A new challenge or new demand for organizations? The preparation of these reports (that consider environmental, social, and corporate governance aspects) will certainly require dedication and a cross-cutting effort, but also greater responsibility from the CFO.
Non-financial information is becoming increasingly relevant when evaluating companies. Numbers show what already happened and what is sought today is a broader, more comprehensive view of organizations’ management, as well as a greater emphasis on their medium- and long-term projection.
There are various long-standing initiatives taking hold, which in turn provide new paths that allow balancing financial performance with sustainability in the environmental, social, and corporate governance aspects (also known as ESG Reports).
Over the past months, however, we have been able to observe dramatic changes and breaking of paradigms that will create a new reality in the global economy.
In this context, the business sector is required to make equally significant changes in very little time, to contribute and ensure a new balance through social responsibility actions.
The importance of environmental, social, and corporate governance aspects in the new reality
Currently, investors are not only considering financial aspects in their evaluations, but environmental, social, and corporate governance aspects have also become key factors that can tip the balance in a decision-making process.
It is already clear that intangible factors such as trust, reputation, and business model viability are not reflected in the financial statements, therefore, high-quality supplementary information that allows a long-term assessment is required.
These elements constitute material factors when determining the value of an organization. This is where the Integrated Sustainability Reports gain relevance and become the best mechanism for companies to communicate their strategy, action plans, and progress over time in ESG matters.
Only in this way will there be a complete assessment of their capacity to create value persistent in time.
How is an Integrated Sustainability Report created?
Preparing an Integrated Sustainability Report involves an integrating view, as it references how the company uses “the other resources” associated with its business (natural, social, human) and how they interact and affect their financial results.
The preparation and communication of non-financial information are as important or more so than that of financial information, and it requires a high level of assertiveness.
It is at this point where the CFO’s role is expanded and gains relevance in a dimension that was not previously considered, as it is necessary to ensure the information’s entirety, its timely delivery, as well as its quality and veracity.
The communication of this information will reach all the stakeholders, and it is believed that over time it can become a matter of survival for many businesses.
This “new” reporting method allows for all stakeholders to know the business model, corporate strategies, financial prospects, opportunities, and risks inherent to the company’s operation in detail, in order to have full visibility of its impact on society as a whole.
What is the role of the CFOs?
CFOs are used to working at high levels of demand, so the new context puts once again their work rigorousness to the test. The abilities they must learn and develop will have to complement a greater understanding of the business and its interaction with stakeholders.
In this reinvention process, CFOs must act transversally across the organization, define the processes and activities that will be required for its construction, which in turn will affect the formation of specialized teams and acquisition of technological support tools.
ESG Reports: a new way of introducing the company to society
Likewise, it involves associated benefits such as:
1. Access to capital
Showing transparency and integral management makes organizations more appealing to attract capital, and not only there is access to them, but also the conditions will be more favorable compared to those which are behind in this matter.
This new vision contributes to the long-term success of the business management and naturally results in an increase in the company’s worth.
2. Profitability and growth
By communicating financial and non-financial information, a clearer and more accurate context is given to shareholders and investors, which enables them to understand how the company creates, supports, and adds value in the long term.
This challenge/vision encourages innovation and distinctiveness over the competition, focusing on new ways of generating income, cost savings, and risk control.
3. Corporate and brand image
There are many examples of bad practices by some corporations, which is why the transparency of corporate commitments in matters of environmental, social, and economic impacts becomes fundamental.
That is how codes of ethics and regulatory frameworks on environmental, social, and corporate governance matters have emerged to counter this situation, which is well exposed in the United Nations’ Sustainable Development Goals.
The integrated report’s quality definitely has a positive effect on investors’ perception and trust.
4. Risk management and compliance
It assesses political and environmental practices aspects, as well as social and corporate governance issues relevant to the organization. The way they are defined allows identifying risks associated with management and the value chain.
In addition, it allows reporting business opportunities, consolidating competitive advantages, and even entering international markets.
Integrated Sustainability Reports are a very important tool to consider in strategic planning processes, and they contribute to outline a road map that has to be documented with high-quality information so that it accurately reflects the long-term value proposition.
In this respect, organizations will have to restructure themselves in order to empower and deliver the necessary tools for their CFOs to successfully perform these tasks.
In any case, they will not be alone in this process, as they will require guidelines from their directors and the CEO, who will also participate more actively through specialized committees, setting their own hand on the declarations and commitments reached there.