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The Entrepreneurial CFO: The Importance of ESG Finance Reporting

Megatrends are interesting because they deal with the future and how we imagine our lives will be.  We are living longer, migrating to urban centers, embracing exciting new technologies, and living with our parents (or our children) much longer.  But how real that future is depends on how much it affects you.  Sure, more people are eating vegetarian and driving electric vehicles, but so what?  If you work in the Office of the CFO, these trends sound more like longer-term hypotheticals for our stockbrokers and marketing brethren to worry about.  Why should we care about theoretical future states when we have to close the books, forecast our cash flow, finish the budget and get the Board book out this weekend?  When will all this cool technology actually make our Finance and Accounting lives easier?   

The short answer is it won’t unless you plan for it. 

The slightly longer answer is that CFOs need to be just as entrepreneurial as investment fund managers when thinking about these trends.  After all, the CFO is also the chief investment officer.  She’s the one responsible for allocating the firm’s scarce resources, including human and investment capital, to the most efficient places in the company.  That especially applies to funding higher margin growth markets or reducing investments where necessary.  For example, during the budget process, the CFO is tasked with deciding which business units get to spend capital dollars and how much, which directly correlates to what the investor of that company’s stock does when deciding to buy that company’s stock. 

In his article “5 CFO trends to watch for in 2021”, Jim Tyson makes the case that there are five trends affecting CFOs in the near future that they should be preparing for.  If he’s right, then CFO’s should pay close attention to each trend, especially when embarking on a new ERP system implementation.  They are: 

  1. Increased pressure to adopt ESG (Environmental, Social and Governance) metrics 
  2. The death of LIBOR 
  3. AI assisted zero-based budgeting 
  4. Expanding the use of real-time data 
  5. Remote work balance post-pandemic

At Collaborative Solutions, we help CFOs who are considering Cloud ERP build plans to translate their technology strategy into practical, tactical results.  And that all starts by beginning with the end in mind. 

In this piece (the first of five), we will look at the first trend: ESG (Environmental, Social and Governance) Reporting.   

The Importance of ESG Finance Reporting

If you are a CFO or work for one, you spend most of your time thinking about and analyzing the numbers, especially numbers with dollar signs in front of them.  When it comes to people metrics, that’s usually the domain of your HR team.  But what about numbers about people like diversity & inclusion, and Board performance or other non-financial metrics like your company’s impact on climate change and regulations related to data privacy or sustainability?  The need to report on these and other non-financial information is growing rapidly.   

Traditionally, the Office of the CFO has one overarching mission:  to help the company increase shareholder value over time.  Thus, the focus on Revenue Growth, Cost Containment, and Capital Efficiency (all the levers of Economic Value Add and/or ROI).  So why be concerned about increased demand for regulatory reporting like ESG?   

Simply put, the ability to keep up with and report on external regulatory reporting doesn’t add shareholder value, but it does prevent the firm from losing shareholder value.  Like a Goalie in soccer or hockey, the CFO is the “last man on defense and the first man on offense.  By paying attention to regulatory reporting, you prevent the other team from scoring on you (e.g., with unnecessary lawsuits) in order to preserve the value scored by your sales team. 

Collaborative Solutions can help you “think with the end in mind” by prioritizing these Environmental, Social, and Governance metrics right alongside your financial metrics and planning your implementation with reporting top of mind.  Today’s Cloud ERP reporting capabilities are world-class, but you need to know how to structure your data the right way in order to maximize the return on your ERP investment.  Don’t let reporting (either financial or non-financial) be an afterthought towards the end of your project.  Use it as a rallying cry for the C Suite right upfront and build in checkpoints throughout the project with real data to make sure your reporting needs will be met. 

If you’d like to learn more about how Collaborative can help, visit our planning and advisory services pages. 

Scott Moyer is a Portfolio Director for Collaborative Solutions and was previously the CFO of 5 companies.  He can be reached at smoyer@collaborativesolutions.com.

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