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Finance & Investment
The Role of the CFO in Sustainability Reporting

With increased expectations to assume the role of climate controller in business, how should CFOs go about measuring the success of their organization’s environmental policies?

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.