Financing a sustainable transition

ENVIRONMENTAL, social and governance (ESG) issues, once considered extra-financial, are now being seen as material risks and opportunities for a company’s bottom line. Recognising this, financial markets are changing – with important consequences for how companies finance themselves and shape their investor relations. The results of the latest European CFO Survey reveal that when it comes to ESG, many companies are missing opportunities to engage with investors effectively. Finance departments have a role to play. In order to do so, they might need to build new capabilities.

Key takeaways

• Investors and lenders now expect companies not only to deliver strong financial performance but also to have a positive social and environmental impact.
• CFOs can promote the social and ecological transition of their companies by using new financing tools and by supporting sustainability impact projects.
• Finance executives can help rethink the performance model of their company, using new accounting frameworks (such as the Triple Depreciation Line framework) and new measures for triple performance (i.e., economic, social and environmental).
• Finance functions have a key role to play in ensuring the relevance, compliance and accuracy of sustainability information provided to external stakeholders – from risk analysis to governance, internal control, prevention and mitigation measures, and third-party assurance.
• CFOs need to steer financial and non-financial performance using new tools and solutions, internal dashboards, individual and collective performance criteria, and group and entities roadmaps.

What this means for companies and the role of financial executives

Sustainability is increasingly affecting how companies interact with the financial market. The COVID-19 pandemic has accelerated the trend, showing the relevance of ESG considerations for the financial performance of businesses.

Finance departments have a key role to play in supporting the transition to sustainability in their companies. Financial executives could benefit from considering the following points:

1. Connect with all relevant stakeholders. Setting sustainability targets alone is not enough to move toward a more sustainable business model. These ambitions need to permeate the organisation. It is therefore key for the finance function to involve all stakeholders and departments, in order to ensure there is both the will and a budget to implement the required practices and plans. By connecting in a structured way, the finance function can promote innovation and the creation of sustainable products and services in the organisation.

2. Assess and transform data capabilities. The demand for more reliable sustainability information is increasing. Finance functions have a key role to play in ensuring the relevance, compliance and accuracy of non-financial information provided to external stakeholders. Also, the quality of management’s internal reporting needs to be on a par with the external reporting, in order to steer the business strategy and execute it. This requires new flows of reliable data. Finance functions will need professionals with sufficient knowledge of sustainability and related laws and legislation, as well as data modelling capabilities to address different scenarios.

3. Digital non-financial information: Financial information is likely to become available in real time without manual interference.¹ This is also likely to be the case for non-financial information. Digitisation and automation may prove an effective means to be in control of information gathering and delivery while keeping finance costs at an acceptable level.

For more insights into what European CFOs think about sustainable finance, download our report.