5 minute read 27 Jun 2022
ESG agenda for business strategy

CFOs enable corporates to embed ESG agenda into their business strategy

By EY India

Multidisciplinary professional services organization

5 minute read 27 Jun 2022

The role of the CFO in making a socio-economic impact and in successful sustainability governance.

In brief

  • CFOs to align sustainability into the overall purpose of the organizational processes, and assume greater responsibility.
  • Focus on ESG strategy and value creation as market and consumer sentiments have gained precedence.
  • Markets rewarding ESG-focused companies; Industry-academia collaboration is critical for skill development.
  • Disclosures and decarbonization are vital for penning a compelling ESG narrative.

Environmental, Social, and Governance (ESG) ranks high on the corporate agenda, with investors and wider stakeholders keenly observing organizations' sustainability goals. Moreover, with regulations and stringent disclosures gaining importance, the role of Chief Financial Officers (CFOs) is fast evolving as they are now getting involved with the organizations’ sustainability initiatives.

In the future, the industry will witness a significant shift across the value chain. But in the latest EY India CFO Forum, the question in discussion was, “Are you (CFOs) ready to deal with sustainability?”. The expert panelists agreed that CFOs must be proactive and instrumental while helping the company and executive team define ESG goals for their company and the respective industry. CFOs must be at the forefront of identifying the environmental risks and social impact. They need to enable corporates to mitigate risks and move toward ESG opportunities.

These are busy and exciting times for sustainability, and there is no better time to start improving ESG than now. The majority of the big corporates have become fully aligned with sustainability and technology enablement, while smaller companies are focusing on a clear strategy and ESG opportunities to remain competitive. Organizations, irrespective of their size, have realized that markets are rewarding ESG-focused companies, and two top priorities that have emerged for corporates are ESG from the risk and opportunities perspectives.

The importance of sustainability was further reiterated in the recently released EY 2022 CEO Outlook Survey, where 90% of respondents stated sustainability as the primary driver for competitive advantage, long-term strategic growth, and lowering costs. The challenging pandemic proved to be an adaptability test for almost all sectors. It pushed corporates to embrace innovative ideas for decision-making processes as circularity, innovative materials, and cutting-edge technologies became the order of the day, inspiring CFOs to assume a greater responsibility toward ESG. 

Sharing his insights on how CFOs view ESG, Jugeshinder ‘Robbie’ Singh, Group CFO, Adani, said,

Every CFO wants an investment that is sustainable from the return and finance perspective for a long time. When the environment is involved, adaptation and risk management become important because long-term assets and investments will be exposed to some level of climate risk.

He added that when ESG commitments are formulated, corporates must follow through and share ESG reports that a third party can verify.

With enhanced ESG governance and data capturing, a rise in the number of rating agencies has been witnessed. Corporates are bound to improve their ESG scores and ESG proposition with the need to fare well. Underlining the emerging ESG trends, Manish Chourasia, Managing Director, Tata Cleantech Capital Ltd., said,

CFOs will have to focus on disclosures and decarbonization. Going forward, disclosures will become stringent. The challenge CFOs will face is that the expertise for disclosures in India is still evolving.

He advised that industry-academia collaboration for skill development in this area would greatly benefit corporates. 

On decarbonization, Manish was of the view that CFOs will have to keep an eye on development in the fields of power storage, research in green hydrogen, green technology development, and the entire circular economy. He added that sustainability is already mainstreamed.

Highlighting the board’s role in ESG, R J Jeyamurugan, Chief Financial Officer and Company Secretary, Asian Paints Limited, stated,

Boardroom engagement for ESG is critical for success. In our case, the board actively and positively engages with all the stakeholders.

Referring to his experience, he added that boards must be convinced about the company’s ESG strategy and its long-term impact on business, both financial and non-financial. Besides, it is necessary to take certain risks and challenge the current assumptions to embed the sustainability agenda into the business model successfully.

Driving the ESG agenda at EY, Shailesh Tyagi, Partner, EY India Climate Change and Sustainability Services, highlighted that,

The rise of ESG is linked to companies looking at ESG as a cost-centre, compliance-driven approach to value creation and performance-driven. When we look at the shift in the mindset, the boards are expecting tangible targets, a clear strategy and roadmap with short- medium- and long-term interventions, and inputs on the cost and benefits.

In addition, we must have concise and effective disclosure reports, as organizations cannot afford to look at business and ESG risks through two different lenses.

Alluding to the ESG journey, Damandeep Singh Ahluwalia, Associate Partner, EY India Climate Change and Sustainability Services, rightly pointed out,

Pre-2020, the world focused on risk-based compliances and maturity assessment. Post-2021, greater focus is on ESG strategy and value creation, market, and consumer sentiments because more and more consumers are looking for green products and making their choices based on them.

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Summary

The panelists concluded that sustainability is an opportunity for corporates to create value and make a long-lasting and meaningful impact on business and the planet. India Inc. must write a compelling ESG narrative, and CFOs must empower people to embrace new ideas and emerging ESG goals.

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By EY India

Multidisciplinary professional services organization