What trends should CFOs be aware of when planning their long-term ESG strategies?

As the clock is ticking, the time to act is now. In 10 years, the biggest risks for business will be linked to the environment, according to the World Economic Forum Global Risks Perception Survey.

We are witnessing a drastic global change. This environmental research is impacting other, non-environmental, risks.

Climate change directly affects inflation, as it causes an increase in product prices. High inflation reduces a country’s economic acceleration, also leading to unemployment. Every factor is related to the environment in some form. And because each factor is connected, putting ESG strategies at the center of operations is becoming essential.

By incorporating Environmental, Social, and Governance (ESG) factors into their practices, businesses can better anticipate and mitigate risks, thus minimizing potential losses. ESG is crucial as it aids in identifying and managing those risks, reinforcing social responsibility, enhancing long-term sustainability, fulfilling stakeholder expectations, ensuring regulatory compliance, and improving access to capital.

When planning long-term ESG strategies for your company, it is therefore important to be aware of upcoming trends:

ESG reporting

One major trend is the increasing emphasis on transparency and reporting standards with further mandatory disclosure requirements around the globe, such as the EU Corporate Sustainability Reporting Directive. According to the
EY Global Institutional Investor Survey, investors are also demanding greater transparency in ESG reporting, pushing companies to adopt more rigorous and standardized reporting frameworks. CFOs need to ensure their ESG data is accurate, reliable, and aligned with global standards to meet investor expectations and regulatory requirements.

Digital tools/Technology

Many companies have realized on their ESG journey that fulfilling the upcoming regulatory requirements requires investment in data management and technology. Gartner’s Annual Global Corporate Sustainability Survey recently highlighted the growing role of digital tools in advancing sustainability goals. Technologies such as AI, blockchain, and IoT can enhance data collection, monitoring, and reporting, but it all starts with data management. CFOs should invest in central data management to make, for example, carbon accounting an integral part of the balance sheet reporting, to streamline their ESG efforts and drive long-term sustainability as an integral part of the company-steering mechanisms.

The following, from Michael Quails, Managing Director at Deloitte Transactions and Business Analytics LLP, sums up the trends that CFOs need to pay attention to in the coming years:

“CFOs should stay on top of stricter ESG regulations and rising investor demand for ESG integration. Leveraging technological advancements and addressing climate risks are critical to sustainability planning. Embracing the circular economy and meeting growing stakeholder expectations for social impact are also essential. These trends are reshaping the business landscape, making it vital for CFOs to incorporate them into their long-term strategies.”

Proactive steps towards sustainability are essential for future success. Download and read the newest edition of the SAP & Taulia eBook series, CFO Perspectives: Unlocking Insights Through Conversation – Transforming Finance: The CFO’s Role in Driving Sustainable Growth here