If organisations change the way they operationalise sustainability, they can significantly increase business value. That’s one of the findings in Beyond Checking the Box, an IBM Institute for Business Value (IBV) survey of 5,000 C-suite executives across 22 countries. Organisations that embed sustainability achieved a 16% higher rate of revenue growth, and they are 52% more likely to outperform their peers on profitability. They are also two times more likely to attribute great improvement in operating costs to their sustainability efforts.
According to the IBV research, however, spending on sustainability reporting exceeds spending on sustainability innovation by 43%. Six in 10 executives also say they have to make trade-offs between financial and sustainability outcomes. This needs to change in order to turn sustainability into a business transformation accelerant. The key is to embed it fully throughout business operations rather than treating it as an add-on and a reporting or accounting exercise.
There are several key strategic actions to start with, such as embedding sustainability into core corporate strategy, continuously working towards sustainability governance, and adopting multi-capital impact valuation — shifting from traditional financial reporting to integrated reporting, combining financial performance with metrics across natural, social and relationship, and human capital.
However, there’s even more that can be done. What’s needed is to align sustainability goals with digital transformation efforts. Here are four actions to achieve that.
Reimagine the business model
Advanced technologies can not only make business more efficient and profitable but also smarter and more agile, adjusting to consumer needs and changing market conditions, and transforming business models to “do more and better with less”.
How? Organisations must reimagine their whole business model and value chains by integrating digital and sustainability into everything they do in order to design, construct, and scale operations, services, and products that are more intelligent, efficient, sustainable, and resilient.
Circular practices and sustainable product design, for instance, not only lessen the environmental impact of a product but also increase cost and resource efficiency, strengthening enterprises’ ability to withstand supply chain disruptions.
Modern technologies such as AI technology, blockchain, and cloud computing can play a significant role in this. For example, French multinational Schneider Electric uses AI tools, machine learning, and digital twins — which offer a data-driven virtual model of their systems — to help water utilities reimagine their models to optimise water consumption by monitoring usage in real time, detecting leaks, and improving water distribution efficiency.
Integrating sustainability with digital strategy involves more than upgrading technology, though. It requires an agile business model that can pivot as regulations and market conditions change, especially in light of growing climate concerns. Companies that embrace circular economies demonstrate that sustainability and profitability can coexist. The key is for accounting and finance professionals to take an active role in this integration, considering how business models may adapt to achieve truly sustainable growth rather than addressing sustainability from a “we have to report” perspective.
Identify software to invest in
Delivering on the promise of sustainable digital transformation will require CFOs to collaborate closely with other executives to identify the technologies that will help the company achieve its sustainability goals.
Technologies like advanced analytics and AI applications enable tracking and reporting of sustainability metrics more accurately and transparently, which is essential for upholding investor confidence and complying with legal requirements. Some tools can also help identify and manage sustainable investment opportunities, aligning financial strategies with long-term sustainability goals. The implementation of effective technology has made sustainability reporting, capital allocation, risk management, performance management, regulatory compliance, and sustainability storytelling much more manageable and measurable.
Nasdaq conducted a survey of sustainability, finance, and legal executives to understand how organisations are using environmental, social, and governance (ESG) and sustainability data management and reporting software. The survey found that, on average, respondents reported a full ROI within three years of software implementation.
According to Nasdaq, investment in software is helping improve organisational collaboration, mitigate risks, and meet ambitious ESG and sustainability goals. Improvements were seen in reporting and communications (cited by 86% of survey respondents), progress towards KPIs (78%), data collection and validation (86%), risk mitigation (74%), and time savings (68%).
ESG and sustainability software has also enabled respondents to engage more effectively with wider stakeholder groups, including investors, customers, employees, regulators, and communities. Modern financial reporting tools and digital communication platforms provide more detailed and accessible financial and sustainability information to all of them, improving transparency and trust.
Measure impact
AICPA & CIMA’s Future of Finance 2.0 research shows that 61% of accounting and finance professionals believe that sustainability is becoming more important to business models. Only 48% of accounting and finance professionals, however, are currently measuring the societal and environmental impact of their sustainability initiatives, while only 45% say that they are currently measuring the impact of ESG issues on the performance of their business.
Therefore, it is crucial that finance leaders apply the value-creation mindset. They need to help create long-term value and build sustainability into core company strategy, support integrating sustainability with digital strategy, and report on how the organisation has generated value. This is where the opportunities and competitive advantage will be found.
Finance’s role in measurement and management of an organisation’s intangible ESG value, which facilitates decision-making and eventually propels long-term success and profitability, will be a crucial component of measuring and communicating impact.
Lead the shift to systems thinking
Finance leaders must shift from a cost and compliance focus to resilience and systemic risks and from siloed to systems thinking that considers the interconnectedness of technology, sustainability, and organisational strategy. To successfully make this shift, finance will be required to expand its knowledge of integrated thinking, data analysis and digital skills, sustainability expertise, and change management. Improving these skills will help finance move from assessing only financial performance to assessing broader economic and societal performance to better understand their organisation’s environment and community impacts.
— Jakub Bejnarowicz is regional director for Europe at AICPA & CIMA, together as the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Oliver Rowe at Oliver.Rowe@aicpa-cima.com.
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