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A framework for success: integrating finance into sustainable business

Over the past decade, there has been a significant shift in how stakeholders view a company’s responsibilities. Business leaders are returning to concepts that consider a business as an integrated enterprise in which management has responsibilities to the whole, writes Shari Littan, manager, corporate reporting technical activities at IMA


Research is showing that management attention to sustainable business issues connects to metrics of performance, lower cost of capital and market value.

Forward-looking organisations are discovering these benefits by building strategies around an understanding that the resources on which they depend – such as liveable and workable climates, water and human talent – are limited and valuable.

This connection to performance and long-term value reveals the important role that CFOs and members of the finance function can bring to sustainable business initiatives. But how do finance teams find pathways from insulated departments to cross-functionality?

Last year, IMA’s research team conducted a series of interviews of corporate professionals at companies that are leading in the sustainable business arena. Through the study, we sought an understanding of the nature of the CFO and finance function’s actual involvement, today, in sustainable business activities.

The findings are summarized in our white paper, CFO as Value Creator: Finance Function Leadership in the Integrated Enterprise. During these interviews, as described in the white paper, we observed that we are showing the most progress in sustainable business and connecting this progress to performance and value, we are using a cross-functional approach: the finance function serving in its traditional role as internal business partner.

In 2014, the Institute of Management Accountants (IMA) and Association of Chartered Certified Accountants (ACCA) issued a joint report, Financial Insight: Challenges and Opportunities, that provided a framework for integrating the finance function into broader corporate decision-making processes.

Based on this framework, IMA developed and released Finance Function Partnering for the Integration of Sustainability in Business, a new report that applies the IMA-ACCA partnering framework to help finance and accounting professionals take an active leadership role in their organisations’ efforts to integrate sustainable business – sometimes referred to by the initialism ESG for environmental-social-governance.

The new partnering paper provides three components, each of which contains pragmatic actions that CFOs and finance function professionals can utilise to build an integrated enterprise.

 

Component 1: Creating a mandate for partnering on sustainable business activities

A CFO, as a member of senior corporate leadership, participates in articulating an organisation’s purpose and values.

The CFO also serves as a bridge between senior leadership and the regular day-to-day work of the finance team. In this role, the CFO can encourage the development of both informal and formal structures across the organisation. This creates buy-in, allowing the sustainable business team to reach out effectively and seek the finance team’s insight toward shared goals.

One of the most important aspects of creating the mandate is highlighting proof points. Finance professionals are extremely well suited for connecting initiatives to results by estimating the financial effects, such as the value of customer retention, employee commitment, transparency with regulators, and reduced capital costs.

 

Component 2: Fixing the information and enhancing data quality

A common challenge for sustainable business initiatives is a lack of quality data. Investors are increasingly demanding ESG information of better quality and relevance than companies are generally issuing today.

The finance team has a vital role to play in implementing controls and oversight, adopting the most relevant reporting standards, and measuring what matters. They have the expertise to help sustainable business teams connect the data to the company’s business model. Utilising technology, they can help aggregate relevant indicators on dashboards and into management reports.

 

Component 3: Deploying finance talent to meet sustainability challenges

Finally, it is beneficial for CFOs to build finance teams that are capable of cross-disciplinary thinking and initiative. In these ways, the finance and accounting team contributes as a vital business partner. The finance team brings its unique know-how and applies it with a long-term mindset. Deploying talent includes enhancing team diversity, as equity and inclusion enrich team perspectives and capabilities.

The CFO and finance function’s capabilities position them for developing new forms of decision-useful information about all the critical resources on which an enterprise relies. In this way, finance and accounting leaders can embody the high ethics and values that have always been a hallmark of the profession.

 

 

 

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