From Ledgers To (Sustainability) Legislation: The Evolving Role Of The CFO In ESG Reporting

From Ledgers To (Sustainability) Legislation: The Evolving Role Of The CFO In ESG Reporting

The shift from voluntary to mandatory sustainability reporting and the need to produce consistent, investor-grade disclosures has had a profound impact on how firms manage ESG internally. A regulation that has been particularly transformative is the EU's Corporate Sustainability Reporting Directive (CSRD), which effectively extends responsibilities beyond the sustainability team to multiple functions across the organization. One role that will see a notable evolution in its responsibilities as a result is the CFO.

Our survey research shows the increasing involvement of the CFO in ESG and sustainability. In the Verdantix 2024 ESG and sustainability global corporate survey, 73% of respondents viewed the CFO as a 'leading' or 'significant' persona in funding sustainability strategies - an increase of 24% since 2023. Perhaps more revealing is that 53% of respondents saw the CFO as a 'leading' or 'significant' persona in defining the firm's sustainability strategy, suggesting that sustainability is becoming more of a strategic priority for businesses.

CFOs have two key roles to play when it comes to sustainability:

• Supporting the development of ESG data governance practices.
  For some sustainability teams, the concept of creating ESG data governance policies and designing data controls may be relatively new. However, managing controls, assurance and data sign-offs are core responsibilities of finance teams. Accordingly, many sustainability teams are leveraging the expertise of their finance departments to ensure that sustainability data achieve the same level of quality and credibility as financial data, either through creating cross-functional working groups or by setting up processes to bring sustainability data into the control environment of finance.
  
  
• Assisting sustainability teams in preparing for external assurance.
  Under the CSRD, firms will need to seek assurance of sustainability disclosures, beginning with limited assurance and moving to reasonable assurance. Non-compliance can entail significant penalties: France, for example, will impose criminal sanctions for breach of the requirements, including a fine of up to €30,000 and imprisonment of up to two years for failing to appoint an auditor or independent third-party organization to conduct assurance. Many sustainability teams are engaging external assurance providers for the first time. CFOs, with their experience, can offer guidance on how to prepare for an audit and how to select the best-fit provider (for more information on assurance provider selection, look out for the upcoming Verdantix Green Quadrant on ESG and sustainability assurance services).
  
  

Ensuring CSRD and ESG compliance more generally will ultimately require the participation of multiple internal stakeholders, far beyond just the CFO and CSO - which is a key factor in the regulation's transformative nature.