This month I attended the Australian Financial Review CFO Live conference and one overarching message came through loud and clear - CFOs should already be well on their way when it comes to Environmental, Social and Governance (ESG) and if not, it should be right at the top of their 2022 to-do list.
ESG permeated through all the sessions during the day - from ASIC Commissioner, Cathie Armour listing climate change as a key focus area to a strategic leadership panel discussing the value of an organisation’s social licence to operate.
The key considerations that CFOs need to be aware of if they’re just jumping on the ESG train are:
- The need for credibility within disclosures - ASIC are already reviewing disclosures to ensure climate related statements match practice given increasing concerns around greenwashing.
- Key driver for capital raising - ESG funds represent a significant portion of existing company ownership making active engagement with them critical. However, since all investors now have an ESG framework for decision making and with an increasing pool of capital for ESG investment, ESG is becoming a key driver for capital raising. In some areas, discounts are being offered to organisations for ESG aligned activities.
- Framework harmonisation is coming - a number of speakers welcomed the establishment of the International Sustainability Standards Board (ISSB) last month by the IFRS Foundation - in the hope it will reduce the frameworks and enable better comparability for investors. ASIC welcomed the Board in a recent media release here and so did Chartered Accountants ANZ in our release.
- Consolidation needed for ESG ratings - the conference also focused on the significant resourcing currently required to respond to the numerous ESG rating surveys. Given the consolidation taking place within the reporting frameworks - similar change is needed for ESG ratings.
As Armour concluded, it is a challenging time to be a CFO - new shocks can emerge at any time and CFOs need to be agile, flexible and responsive. They also need to balance risk and opportunities whilst maintaining trust with the wider community. Looking beyond ESG issues, there are three other areas that CFOs need to be focused on in 2022:
- Collective action and collaboration - in key areas such as increasing cyber resilience, addressing climate change or unlocking value in a merger or acquisition, CFOs should seek out opportunities for collaboration to accelerate change and action for the benefit of the wider business community and society. In particular, attention was drawn to the role of large organisations in supporting small businesses. Many have made an enormous effort to support smaller business during the pandemic and that role should be maintained - whether this be through payment times reporting or e-invoicing.
- Grow your own talent - The finance transformation skillset is necessary for many organisations but there is a current lack of these skills. Many CFOs noted it is time to create their own pool of talent through graduate recruitment directly rather than relying on larger accounting firms to train graduates for them. The new CA Program’s specific inclusion of data analytics and risk was noted as now helping to provide these skills.
- Data, data, data - whether it's getting the information needed, ensuring its right, finding better ways to analyse it or keeping it secure - data remains an ongoing focus area for CFOs.
As I look towards 2022, I am excited by the future. Having worked in the ESG space for many years, it's amazing to see these issues now take centre stage for business.
As CFOs navigate new challenges (and hopefully a few less surprises) next year, it is important to remember how the above focus areas can work together. How by having the right data for decision making and the right mix of skills in your team to measure, manage and report these issues, you can ignite collective action. The kind of action that may seem like a small step for your organisation, but in fact has a large impact for the world. Are you ready for 2022?