainability related compliance, reporting and risk issues as part of their core activities,. As a key driver of corporate strategy, a CFO’s job really is about using resources wisely and ensuring that an enterprise is strong enough to thrive for decades to come.

Environmental sustainability and CSR can no longer be viewed as only superficially relevant to corporate performance. Sustainability is now key to business success as environmental and social performance are tied closely with corporate governance, stakeholder engagement, economic performance and financial objectives. The size of the CSR budget, mandated by the new rules, is substantial for most large companies and in addition this is a continuous long term spend. Two very good reasons for the CFO to get involved and stay involved.

CFO and Sustainability Reports

Reporting CSR impact in internal and external accounts is essential as investors have began to scrutinise more than just an annual report, printed months after year-end. The role of the CFO becomes centre stage as financial and non financial reporting falls under their domain.

Sustainability and Social responsibility Guidelines like the Carbon Disclosure Project, Global Reporting Initiative (GRI), GHG Reporting Protocols and even Sarbanes-Oxley have emerged.
The task of the CFO is now more challenging than ever.

In the Indian context, with the launch of the new CSR rules the reporting is a bit more complex. The new CSR Rules cover only a small aspect of what a company needs to do. In our earlier analysis we’ve highlighted that CSR spans across various stakeholders of the company – employees, consumers, suppliers and communities. The latest rules circumscribe and limit CSR activities significantly to communities. In addition GRI requirements too are wider than India’s new CSR regulations. Companies that have GRI reports or are intending to create them will still need to take a wider view of CSR spanning all stakeholders. Reporting in this case will be at 2 levels, the international standards based GRI report and the India specific report.

This implies that CFOs will need to be part of a process of developing long term measurable strategies and reporting mechanisms for both requirements.

CFO and Sustainability Risks

Sustainability risks are now strategic, operational, financial, reputational and compliance related. Over recent years, this has made sustainability a growing consideration for CFOs. Sustainability can be a means for making better investment decisions, creating improved performance metrics, and capturing more valuable data about the business. In short, for the world’s leading companies, it has become core to running a company well. To make Sustainability and Social Responsibility core to business functioning some key questions need to be asked:

– How are investors viewing our company vis a vis sustainability considerations?

– How can long term value be created by us keeping Sustainability in mind?

– How are sustainability considerations impacting major investment decisions?

– How do sustainability considerations such as water, power, social responsibility to affected communities impact our investment /project /company risks?

– How can we identify and measure the metrics and indicators for these risks?

Addressing sustainability issues needs the entire company to pull together and provide a range of cross functional inputs. Who better than the CFO to provide much needed rigor to sustainability-related data. Simply tweaking existing systems and processes is not the answer, change in culture and behavior as well as strategic long term thinking will help companies in doing better business where Sustainability and Social Responsibility are at the core.

 

Article coauthored with Utkarsh Majmudar and originally published in Economic Times.

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