What’s Finance’s Role in Taking Climate Action?

In partnership with SAP S/4HANA Cloud ERP : Meet legal requirements while enhancing the quality and granularity of sustainability data to drive overall business sustainability. Join me on December 4th; I'll speak at the "How to master the Corporate Sustainability Reporting Directive (CSRD)" webcast, part of the 2024 Cloud ERP Essentials Webcast Series. Together, we'll explore more as they demonstrate the capabilities. Make sure to register today!

The spotlight on Environmental, Social, and Governance (ESG) reporting has only intensified in the race toward a sustainable future. Regulations like the Corporate Sustainability Reporting Directive (CSRD) are pushing companies to disclose more detailed information on their environmental impact, with finance departments often leading the charge in data collection and reporting. However, merely meeting regulatory requirements should not be the end goal. Real climate action requires moving beyond reporting to drive tangible change—and Finance, with its analytical and strategic toolkit, is uniquely positioned to lead the way.

How Finance can drive real climate action

Here’s how Finance can turn climate goals into business imperatives and deliver meaningful impact.

1. Linking climate goals to financial performance 

Finance teams can demonstrate the value of sustainability by linking climate goals directly to financial performance. This means developing key performance indicators (KPIs) that quantify the impact of climate initiatives on revenues, cost savings, or profit margins. 

By embedding climate KPIs into financial planning, Finance can encourage all departments to align business objectives with climate goals, such as reducing greenhouse gas emissions, water usage, or waste production. With climate metrics integrated into financial reporting, leadership can see the tangible benefits of sustainable practices, which help justify investments in green initiatives.

2. Promoting sustainable investment strategies 

Finance is crucial in capital allocation and can prioritize investments in sustainable projects. This might include renewable energy installations, energy-efficient upgrades, or technology that supports a circular economy. 

By steering funds toward sustainable investments, Finance ensures the organization’s growth aligns with reducing its environmental impact. Additionally, Finance can analyze the potential return on these green investments, showing how they contribute to long-term profitability, resilience, and competitive advantage.

3. Climate scenario analysis and risk assessment 

One of Finance’s most powerful tools in climate action is its ability to conduct scenario analysis and assess risks. By modeling how climate-related risks—such as regulatory changes, extreme weather events, or shifts in consumer behavior—could impact financial outcomes, Finance can drive proactive planning. 

This level of analysis prepares the business for future climate risks and identifies strategic opportunities for sustainability, making it an essential input for the company’s broader climate action strategy.

4. Implementing carbon pricing and internal costing 

Introducing an internal carbon price allows Finance to assign a monetary value to emissions generated within the business. By incorporating these costs into financial decision-making, Finance can influence departments to seek lower emission alternatives. 

This internal costing mechanism makes environmental impact a part of every budget discussion, aligning financial incentives with sustainable practices and creating an internal economy prioritizing low-carbon options.

5. Setting science-based targets and tracking progress 

Finance can support setting ambitious, science-based climate targets that align with the company’s long-term strategy. With robust tracking and reporting mechanisms, Finance ensures these goals are measurable and attainable, keeping the company accountable to stakeholders and driving a steady pace of progress. 

By integrating these climate targets into quarterly and annual financial reviews, Finance can foster a culture of accountability and make climate action a central part of performance management.

6. Encouraging sustainable procurement and supplier engagement 

In many companies, procurement contributes significantly to the overall environmental impact. Finance can drive sustainable procurement by working with suppliers with strong ESG credentials. By setting up frameworks to assess and track supplier performance on climate action, Finance creates a ripple effect that encourages sustainability throughout the supply chain. 

This influence extends the company's environmental responsibility beyond its walls and helps Finance manage risk and reputation by partnering with suppliers committed to climate action.

7. Budgeting for green innovation 

Finance can create specific budget lines dedicated to green innovation. This funding could go toward research and development for sustainable product design or process improvements that reduce emissions. By championing green innovation through budgeting, Finance empowers teams to pursue projects with long-term climate impacts. 

Green innovation funds signal to employees, investors, and customers that the company is committed to a sustainable future, fostering a culture of continuous improvement and environmental stewardship.

8. Incentivizing carbon reductions through performance management 

Working closely with HR, Finance can ensure that climate goals are integrated into the company’s performance management systems. Linking these goals to executive compensation, bonuses, and other incentives can drive accountability at the highest levels. 

When leaders are rewarded for meeting climate targets, they’re more likely to make sustainable decisions and advocate for environmental responsibility within their teams. This shift creates a company-wide focus on climate action, setting the tone from the top. 

To enable these initiatives, it’s important to take a cloud-centric ERP approach. The field of ESG evolves so fast that fixed solutions are not ideal. If you think about it, the data, e.g., mandatory sustainability reporting and disclosure requirements (for example, the CSRD in the EU) sit everywhere in the organization: in Procurement, Finance, Sales, and Supply Chain, and it is this integration with cloud ERP business processes and embedding sustainability at the core of your operations which provides precise and actionable insights that are based on trusted and auditable actuals. 

We need to adjust our software using a true cloud model to keep up with policy and regulatory changes. This is why a cloud ERP-centric approach to sustainability is crucial.

Driving climate action from Finance: Beyond reporting

Finance’s role in ESG has historically centered on data collection and reporting to meet regulatory demands. Yet, as companies and stakeholders call for more than just compliance, Finance has an opportunity to lead on climate action. By linking climate goals to financial outcomes, prioritizing sustainable investments, managing climate-related risks, and setting an internal carbon price, Finance can turn ESG efforts into a strategic lever for change. 

Climate action isn’t just about reducing emissions or meeting quotas; it’s about creating a resilient, forward-looking business aligned with its stakeholders' values. Finance teams are ideally placed to drive this transformation—turning sustainability from a regulatory requirement into a core part of the company’s value proposition. With their unique ability to align financial performance with environmental impact, Finance can make a profound difference, creating a roadmap for sustainable growth and a more resilient future. 

By following these strategies, Finance can ensure that climate action is not merely a line item on a report but a foundational part of business strategy, leading the way to a sustainable and profitable future. How are you driving climate action in your company?

Meet legal requirements while enhancing the quality and granularity of sustainability data to drive overall business sustainability. Join me on December 4th; I'll speak at the "How to master the Corporate Sustainability Reporting Directive (CSRD)" webcast, part of the 2024 Cloud ERP Essentials Webcast Series. Together, we'll explore more as they demonstrate the capabilities. Make sure to register today!