ESG has become a vital part of CFOs’ arsenal

Finance leaders aligning their company’s performance with environmental, sustainability and governance (ESG) goals could previously have been considered – perhaps cynically, perhaps with good reason – something of a trend.

However, it’s now a necessity.

The call for such governance is louder than ever and the volume is only going up with ethical practices, diversity and inclusivity, and improved environmental practices rightly becoming a priority for many.

It’s a subject that will be discussed in the ESG expectations session at the Festival of Accounting & Bookkeeping on 12–13 March at the Birmingham NEC, with Dr Peter Ellington and Madelyn Postman both lined up as speakers. Click here to get your free tickets.

Involved early on

Ellington – who founded and is the CEO of Triple Bottom Line Accounting – has spoken to AccountingWEB about the issue, stressing that finance leaders simply have to be involved in the process of adopting ESG policies early on.

“In a lot of cases, they’re driving it because it’s about finances, it’s about reporting and it’s about reporting materiality – the material risk to your finances,” he said. “You can’t leave this to the sustainability people because they won’t do things in the right order.

“That’s the crux – they’ll just go for the biggest carbon reduction and that might actually cost you too much money, whereas the third one down the list will actually save you money.

“You can’t run sustainability without a financial view. So if finance says it’s nothing to do with them, then you’re done for as an organisation.”

Embedded at every stage

Sandra Hodgson, finance director at communications agency Ambitious, told AccountingWEB that financial considerations “must be embedded at every stage of ESG – from development, implementation and impact assessment”.

“As a finance director, I am involved in discussions from the outset of ESG initiatives to ensure financial feasibility, planning of implementation and then providing return on investment analysis. ESG and B Corp is now a standard agenda item on our monthly board meetings, ensuring continued focus and accountability.”

The focus has also shifted for Hodgson, who noted that while ESG had been a growing part of her role, it had instead become a “central focus” in the last year as Ambitious took what she called “the significant step” of applying for B Corp status.

“Achieving this has required considerable investment, and ESG will remain a core element of our financial forecasting,” she added.

Ambitious has also introduced a dedicated ESG budget and ensured that ESG-related investments, such as the Ambitious Citizens – which enables the team to give their time voluntarily in the community – a team wellness fund and local sourcing policies were incorporated in its annual performance metrics.

Inherently cross-functional

Sacha Herrmann, CFO at Soldo, agreed with the notion that the earlier finance becomes involved, the better.

“Finance is inherently cross-functional, so it should be involved in ESG conversations from the very start to maximise the chances of success,” he told AccountingWEB.

“As a business enabler, finance plays a crucial role in making ESG initiatives happen, not just by securing resources but also by breaking down silos across the organisation.

“No other function is better positioned to drive ESG forward with both authority and financial oversight.”

Something wrong

Ellington’s passion for ESG has been part of his life for several years and has been amplified by personal experience.

“I’m married to somebody who has always been sorting out her waste and has always been aware of climate issues, so in order for me to have a happy marriage, I’ve had to be aware of these things too. It’s been a bit of a family value.

“I’m also autistic and I hyper-focus on things and think about things a lot, and look for equity and fairness in the world.”

He said: “I’ve got three accountants in India and I’ve lost two of them recently because they’ve had to re-think their careers due to having to nurse their grandparents because the air quality is so bad in Noida.

“They can’t go to the shops and function so they’ve had to change their career so that they can work at home on sets of accounts for locals as opposed to working in an international outsource organisation.

“Their grandparents are going to die earlier than they would otherwise because we – the privileged few over in the UK, America and Canada – are just spewing stuff out into the atmosphere, which is effectively killing people.

“That’s not fair, no matter what you say – there’s something wrong there.”

Breaking down silos

Getting others on board in light of such bleak circumstances is now part of a finance leader’s role, with Herrmann noting that for most teams, ESG is already seen as an important aspect of their day-to-day so there’s “no need for convincing”.

However, he added that the main challenge “comes from breaking down silos”.

“Some teams hesitate to share information, often due to concerns about scrutiny or audits,” he said. “Overcoming this requires fostering a culture of transparency and collaboration.

