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As investors, lawmakers, and the public at large express growing concern over the state of the planet’s natural environment, leaders across the private sector are increasingly prioritizing sustainability as a core business objective. Corporate sustainability initiatives by major consumer brands and manufacturers with global supply chains typically get the most attention, but executives in a wide range of sectors have taken steps to reduce the environmental impact of their operations. One area that is gaining ground is sustainability in accounting and financial operations.
My company, Tipalti, recently partnered with market research firm Censuswide to conduct a survey of more than 350 US CFOs and finance personnel at midsize technology companies to gain insight into the role these functions play in enterprise sustainability efforts. The results suggest firms are placing a growing emphasis on the importance of sustainability in accounting and other financial services. Similarly, finance leaders aren’t shying away from the challenge to evolve.
A Shared Sense of Urgency
Among CFO respondents to the survey, 28% believe that environmental sustainability will have the largest impact of any trend on the future of their profession. Notably, CFOs feel so strongly about the future of the environment that a majority say they would study this subject area in school over any other in order to strengthen their ability to spur change. This response is indicative of the challenges many of these executives have encountered as their involvement in sustainability efforts grows.
When asked about factors that have led to greater complexity in their roles, 23% of participants say that incorporating environmental, social and governance (ESG) and sustainability considerations into CFO functions is a chief source of complexity. Moreover, one in five finance leaders confirmed that ESG implementation and sustainability initiatives were top priorities in the years ahead.
Indeed, CFOs are uniquely positioned to lead the push to align corporate financial targets with various sustainability metrics. Their teams often already possess the foundational skills and knowledge needed to track and report on these metrics, given their role in risk management and cost optimization and control. In many cases, finance officers have already been tasked with leading corporate responses to issues that extend well beyond operations — including those posed by globalization, the COVID-19 pandemic, and climate change.
Challenges and Opportunities
As CFOs search for new ways to grow and add value to their organizations, they’re increasingly aware of the evolving consumer and employee preferences that will drive long-term business goals. As a result, they’ve implemented a wide range of approaches to ensure that stakeholder concerns around ESG-related issues are accounted for in corporate financial practices. Achieving this alignment will become even more critical to overall organizational success over time.
Among these approaches, sustainability accounting has gained significant traction as a means of identifying, evaluating and managing social and environmental risks. This promotes optimal use of resources — for the benefit of the business and the planet. Sustainability accounting enables enterprises to understand and minimize activities that negatively affect the environment and to maximize the impact of positive activities. These two objectives are increasingly viewed as corporate responsibilities.
A recent KPMG study of 5,200 leading global companies found that 80% engage in some form of sustainability reporting, and as demand from investors and customers grows, the ability to demonstrate improvement against various ESG metrics will be key for virtually all companies.
Tracking performance related to sustainability, however, is a highly complex undertaking. Fortunately for CFOs and finance leaders, there is now a multitude of technologies that can make it easier. Fintech that incorporates advanced data analytics, blockchain, and AI-powered automation tools can help CFOs:
- Provide relevant data: By disclosing accurate, relevant financial and nonfinancial information, finance leaders can help improve communications with stakeholders through better reporting.
- Improve transparency: Finance leaders can assess the real costs associated with various corporate activities and the impacts those activities have on the environment and society.
- Enable strategic decision-making: Finance leaders can help businesses embed sustainability throughout their operations and empower other leaders to make smarter decisions related to everything from business strategy to process improvement.
A commitment to sustainability requires finance leaders to look beyond immediate profits for long-term returns and opportunities for value creation that align with environmental and social causes. It’s no small commitment, but it’s one worth making — particularly since such opportunities could be worth roughly $12 trillion by 2030. The cost of avoiding it, on the other hand, is likely not one that CFOs want to consider.
Chen Amit is the co-founder and CEO of Tipalti, a provider of payment automation software that helps businesses manage their entire supplier payments operations by streamlining all phases of the AP and payment management workflow in one holistic cloud platform. Formerly the CEO of Atrica and Verix, Chen is a veteran high tech executive and repeat entrepreneur.
Equities News Contributor: Chen Amit
Source: Equities News