How courageous financial leadership can bring us closer to net zero

Looking ahead, in 2023, economic uncertainty looms, as ongoing and overlapping global crises – from the COVID-19 pandemic to the Ukraine crisis, to the relentless effects of climate change – threaten to cripple progress. In times of such upheaval, maintaining the status quo may seem like the safest course. However, it is in these moments that we need boldness more than ever.

Reaching net zero by the end of the decade requires ambitious investment and sustained commitment. The private sector has a crucial role to play, and Chief Financial Officers (CFOs) are in a unique position to move the corporate sustainability conversation from high-level thinking to practical balance sheet changes.

Consider the immediate need for adaptation to climate change. Nearly half of the world’s population, some 3.3 billion people, live in areas highly vulnerable to climate change and recent extreme weather events demonstrate that we are all exposed to the effects of global warming on our lives, businesses and supply chains. The costs of meeting climate change adaptation needs are projected to soar to $340 billion by 2030. It is clear that inaction is not fiscally responsible.

However, overcoming natural risk aversion in difficult times is no easy task. There is immense pressure to ensure both short-term security and long-term sustainability, a task that sometimes feels like finding a needle in a haystack. Many CFOs are asking serious questions about how to ensure not only the financial stability of their own company, but also that of the entire world.

According to a recent document by the Forum, in collaboration with PwC, adaptation to climate change has a clear commercial interest: it allows companies to avoid economic losses by increasing the resilience of their value chains; to increase revenues and cost savings by capitalizing on opportunities for growth, innovation and efficiency; and to mutually benefit from the protection of communities and ecosystems.

Regulators are also putting increasing pressure on businesses to be more proactive in addressing the climate crisis.

So where should CFOs start?

First, we must be humble and acknowledge what we don’t know.

The best way to start is by asking questions. These questions can kick off an important path to acquiring the necessary skills and creating impactful processes.

For example, many are wondering how to integrate carbon credits into their strategies or whether there is a more productive means to offset emissions. Other key questions are how to account for biodiversity (how the organization impacts nature) and human capital (how the organization supports upskilling and retraining efforts).

Secondly, a safe space must be created in which to fail.

Historically, CFOs have tended to scale back commitments and ramp up performance—it’s a safe bet, after all. But we no longer have the luxury of playing it safe. If we are to create a more resilient and sustainable future, we need to be able to feel comfortable risking over-commitment and under-delivering.

As the effects of climate change become more pervasive, there will be more leniency for those who try and fall short of all their goals than for those who stay on the sidelines. It may soon turn out that taking no chances is the riskiest option of all.

Thirdly, we must ensure transparency and accountability.

CFOs are already focused on company data and reporting; now we need to extend this attention to stakeholder parameters as well.

The Forum’s Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation, launched in 2020, allows companies to monitor their contributions to Sustainable Development Goals (SDGs) on a consistent basis. The Forum publishes the Annual Shareholder Capitalism Report, which shares measurement methods developed in collaboration with the Big Four accounting firms and through consultations with more than 200 companies.

As of this fall, more than 121 companies have already included these metrics in their traditional reporting materials. We are committed to continuing to develop and refine these measurement methods, as we explore new, more specific ways to measure impact and hold ourselves accountable.

Fourth, we must pursue a just transition.

It is crucial to ensure that the transition to net zero is fair and inclusive. How can we ensure that developing countries that have contributed least to the problem have the resources needed to participate in efforts towards achieving net zero?

CFOs of global companies will need to carefully consider how to measure success in various local contexts with this in mind.

Finally, we must recognize that we cannot do it alone.

A real impact requires a monumental change in the market, which requires a coordinated approach from the private sector.

For example, the Sustainable Markets Initiative, launched by HRH Charles III at the 2020 World Economic Forum Annual Meeting, sets out a global effort to enable the private sector to accelerate the transition to net zero. The goal is to bring businesses together to encourage change in business strategies and operations, reform the global financial system, and create an enabling environment that attracts investment and incentivizes action.

Pressure breeds talent. By coming together and taking risk boldly, we can revolutionize the role of the CFO and strengthen climate resilience in operations, supply chains and the marketplace.