Environmental impact: How finance leaders can add value to sustainability efforts

Introduction

The science behind climate change comes down to a few crucial numbers: Carbon dioxide levels in the atmosphere (414.72 parts per million in 2021, a record high),¹ global temperatures (which have risen two degrees Fahrenheit since 1880)², and ocean levels (3.8 inches higher than in 1993).³

The significance of numbers can also extend to many corporate activities associated with sustainability management. New regulations for environmental, social, and governance (ESG) factors are coming into force—and more may be on the way (see “How ESG disclosures may expand the nature of the CFO’s role,” CFO Insights, Jan. 26, 2023). The main thrust of the rules? Requiring companies to provide information on how climate change affects their operations and how their operations affect climate change.⁴ Even before the regulatory focus, many investors, stakeholders, and social advocates have been clamoring for more detailed data on individual businesses’ risks and impacts.

It’s likely that most companies' finance functions will be deeply involved in reporting sustainability information, helping to bring discipline and consistency to a new dimension of nonfinancial reporting. Deloitte’s 2022 Sustainability action report: Survey findings on ESG disclosure and preparedness, asked 300 executives which part of management had responsibility for managing ESG disclosures. Thirty-seven percent of respondents cited CFOs, second only to the 42% who chose chief sustainability officers.⁵

Beyond imposing new reporting standards, ESG requirements could potentially change how value is created, generated and captured, mandating that CFOs measure societal impact, rather than relying solely on total shareholder returns (see “The CFO Agenda 2023,” CFO Insights, April 20, 2023). Sustainability data produced for internal consumption could help CFOs uncover operational inefficiencies, identify new sources of revenue, and shape due diligence assessments of potential acquisition targets. In time, climate-related metrics may routinely be factored into capital allocation, investment decisions, product pricing, and employee compensation.

In this edition of CFO Insights, we’ll look at how increasing demands for accurate and transparent sustainability numbers offer the potential for finance chiefs to become better business partners to their C-suite peers. With a role that reaches across the enterprise, CFOs may be ideally positioned to drive value from ESG compliance. By keeping the ESG agenda in front of both employees and the board, as well as directing funds to support related initiatives, finance leaders can play a pivotal part in ensuring that sustainability is integrated into how the business operates, innovates, and grows.

Endnotes

¹ “Climate Change: Global Temperature,” National Oceanic and Atmospheric Administration, January 18, 2023.
² Ibid.
³ “Climate Change: Global Sea Level,” National Oceanic and Atmospheric Administration, April 19, 2022.
⁴ “SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors, Securities and Exchange Commission,” March survey 2022; “Directive (EU) 2022/2464 of the European Parliament and of the Council,” December 2022.
⁵ “Sustainability action report: Survey findings on ESG disclosure and preparedness,” Deloitte Development LLC, December 2022.

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