CSRD Series-Part 13: CFO Involvement in Getting CSRD Right

In our 13th podcast dedicated to the new EU Corporate Sustainability Reporting Directive, we look at internal stakeholders’ perspectives on how they contribute to CSRD.  

Listen to this episode to hear Catherine Beare – Regional Director for Business Assurance in the UK and Iberia talk with Steve Owens, Intertek Chief Financial Officer for the Europe, Middle East and Africa region on his experience as a CFO in managing sustainability, delivery and reporting.

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Transcript

0.12 Catherine Beare 

Hello and welcome to the 13th in our series of podcasts dedicated to the new EU Corporate Sustainability Reporting Directive - CSRD. I'm Catherine Beare, the Regional Director for Business Assurance in the UK and Iberia, and I'm joined by Steve Owens, our Chief Financial Officer for the Europe, Middle East and Africa region in Intertek 

I wanted to pick Steve’s brain from a financial angle on how he has seen the impact for companies in managing sustainability, delivery and reporting, and how it all impacts the EU taxonomy also. 

Steve has been with Intertek for 12 years holding various senior management positions within finance. And as I mentioned, he's currently holding our CFO position in Europe, Middle East and Africa. Steve, of course, is a qualified Chartered Accountant and has been delivering many projects throughout our Group  and regional structures. 

Hi, Steve and thanks for joining me today. The past webinars have looked at different perspectives on what is reported under CSRD, the impact of getting it wrong, etcetera. And today I was really keen to explore some of the internal stakeholders’ perspectives on how they contribute to CSRD and what their role entails. Now, given the work you already carry out for us internally at Intertek on our own sustainability agenda, could you perhaps give me your thoughts on the role of a CFO on sustainability in general? 

1.44 Steve  

Sure thing. And thanks Catherine for the opportunity to discuss this today. When I started my financial career, I didn't expect to be sitting here giving you this perspective on the core role that CFO plays in sustainability. But the reality is we do.  

The way I see it, CFO's play a vital role in integrating sustainability into the financial strategy of the organization, ensuring accurate financial reporting, managing the associated risks, and communicating the financial impact of sustainability activities to all stakeholders. This integration helps in aligning financial goals with social and environmental responsibility and contributes to a more sustainable and responsible business model.  

It is also about long term value creation. When we look at the role of finance in an organization and the tools they have for forecasting, budgeting, allocation, and score carding, for example, these can be used to bring sustainability factors into every business process and every decision about value creation. 

We have so much sustainability legislation and pressure now from the EU Green Deal to Global Plastics Treaty that the CFO needs to help manage and measure that balance between short term decision making versus long term sustainability benefits. The CFO's leadership is indispensable. 

3.04 Catherine 

I mean, that's a good point on a number of sustainability focused legislations that you made. So, you know, they're ultimately forcing more integration of finance into the decision making process. So what are the top legislations, Steve, that you think should be on a CFO's agenda? 

3.25 Steve 

Yeah, there's no doubt about it. With game changing regulations like the EU CSRD, 2024 is the year companies need to get serious about ESG.  Beyond carbon emissions, businesses are increasingly looking at ESG through a broader lens. Considering the social perspective and the role of nature and biodiversity and movement on the EU restoration law could see acceleration on action taken by companies throughout the year. 

The EU Nature restoration law is dedicated to preserving nature and biodiversity and will soon require companies to verify that products marketed in the EU do not incorporate commodities originating from recently deforested areas. The deforestation law prohibits EU sales and exports of certain commodities and products associated with deforestation and forest degradation like coffee, cacao, cattle, palm oil and soy. 

Unless those goods meet strict requirements, this means that to export to Europe, producers will need to provide proof that their supply chain is entirely free of deforestation, uploading traceability data, including GPS coordinates. This will have a massive impact on companies and trying to understand the financial risks associated are top for any CFO. 

Another key one is the Global Plastics Treaty. 

The world's first agreement to end plastic pollution, this ambitious global plastics treaty may well come into effect by the end of 2024. In June, delegates from 180 nations set out a pathway to binding global agreement on tackling plastic pollution. Described as the most important Green Deal since the 2015 international climate agreement, the Treaty has an unusually ambitious time scale for globally binding agreement with the final agreement planned for late 2024.  

Finally, I'd like to call out the sustainable Finance Disclosure Regulation SFDR. 

