Three key sustainability themes to prepare for
Over time, consideration of ‘sustainability’ as an input to business decisions has significantly evolved. Likewise,...READ MORE
These are unprecedented times. At a critical moment for the climate agenda, the current business environment is characterized by high inflation and supply chain challenges and geopolitical and macroeconomic uncertainty. At its March meeting, the IFAC Professional Accountants in Business Advisory Group shared insights on the implications of these realities for CFOs and finance functions.
Inflation rates and inflationary pressures in most major economies have reached levels not seen in 40 years or more. Once in a generation challenges present new market realities with risks and opportunities arising from:
These trends and issues are greatly impacting market dynamics on the demand and supply side and are likely to be sustained for the short to medium-term at least. CFOs and finance teams are at the center of addressing these challenges that are impacting:
For CFOs and finance teams, responding to inflation and current market challenges is a priority that requires connecting different parts of organizations and providing insights that enable a business to continue to create and protect value. Their co-pilot and value partner role can be captured in four key areas.
External data is needed for planning and forecasting to provide predictive insights that support strategic and operational decisions and involves the CFO and finance function leveraging:
Being seen as a trusted value partner involves building relationships with relevant teams and external stakeholders. It requires relevant actionable information and tools in supporting:
The CFO and finance team provides information and predictive insights to allow flexibility and agility. There is a heightened focus on improving forecasting and using predictive modeling analysis. Key actions include:
CFOs must work closely with their procurement and supply chain teams on targeted changes, reviewing existing contracts, and ensuring involvement in opex and capex decisions early in the process. The role of CFOs and finance teams in procurement is becoming more strategic and includes:
Inflation and supply chain pressures have arrived at a time when climate action to meet net-zero commitments and climate goals have been gaining significant momentum. The political commitment in many countries to support the energy transition to low carbon will continue as will the focus on enhancing the quality of information on climate-related reporting. The SEC’s proposed new climate disclosure requirements in the US, the International Sustainability Standards Board’s draft sustainability standards including climate-related disclosures, and the development of EU sustainability reporting standards all continue global and regional efforts to significantly enhance the quality of sustainability information.
The energy transition to support net-zero commitments will likely occur under duress and drive higher energy prices in the short term. However, it provides an opportunity for a medium- to long-term shift to decarbonization. In response to current challenges, and to leverage their role in managing climate risk, CFOs need to seize the opportunity of sustainable procurement and supply responsibility so that business and sustainability goals can be achieved in tandem. In considering energy supply, it is also the moment to consider renewable and low carbon supply sources and conservation measures to reduce costs and achieve climate commitments and emission reduction targets.