By Enzo Tolino, SVP Finance EMEA, Oracle
Recent geo-political uncertainty, rising inflation and supply chain difficulties have long since dampened any early optimism CFOs may have felt about the economic outlook as the pandemic receded. In the UK, large numbers of skilled workers left post-Brexit and during the pandemic, leaving many companies little choice but to award large pay rises to prevent any further haemorrhaging of talent.
As discussed in my previous blog, it’s never been more important for CFOs to be flexible and open to new opportunities. It remains paramount to secure the organization’s long-term relevance and competitiveness through support for business transformation and digitisation strategies. At the same time, investors are increasingly interested in corporate environmental, social, and governance (ESG) agendas when selecting stocks for their portfolios.
In this blog, I explore the economic case for ESG initiatives and how to create a framework for CFOs that allows digital transformation, ESG initiatives, and business prosperity to co-exist—enabling financial and social sustainability to flourish.
Regardless of efforts to minimzse its impact on the environment, every business, large or small, has a climate footprint. As business becomes increasingly digital, forecasts warn that IT will account for 15% of global emissions by 2040, and data centers will consume 8% of the world’s electricity by 2030 (compared with just 2% today) unless there is radical change. By current estimates, if we continue the same course, climate change will cost the global economy $7.9 trillion by 2050. To simply limit global warming to 1.5C, current greenhouse gas emissions will need to be halved by 2030 and cut to net-zero by 2050.
Conversely, however, greater connectivity between systems and devices could unlock $6.2 trillion in economic value by 2030, while carbon emissions could be cut by 20% just by using smart logistics, circular supply chains, and intelligent manufacturing.
Research by Accenture has revealed 68% of businesses want financial leaders to take responsibility for ESG. Finance teams already have the necessary skill sets to drive ESG initiatives, and CFOs have a distinct advantage over their C-suite colleagues to drive positive ESG change internally and externally. After all, monitoring and reporting, risk management, and cost optimization are already part and parcel of the finance department’s everyday responsibilities.
CFOs want to do more to advance their sustainability agenda but the lack of consistent international standards for measuring and reporting ESG progress makes it difficult to know where to start. As the CFO of a UK construction company recently put it during one of our round table events, the biggest issue is not being able to accurately measure carbon footprint. But the pressure on CFOs is growing. A representative from Deloitte, at the same event, predicted that in the next 10 years auditors will be looking more at carbon footprint than financial reporting.
For finance leaders, the question of knowing where to start, which metrics to measure, and how to report is clearly very important. For example, smaller organisations may want to start at a local level, measuring energy and resource usage, and look for ways to optimize. Larger organizations, on the other hand, may decide to act more strategically and even involve their shareholders.
An example of a high-level ESG reporting cycle could include:
One thing that you can count on is that, whether this or some other TCFD-related ESG framework is adopted, technology will always play a key role in providing the data and metrics to help you, as finance leaders, drive your ESG agenda forward.
Digital transformation strategies are radically reshaping company operations, giving them the agility to better respond to—and even anticipate—economic and market changes that threaten to disrupt business as usual. In addition, the financial impacts of moving to the cloud can help to unlock large resources that were previously tied up in lengthy contracts and physical infrastructure.
Increasingly, digital transformation is helping drive forward ESG initiatives and goals, not just through enhanced reporting but also more sustainable business operations. Moving to the cloud, for example, enables the typical business to reduce its carbon footprint and lower its energy consumption. Moreover, many IT vendors are now committed to renewable energy and carbon offset schemes that bring substantial ESG benefits.
It’s a win-win situation that serves the business and its ESG agenda.
In summary, the current economic climate makes it a challenging time for CFOs wanting to launch ESG initiatives. But as finance leaders continue to cement their importance at the top of their organisations, they’re in a prime position to drive ESG commitments together with digital transformation. It’s not just the right thing to do, but it can also create significant medium and long-term benefits to organizations, while adding to their agility and competitiveness in an unpredictable market.