The European Parliament has been building out a sustainable finance framework to channel private funding towards investments that meet the objectives of the European Green Deal. The SFDR will require financial institutions to report on new ESG disclosure requirements, including their financial emissions by June 2024. The purpose of the mandatory disclosure is to make sustainability profile of funds more comparable and better understood by end investors and to encourage the flow of capital into sustainability focused firms. 

5:57 Catherine  

Goodness. So much pressure, Steve. And the reality is, even more legislation still to come, I suspect. 

OK, now let's focus on what you think are the top focus areas for a CFO when it comes to CSRD. 

6.13 Steve  

Sure. As I said at the start, the CFO is absolutely critical in leading with the CEO, the sustainability agenda in an organization. There are areas where finance is more informed, but areas where they do indeed need to own and control.  So let's start with financial oversight. 

CFOs are responsible for overseeing the financial health of the organization. They ensure that financial resources are allocated efficiently and effectively, taking into consideration the long-term sustainability of the business. So, under the ESRS 1 section, when we look at a company structure, it's controlled and its oversights. This is where it needs to be clear - the role and control that the CFO has, and prove how that function helps to govern the controls.  

From there the next steps is about integration of sustainability strategy and goals into the financial strategy. CFOs play a role in integrating ESG initiatives into the overall financial strategy of the company. This involves considering the financial implications of these activities and aligning them with the company's financial goals. Identifying and managing financial and reputational risks associated with ESG initiatives is key. Finance needs to assess the impact of these activities on the company's financial standing and help develop strategies to mitigate potential risks.  Again, when we look at the double materiality assessment in CSRD, we will need to see how the business and financial risks align. 

Finance has a role to play in identifying gaps in the company's information, or weaknesses in the underlying systems and controls that could inhibit the decision making and reporting and set out plans to make improvements or upgrades. 

Finance would need to work with the CIO on implementing systems and controls to collect and report sustainability related data that can be independently assured.  

CSRD also looks at the budgeting process, including allocating funds for ESG initiatives. Finance needs to work with other executives to determine the financial resources available for these activities, whilst ensuring that these activities align with the company’s overall financial strategy. For example, looking at green taxes and incentives or creating a social value budget that each unit must contribute to. 

From there, they're responsible for implementing systems to measure the impact of ESG initiatives and reporting these outcomes to stakeholders. This involves developing financial metrics and key performance indicators to assess the success of the programs. Linked to that is the role in ensuring that the company complies with relevant financial regulations and reporting requirements related to ESG.  We're seeing many of the CSRD KPI that ask for data showing this measurement. 

It is also worth calling out that finance should create synergies between CSRD readiness work and other transformation efforts taking place across the finance function, such as system transformation or legal entity restructuring or rationalization. 

Finally, CFOs are responsible for financial reporting, including disclosing information about the company's financial performance and its adherence to CSRD practices. They work with the finance and accounting teams to assure that the ESG-related financial information is accurately represented in financial and non-statements. 

We now also see CFOs involved in communicating with various stakeholders, including investors, analysts, and the public. They play a vital role in articulating the financial implications of ESG efforts and demonstrating how these initiatives contribute to the long-term value of the company. 

10.04 Catherine  

My goodness. Definitely an eye opener, Steve in terms of the sheer scale of involvement required from finance. 

You don't need to tell me, Catherine! 

10.10 Steve 

10.13 Catherine  

Thank you, Steve very much for your thoughts on that matter and an eye opener indeed, I am sure to our audience in terms of how much the CFO is really key in driving sustainability change. 

As a reminder of high Intertek can help on CSRD, there are four ways: 

1. To understand your current CSRD readiness, we can help you to undertake a gap analysis to ensure that you have a clear view of your organization’s current readiness. And we will work with you to define clear action plans to address any gaps to prepare for your first submission. 
2. Through training, to ensure everyone understands what's required to prepare for your submission, this can be delivered to a range of different teams and functions across your organization and will be bespoke to best fit your requirements. 
3. Thirdly, we can also provide auditing solutions. In some markets, we will also be able to act as the auditor of your CSR Directive reports, and as one single provider supporting you from your early preparations through to audit submission. 
4. And finally, we have also partnered with ESG Playbook, a leading SAA S reporting and solution provider, bringing in one tool all required data collection, aggregation and tracking and reporting for ESG. 

For more information, visit www.intertek.com/assurance/EU-CSRD  

So this concludes today's podcast. Thank you for listening and watch out for further CSRD episodes to help with your journey to compliance.