More and more companies are making net-zero pledges and increasing their commitment to sustainability. There has been a 123% increase in the number of publicly listed companies setting net-zero targets between 2021 and 2023, according to the University of Oxford’s net zero progress tracker.
Behind these lofty ambitions, however, is an alphabet soup of sustainability legislation and reporting frameworks. Keeping on top of this requires complex data gathering and meticulous attention to detail. It is perhaps unsurprising then that climate strategy is being delegated to the more detail-orientated individuals in the C-suite, specifically CFOs.
Nine in 10 CFOs believe ESG issues will be a major focus of their role over the next five years and 85% expect an increase in mandatory climate disclosure, according to a survey of 730 CFOs by professional services firm Accenture.
New regulation makes ESG a finance issue
As businesses contend with a rapidly evolving regulatory landscape, they are increasingly integrating ESG into their financial reporting. “The accountants are taking over,” says Janice Lingwood, consulting director at design agency Design Bridge and Partners.
UK Sustainability Disclosure Standards: what are they?
There is good reason for this, she explains. Many of the skills required to lead on climate-related compliance can be found in finance teams, such as monitoring and reporting, risk management and cost optimisation. “They already have very well-established procedures for financial reporting and are therefore well positioned to bring that same process and rigour to upcoming sustainability standards,” she says.
This comes as the UK government is preparing to release its Sustainability Disclosure Standards (UK SDS) in 2025. The new standards are prompting organisations to rethink how they measure and communicate their climate initiatives to stakeholders, Lingwood explains. Many companies will be required to disclose what impact they are having on the environment for the very first time, creating a new lens through which to view financial impact.
There are other factors, beyond ensuring climate reporting and compliance efforts are accurate, that means finance chiefs are increasingly well placed to take the lead on sustainability strategy.
Why CFOs are a natural fit to lead on climate strategy
The CFO has a “natural proximity” to the climate agenda, explains Martin Hargreaves, CFO of fire suppression company Alpine Fire Engineers. As a strategic partner in the business, they are closely aligned with investors on ESG issues and responsible for identifying new growth opportunities across a wider set of stakeholders. He says: “There is an expectation from regulators, board members and shareholders that the CFO will take action on sustainability.”
The accountants are taking over
Finance chiefs also control the budget and can ensure any sustainability projects are cost-effective and can, where possible, even contribute to the company’s bottom line.
While climate reporting is often dismissed as a compliance burden or unavoidable cost, it is increasingly being viewed as way to boost revenue by identifying possible new areas of growth. Indeed, according to BDO’s 2024 ESG Risk & ROI Survey, the most frequently cited objective for CFOs in 2024 was a focus on the potential upside of ESG initiatives.
“It’s more than just paying lip service,” Hargreaves notes. “I’ve seen how it can create real value for the business, from improved brand reputation to recruitment and access to funding.”
As organisations show an increasing appreciation for the ways in which sustainability initiatives can drive value, Hargreaves expects that CFOs will continue to have a leading role to play, even as more companies appoint designated sustainability leaders.
Are finance leaders ready for the new job?
They may be a natural choice, but whether CFOs are prepared for this newfound responsibility, and whether businesses should be relying on them so heavily to guide their sustainability initiatives, is another matter. In fact, only 22% of finance chiefs surveyed in the Accenture report feel well prepared to disclose on climate-related risks and opportunities.
Hargreaves is not surprised at this lack of preparedness when considering the “intangible nature” of climate as a measurement, and the fact that reporting on it has not been high up on the CFO agenda until very recently. “It’s a really new area and it will be an interesting challenge for finance leaders going forward,” he says.
As climate reporting gathers pace, finance teams will need to develop the right skills and expertise to support their organisation’s sustainability efforts.
In Hargreave’s view, such an undertaking demands a group effort from all members of the executive team, given that ESG data is usually housed in disparate systems across multiple business functions.
Whether they are ready or not, finance chiefs have found themselves thrust into the centre of their organisation’s sustainability efforts. Their response will determine whether their organisation benefits from the access to new capital and new areas of growth it provides, or faces challenges, such as accusations of greenwashing.
This is the first instalment of a three-part deep dive into the CFO’s role in climate reporting and how they can prepare for success in this area.
