Sustainability and climate change have been a global catalyst for all-around transformations and businesses are actively evolving to keep up. A strong link exists between the financial performance of organisations and their sustainability efforts. How businesses monitor and report on sustainability efforts affects their ability to create or lose value in the eyes of consumers, investors, and other groups. This new emphasis of value creation underpins how focus has shifted from profit only to societal benefits and collaborating with a wider pool of stakeholders.
As organisations navigate under a new lens by which they are judged, they must be aware of the unique challenges they will face as a more sustainable world is created.
The challenges businesses face along with the redefined role of the finance function are deeply explored in Future of Finance 2.0: Redefining finance for a sustainable world, a report published by AICPA® & CIMA®. The report reveals the findings of an 18-month, global research project that was built upon interviews and roundtable discussions with finance leaders, accounting and finance professionals, regulators and academics that explored the rapid advancement of the profession and the necessary proficiencies needed to continue its evolution. The report expands upon original research completed in 2019 that began exploring how societal changes were affecting the accounting and finance profession.
‘Most organisations are in the early stages of their sustainability journey, and that has been driven by regulations’, explained Martin Farrar, Ph.D., Associate Technical Director at AICPA & CIMA and co-author of the report. ‘I don’t think the finance function can solve the sustainability issues on their own. But if we come together with other stakeholders and other competitors within an industry or sector, that collaboration can help solve those sustainability issues’.
Intertwined drivers and challenges
Businesses currently face a wide breadth of challenges that are being compelled by four major drivers — institutional and systemic, social, market, and technology. These areas are intertwined and do not act independently of one another — a change in one can compel effects in another.
These drivers and their associated challenges were identified by similar questions five years ago during the first iteration of the research. The recent research revealed that whilst the four drivers and their challenges did not change, their levels of intensity did.
Geopolitics, regulation, demography, consumer empowerment, digital technology, and automation have intensified. Globalisation was the only research-identified challenge that decreased in intensity, likely driven by countries building more resilient supply chains because of the COVID-19 pandemic, said Farrar.
Strategic policies and procedures allow business leaders to navigate institutional and systemic trade laws, state-sponsored boycotts, national security considerations, and restrictive import and export practices, as examples. Demography, a social driver, is transforming in many countries as scarce resources are forcing people to migrate from their homelands.
Additionally, as the world evolves, regulatory agencies are moving at a fast pace to develop global regulations that will hold businesses accountable to new targets and standardise nonfinancial disclosures.
‘It’s not enough to look at these [four areas] in isolation’, said Farrar. ‘[The areas] need to be looked at holistically because whilst one might affect you minimally, the majority of [the areas] hitting you is going to make a difference’.
A holistic approach to operating models
Adapted business models enable organisations to develop policies and practices to promote resiliency against these interconnected challenges. Organisations may not be able to counteract the direct effects of each challenge, but a more resilient, holistic, and sustainability-driven operating model will increase their preparedness.
The lack of holistic thinking, said Farrar, is how these challenges developed in the first place. ‘We thought we could control nature and do what we wanted. But now we’re understanding we need to work with nature and biodiversity to move things forward. It’s about understanding our place within our ecosystem and working within it rather than trying to dictate how to control it’.
As businesses adapt to operate within their new roles as community collaborators, they will rely heavily on their finance function to undertake new methodologies and responsibilities to achieve resiliency and generate more value.
‘[The finance function] provides the link between external stakeholders and the business’, said Farrar. ‘It’s about placing the business within an ecosystem and understanding how the organisation impacts that wider ecosystem. It’s more than just the shareholders. It’s about how you sit within multiple stakeholders’.
The Future of Finance 2.0: Redefining finance for a sustainable world report will help accounting and finance professionals link the sustainability movement to the dynamic changes occurring within their profession.
A general understanding of the sustainability movement and how it will affect the roles of the finance function will be useful. The Fundamentals of ESG Certificate provides the framework of environmental, social and governance (ESG) issues, and the ESG and Sustainable Finance Strategy Courseis designed to help finance leaders collaborate with their organisations on sustainability-related matters and initiatives.
The finance function as a whole is expanding, and the Future of Finance 2.0 research program explores the scope of these changes within the profession. Explore research on digitalisation, sustainability and more to prepare for what’s ahead.