Ala Presenti (Moniflo): ESG for CFO
Our world is full of uncertainty and challenges: natural disasters, climate change, human environmental damage, infectious diseases, biodiversity loss or social and digital inequality. Whether we accept it or not, whether we believe in it or not, this reality has profound implications for both people and businesses and generated a necessity for change. Interview.
How is ESG impacting the activities of CFOs?
The role of a CEO can differ a lot from a small to medium or large size company and I am sure it’s hard to stick to a single concept which speaks to everyone. However, no matter the size, the CFO is helping the company accomplish three crucial goals:
• make educated judgments;
• effectively handle resources; and
• achieve its strategic goals
Since I jumped into this role, I always say that now we don’t have anymore the “luxury” of building or having a traditional business. We must be sustainable by design. Now, more than ever, with all the increased regulatory and global pressure around sustainability, each CFO should embrace ESG considerations in their way of thinking and acting. It’s just a matter of time until natural selection will make its job and only those companies that can adapt will survive.
"We must be sustainable by design."
What about the biggest CFO’s dilemmas: profit or purpose?
I will dare to say PROFIT, unless you are a non-profit organisation. We are here to make money: today, tomorrow and 20 years from now and that’s exactly why we need to consider ESG aspects, both on the risks and opportunities side. We should be able in the long term to generate profits in a manner that limits adverse impacts on the environment and society while fostering outcomes that prove beneficial for both people and the planet.
This is not a tick-box compliance exercise, this is about how we should think and act to make sure we have tomorrow a world where our companies can expand and where we as a society will have a healthy environment and we will be able to enjoy the benefits of these profits.
In short, the CFOs responsibilities can be read together with the following considerations:
• Financial Reporting and Compliance: how the “double materiality” is considered and how is it going to impact their financial position and reporting.
• Cash Flow Planning: assess the impact of paying - or not - the green premium for a sustainable transition
• Financial and Strategic Planning: what are the global megatrends their business is exposed to now or is highly likely to be impacted by in the future (digital transition, energy and ecological transition and social transition)
This will help us to adapt, anticipate and mitigate potential risks which will arise with the evolution of various ESG considerations which impact our world and our businesses.
Which risks and opportunities related to ESG do you identify?
One of the biggest challenges we face is related to timing. Anything around sustainability and ESG integration requires long-term thinking and this sometimes might be inappropriately considered.
Most of the time, especially for well-established, traditional businesses, the transition to a sustainable business model involves paying a high “green premium”. The companies in their urge to deliver immediate results for their shareholders tend to focus on short-term outcomes. The capacity of a company to stay relevant in the market and survive in the medium and long term might be impacted by short-term thinking.
In the ESG world, we say: Where there is risk, there is an opportunity. From my perspective, the biggest opportunity is that integrating ESG into a company's daily operations or financial strategies can increase cost efficiencies through resource optimization including long-term costs saving, enhance brand reputation, lead to improvements or innovation and of course, it can lead to growth by accessing new markets.
To give some examples: one of the biggest global challenges defined by WEF is Infectious diseases: This is a big risk but as well big opportunity. It can generate financial losses and business disruption, but it also favors Healthcare innovation, Digitalisation, Digital inclusion and Cost savings for companies which embrace work from home.
Which are the key priorities that CFOs need to take care of in the short term?
The number one immediate priority is to accept that ESG integration is a must-have and the time to act is now. As we live in a globalized world, we cannot isolate ourselves and pretend that here in Luxembourg this doesn’t affect us. There is a price we, as a society, as humanity, pay for failing to mitigate the major global risks such as climate change, infectious diseases, water crises or financial failures and imbalances across the globe.
In order to do that, the first steps would be:
1. Specify your medium and long-term goals and choose a sustainable strategy to implement. If the organization is big enough, adhere to a reporting framework such as SASB, GRI, TCFD, ESRS, etc.
2. Develop an action plan based on their activity, such as lowering CO2 emissions, improving energy or water consumption, enhancing governance, prohibiting specific vendors, etc.
3. Keep track of, review, and modify any steps of the action plan if their results are not satisfactory.
Secondly, by analyzing the business model including its short and medium-term forecasts, each CFO should answer the following questions:
1. Which ESG trends and developments are changing the industry landscape and how this can impact their sector and implicitly their business
2. Can their company adapt or is there a risk that the business model will become an unsustainable business model
3. How should they evaluate or reevaluate the value chain and supply chain to ensure the external main contributors are aligned with the company's sustainability strategy.
And as a last point, it is essential that CFOs align themselves with all the stakeholders to ensure that financial planning is reflecting the company’s commitment in achieving sustainability targets. Effective resource management at all levels and execution are essential elements for ensuring the long-term financial viability of the organization. These things take time until we see results, and the sooner we implement them, the faster we will see their positive impact. I believe we can have a world where profit, purpose and the planet can go hand in hand and it’s our duty to ensure the money businesses generate or need flows in the right direction.