It is an important year for chief financial officers and sustainability leaders: the first wave of reporting is due under the Corporate Sustainability Reporting Directive (CSRD) in the EU. With companies under pressure to integrate sustainability into financial and non-financial reporting, the CFO’s involvement has never been more important.
Further complicating matters is growing anti-ESG sentiment in the US, driven by Trump’s administration and summed up by his mantra of “drill, baby, drill”. Just a few years ago, banks, asset managers and other finance firms were falling over themselves to flaunt their green credentials. Yet many are now ditching those commitments. Last year, HSBC dropped its chief sustainability officer from its re-organised executive board and Climate Action 100+, a climate alliance group of finance leaders, has suffered a stream of departures over the past 12 months, including State Street Global Advisors, Pimco and Goldman Sachs.
The year ahead is a decisive moment. Chief sustainability officers (CSO) and CFOs are balancing two critical priorities: driving sustainable growth while navigating political noise. To be effective, they cannot operate in a bubble, says Julia Binder, a professor of sustainability at IMD Business School. “The relationship between the CFO and CSO is now one of the most critical partnerships within organisations driving sustainability,” she says.
Binder has advised many organisations on their sustainability strategies, including Nestle, Siemens, Bauer and Salesforce. While CSOs have traditionally led corporate sustainability efforts, she argues that sustainability is more effective when it is not siloed. Instead, it should be embedded into core financial strategy.
CFOs are crucial players in the sustainability game
A new whitepaper underscores the importance of the CFO’s role in driving sustainability. The report, co-authored by Binder and published by IMD and Capgemini, explores how 57 European businesses, including BAE, Bayer and Philip Morris, are approaching sustainability. It found that companies with active and engaged CFOs perform significantly better than those with more passive finance leaders. These firms experienced reduced internal resistance and stronger long-term results, the report states.
The report comes as many businesses are struggling to translate sustainability ambition into meaningful action. Fewer than half of the companies surveyed in the whitepaper are confident that they will meet their net-zero targets on time.
Sustainability transformation, Binder argues, cannot succeed without the full support of the CFO, who can ensure that sustainability is integrated into core financial reporting and planning. Without their buy-in and participation, sustainability teams face resourcing challenges and risk being overburdened by reporting requirements, she says, leaving opportunities for growth untapped. CFOs are also instrumental in securing board buy-in and rallying company-wide support for such initiatives.
Early and more frequent engagement between the CFO and the CSO is particularly helpful for allocating resources and setting KPIs, which, although challenging for many companies, are critical to sustainability transformation. Furthermore, Binder believes firms that fail to fully engage the CFO in their sustainability efforts are far more likely to encounter bottlenecks or reputational risks such as greenwashing.
The CFO and CSO: a mismatch in mindset
While stronger collaboration between the CFO and CSO can transform the way companies approach sustainability, the two don’t always see eye to eye. “CSOs tend to think and speak about saving the world, not supply chain resilience and cutting costs,” Binder says. Meanwhile, CFOs often place an overemphasis on risk and compliance. “They focus too much on how to deal with sustainability, instead of being driven by strategic foresight,” she adds.
In many firms, sustainability budgets are kept separate from core operational budgets or are funded on a case-by-case basis. “This separation creates tension,” Binder says, noting that this seperation leaves sustainability initiatives vulnerable when resources are tight.
The whitepaper reveals that 29% of companies have no shared internal understanding of their sustainability strategy. This highlights a lack of communication in how sustainability is understood and communicated internally, as well as a clear disconnect among leadereship, Binder says.
Working together
To work together more effectively, CSOs and CFOs must overcome these differences by aligning financial priorities with sustainability. “Travel together, attend meetings together and learn from each other,” advises Binder. “This helps create a sense of shared ownership.”
CFOs need to align sustainability investments with the company’s broader financial goals and balance short-term trade-offs with long-term gains. To make this easier on both parties, Binder recommends cutting back on the number of sustainability initiatives in operation: “Having 50 projects and a huge sustainability report only gives the illusion of progress. Instead, focus on two or three topics that are really prioritised.”
There is a growing sense of fatigue around projects that are labelled as sustainable, Binder says. She advises firms to “stop being so fluffy when talking about sustainability” and be “very specific”.
Having a clear business case for every initiative – what it costs, who is involved and how it will be scaled – and setting clear milestones to measure progress can help to reduce the potential for conflict and keep the CFO and CSO on the same page.
Despite ongoing political hostility, Binder stresses that there is “nothing woke about ESG”. At the end of the day, it’s a risk-management and investment framework. Most businesses are investigating sustainability as a path to save costs, differentiate and de-risk their organisations. More than anything else, that requires a fully engaged CFO.
It is an important year for chief financial officers and sustainability leaders: the first wave of reporting is due under the Corporate Sustainability Reporting Directive (CSRD) in the EU. With companies under pressure to integrate sustainability into financial and non-financial reporting, the CFO’s involvement has never been more important.
Further complicating matters is growing anti-ESG sentiment in the US, driven by Trump’s administration and summed up by his mantra of “drill, baby, drill”. Just a few years ago, banks, asset managers and other finance firms were falling over themselves to flaunt their green credentials. Yet many are now ditching those commitments. Last year, HSBC dropped its chief sustainability officer from its re-organised executive board and Climate Action 100+, a climate alliance group of finance leaders, has suffered a stream of departures over the past 12 months, including State Street Global Advisors, Pimco and Goldman Sachs.
The year ahead is a decisive moment. Chief sustainability officers (CSO) and CFOs are balancing two critical priorities: driving sustainable growth while navigating political noise. To be effective, they cannot operate in a bubble, says Julia Binder, a professor of sustainability at IMD Business School. “The relationship between the CFO and CSO is now one of the most critical partnerships within organisations driving sustainability,” she says.