“While board support for ESG is typically strong, securing buy-in from executives can be more challenging, particularly when they are accustomed to operating independently. Breaking down these silos is crucial to driving ESG success.”

Never been more essential

Hodgson recognised that progress isn’t just about budgets.

“To achieve success in ESG relies on a collective team effort, keeping the team engaged and on board with the company objectives,” she added. “We have provided ESG-focused training and workshops to ensure that the team understands the real-life impact of their actions without feeling overwhelmed.

“Small, consistent changes can make a significant difference.”

She added that strong governance has “never been more essential”.

“Our B Corp application process helped set clear governance standards and highlighted where additional procedures were needed – particularly in tracking our supply chain.

“These improvements have introduced additional checks, impacting the efficiency of our operations and finance team, so we have prioritised additional support and workload management to maintain productivity and team wellbeing.”

Fit for purpose

Ellington’s ESG journey continued with writing a doctorate on social environmental justice asking if accounting is fit for purpose.

“I asked if it can actually do all this stuff and I came to the opinion that accounting and numbers probably can’t – there needs to be a narrative because they’re so important.

“It’s all right doing a doctorate and saying this is how the world could change and how it could be a better place but how do you bring that into action? If you want to change the accounting profession, you have to be in it.

“You can’t just be an academic talking about how the world could be better. Nobody cares.”

He added: “If you want to change academia, you’ve got to change how we practice because accountants do what accountants do, accountants teach what accountants do, accountants learn what accountants do.

“So change what accountants do and then their education might change along the same tune. Triple Bottom Line Accounting is about being the change you want to see and trying to prove to other accountants that you can do it – and we’re doing it.”

Sustainable workplace

Hodgson revealed that as a company, Ambitious “recognised the growing importance of ESG, both in terms of our own business operations and the increased requests from our clients for more ESG-focused communications services”.

In response, in 2021 it employed an ESG-focused role to assess, research and propose timeline changes to our business.

“Leading by example was a key priority for us, particularly as we support clients on their own ESG journeys.”

The firm has since tried to foster a more sustainable workplace by focusing on several practical initiatives such as increasing recycling efforts, encouraging the reduction of single-use plastics and partnering with certified waste management companies to ensure responsible disposal and recycling.

Pressure to demonstrate responsibility

Herrmann believes that ESG became a serious focus for companies about five years ago, with the move being “largely driven by pressure on publicly listed firms to demonstrate responsible behaviour”.

“This created a ripple effect in the B2B space, as companies needed to assess their vendors’ ESG practices to secure deals,” he added.

“Today, ESG is firmly embedded in the CFO’s role – it’s a cross-functional responsibility that requires strong leadership at the executive level. As a key decision-maker, the CFO is uniquely positioned to drive ESG success within a company.”

He added that aligning financial performance with sustainability and ESG goals “starts with measuring impact and setting realistic, achievable targets”, adding that it’s crucial to take it seriously.

“While ESG is essential for creating a better world for future generations, companies must strike a balance between investing in ESG initiatives and maintaining sustainable growth.

“Having a dedicated ESG lead within the team is key to driving change, but success ultimately depends on clear commitments from the board and executive team.”

On your dial

Ellington sang from the same hymn sheet, stressing that “you need to be thinking about it”.

“Have it on your dial and get some of your people looking at it in depth. Otherwise, you’ll be paying external people to look at it in depth. It’s a way of looking at your business differently and often it then comes with more clients as well because we’re in supply chains.

“The Institute of Chartered Accountants in England and Wales and the Association of Chartered Certified Accountants have already launched their ESG sustainability product. They’ve gone to town and have broken that down even further now, and the courses are super. That’s where you start.

“Then you need to be assessing the legal situation and the minimum requirements because if you don’t find out what you’ve got to do and when, you’re going to have to get some very expensive consultants to come in and sort you out.”

To find out more about the challenges and opportunities that lie ahead for CFOs and finance directors, register now for FAB, which will be at the NEC in Birmingham on 12–13 March. You can get your free tickets to the show here.