2021 Outlook: Why, and How, the CFO Should Lead ESG Efforts

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This year, CFOs should prepare their companies for increased scrutiny on environmental, social and governance performance, if they haven't already.

One of many 2021 imperatives for CFOs: preparing their organizations for increased scrutiny on environmental, social and governance (ESG) metrics from investors, regulators and the public.

Many CFOs, across industries, have long recognized the benefit and importance of standardized, audited ESG reporting. The social activism of last year has only reinforced that. But how will ESG requirements and expectations challenge CFOs going forward?

2021 is the year of ESG capitulation, according to Blaine Townsend, director of sustainable investing at wealth management firm Bailard. "A lot of that comes from basic points we've argued for 50 years: companies who treat their employees and the environment better and are more transparent with stakeholders might make for better long-term investments."

Townsend, who has focused on ESG for 30 years, said at the beginning of his career, if you tried approaching a company you were interested in investing in about a sustainability issue in their supply chain, they'd direct you to their PR department.

No longer.

"There's been an incredible evolution in the c-suite on how to approach these issues," he said. "It's become a PR issue. There's an understanding in the c-suite that someone must be able to answer for ESG."

In many ways, the CFO should be the "main cheerleader" for sustainability issues, he said.

gradient-quote Some of the acceptance of [ESG comes from] the ability to internalize the cost savings from better performance around energy issues. The CFO stands to benefit from better environmental practice. Long-term planning is a critical part of business success, and it lines up well with sustainability issues. gradient-quote-right
Blaine Townsend, Director of Sustainable Investing, Bailard

Businesses that emerge from COVID-19 should get out of survival mode and set themselves up for long-term success. Doing so requires being proactive towards ESG.

"Regulatory issues are coming," he said, referring to the possibility of the Securities and Exchange Commission (SEC) formalizing ESG reporting. "For that alone, getting ahead will pay off. The smart companies are always ahead and not playing catch-up."

CFOs can, in many ways, demonstrate the benefits of ESG prioritization. The cost of capital drops for companies with better ESG performance, Townsend says, whether that's due to retaining or hiring the best talent, or seeing the benefits flow through to the bottom line.

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