The changing role of the Chief Financial Officer has been widely discussed in
recent years. CFOs today must be prepared to respond to growing interest from
stakeholders in their company’s sustainability practices and are increasingly
becoming some of the most important drivers of sustainability initiatives across
every industry. So, let’s look at why.
In the face of climate change,
transparency
is becoming non-negotiable in modern business. CFOs have always handled financial and
business reporting; so, we are a natural fit for to take on sustainability
reporting. It’s not a question of whether CFOs will assume this new
responsibility — but rather, when. Robust, data-driven
reporting
is key to building and maintaining trust with customers, partners, investors and
employees; and this is something we need to deliver on now.
This shift in public sentiment and expectation shouldn’t come as a surprise. As
we witness the climate changing around us, the average consumer expects the
brands they support to be proactive and communicative about their environmental
impact
and how they will reduce it. In
fact, a
recent PwC
study
found that 83 percent of consumers think companies should be actively shaping
ESG practices. The benefits flow internally, too — in a recent study from the
European Investment
Bank,
three-quarters of young employees surveyed say the climate impact of prospective
employers is an important consideration when job hunting.
With increased expectations to assume the role of climate controller in
business, how exactly should a CFO go about measuring the success of their
organization’s environmental policies?
As you can imagine, this is not a one-size-fits-all process. Every company and
every leadership team has a unique purpose and set of values; and no two
industries are necessarily impacting the environment in the same way. As a
starting point, your climate strategy must be closely linked to your company
strategy and purpose. Whether an agriculture company has pledged to eliminate
pesticide usage or a financial institution is decarbonizing its lending
portfolio,
their respective CFOs should ensure clear performance targets are established
and a company-wide plan is in place so meaningful progress can be delivered and
reported on.
Externally, it might be assumed that because tech businesses aren’t typically
considered among the biggest greenhouse gas emitters, we don’t face as much
pressure to reduce and report our emissions. However, every business has a role
to play in supporting the transition to a net-zero economy. The tech industry is
still accountable — researchers from Lancaster University
estimate
that tech companies could contribute 2.1-3.9 percent of global greenhouse gas
emissions.
This is why — in conjunction with a company’s sustainability
experts
and leaders across the business — tech CFOs should work to integrate their
company’s environmental practices with their everyday compliance and tracking
systems. From there, the idea of publishing their progress is much less daunting
come reporting season. Whether they decide to mesh their financial and
sustainability reporting into a single document such as an Annual Report or
publish them separately, their sustainability practices and performance should
be clear for all to see.
In an effort to introduce more transparency around our environmental impact at
Xero, we’ve shared our
plans to work towards
net-zero emissions and set clear emissions-reduction targets — which we will
share in our Annual Reports, in line with climate science. We are looking to
reduce our carbon emissions right across the business — from reducing various
contributors such as energy used in office spaces to indirect emissions in our
value chain from cloud hosting, business travel, corporate catering and IT
equipment.
Thankfully, many organizations and standards bodies exist to provide direction
for companies looking to improve their sustainability performance and reporting.
For example, the Task Force on Climate-related Financial
Disclosures and the UN Global
Compact CFO Taskforce are
encouraging and supporting companies to integrate sustainable practices into all
aspects of their business and report on performance. The International
Financial Reporting
Standards
(IFRS) is also developing standards for climate accounting that are due to
be released in 2023.
The most important thing to remember in all of this is to approach climate
action genuinely and with commitment. Publicly reporting your sustainability
performance has become as critical as reporting financial performance. Not only
is it the right thing to do; it also gives leaders a broader picture of
organizational performance and will support the long-term success and
sustainability of every business.
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Kirsty Godfrey-Billy is Chief Financial Officer at Xero — a New Zealand–based technology company that provides cloud-based accounting software for small and medium-sized businesses.
Published Apr 5, 2023 8am EDT / 5am PDT / 1pm BST / 2pm CEST