By Jacobo Umbert, Co-Founder of Dcycle
ESG activity has for too long been treated by businesses as a compliance obligation – categorised as a necessary job to meet regulatory requirements, investor expectations or client demands. This is especially the case through the eyes of the CFO.
Limiting the scope of ESG’s role across business strategy leaves a wealth of untapped data that is key to unlocking greater revenue for businesses. In fact, with a little less fear and a little more control, ESG data can become a true strategic asset for CFOs. Here’s five ways more proactive ESG management can help:
- Make fully informed business decisions
Right now, without ESG data in the mix, organisations are making critical business decisions without seeing the full picture. Business data is usually siloed across teams – from finance and operations to HR and procurement – preventing a clear view of the entire organisation. ESG strategy and associated data sits within sustainability teams, while financial data resides with the finance department. This siloed approach can lead to decisions made in isolation, potentially exposing companies to unforeseen risks or missed opportunities.
Take the example of an organisation investing in a new facility within its supply chain. While on the surface it might look like a cost-effective move, without visibility into relevant ESG metrics, risks could emerge further down the line that threaten the investment. Integrating ESG and financial data ensures that decisions are informed, risk-aware and play into the company’s long-term resilience.
- Unlock efficiencies by aligning sustainability and finance
Centralising data is just one piece of the puzzle. Opening up clear communication channels between finance and sustainability teams is a fundamental evolution that needs to take place. In fact, it is one of the most important dynamics for businesses to get right, if they are to be commercially successful.
If we think back to the 1970s, financial data was once scattered across spreadsheets and reliant on manual input which posed significant risk of human error and general inaccuracies. While that’s no longer the reality for most finance teams today, the same cannot be said for ESG, who continue to battle with siloed data, manual reporting processes and reliance on multiple functions sharing information in a fast and proficient manner. CFOs who recognise the parallels between the challenges they once faced with those that sustainability leads still struggle with today will take an important step towards bringing two critical functions together for the benefit of the entire organisation.
- Build up business resilience against unknown risks
We know how dramatically regulations like the CSRD (Corporate Sustainability Reporting Directive), SFDR (Sustainable Finance Disclosure Regulation) and the UK Sustainability Disclosure Standards – just to name a few – can reshape markets. Just one example is how the CSRD mandates large firms to disclose annual data on their ESG-related activities, which will trigger mass changes across impacted organisations. As the phased implementation approach continues, businesses will need to report on various ESG metrics to provide a complete view of their sustainability agenda. But while this requires extra lift internally, what the CSRD and other regulations give businesses is the opportunity to deepen their understanding of the sustainability risks and opportunities.
So, without a firm grip on ESG performance, teams are forced to repeat the same exercises time and again; collect the right data from across multiple functions, assess whether or not they meet the requirements and make the necessary internal changes.
By not proactively integrating ESG into risk management, the threat of supply chain disruption, fines or reputational damage skyrockets. The point to remember is that proactive risk management is about far more than simply avoiding fines. With genuine understanding of the business’ ESG position, CFOs can take the next step towards safeguarding their long-term financial stability.
- Unlock new business opportunities
ESG requirements are taking up more paper space in public and private contracts – sometimes as much as 10–20% – as organisations demand greater transparency and evidence of regulatory adherence.
It comes as little surprise therefore that those companies lacking robust ESG reporting are at greater risk of missing out on critical business wins. By embedding ESG into overall business reporting and assessment, CFOs can unlock new revenue streams and strengthen client relationships.
- Strengthen funding and investment prospects
Strong ESG data and reporting can secure better financing conditions for growing organisations. For instance, Deloitte’s 2024 ESG in M&A Trends Survey revealed the impact of rising concerns about companies’ ESG performance during the M&A process, with 72% of businesses saying they have halted acquisitions because of this.
Equally, for organisations looking to secure loans from banks, having a clear ESG agenda supported by tangible metrics is becoming increasingly important. Recent data showed that most lenders view a firm’s ESG status, or ability to transition to net zero, will have an increasing influence on their appetite to lend over the next five years.
What’s next for CFOs?
ESG isn’t a box for CFOs to tick. It’s actually their ticket to untapped revenue. CFOs have a crucial role to play in cutting through siloed data chaos, bringing together the finance and sustainability teams and keeping the business one step ahead of market curveballs heading their way.
Those are the ones not just surviving but feel secure and confident in their business resilience. It’s a play for greater revenue and cementing their position in the market as the twists and turns continue around them.
