Why CFOs may already own sustainability

CFOs should view the responsibility for sustainability as introducing a unique set of risks, opportunities, and trade-offs to be considered.

John O’Brien

CFOs must understand the breadth of sustainability demands in addition to carbon emissions

6 min read

12:00AMJuly 15, 2025

Given its need for enterprise-wide advocacy and targeted resources, sustainability often finds a fitting environment in the finance function.

CFOs have a responsibility to ensure that investment and operational performance drive returns for the business both in the short and longer term. As the demands and expectations of stakeholders change with respect to sustainability performance, CFOs who do not regard this aspect as part of the overall financial strategy of the company may not be able to deliver the most value for the business.

The speed of change in expectations can vary depending on the stakeholder, the sector, and the region of operation, but the increasing focus on sustainability is fast becoming an imperative, even as the politics waver. As such, CFOs should view the responsibility for sustainability as introducing a unique set of risks, opportunities, and trade-offs to be considered.

Scenario planning

A useful approach that CFOs can take is to consider how each of their stakeholder groups might change over the next five years; what impact that shift could have on company performance; and what opportunities may consequently arise to increase market share, profit margins, or even product range. Some of the potential high impact challenges that specific stakeholders could present over the next 5-10 years [1] might require CFOs to adapt by focusing on the following actions:

■ Reassessing asset valuation impacts. Investors may reassess, both negatively and positively, asset valuations due to the inclusion of physical climate risk impacts on operating cashflows or supply chain resilience.

■ Meeting changes in regulatory compliance. Governments may implement a “Green New Deal” approach to decarbonisation in some major jurisdictions.

■ Accommodating shifts in demand. Customers may switch to demanding low-carbon sustainable alternatives, thereby reducing demand for traditional products and virgin materials.

■ Stepping up recruiting and retaining efforts. Failure of employee attraction or retention could lead to gaps in the workforce and in the leadership pipeline.

■ Shielding company reputation. Local communities’ perception of the business could affect its reputation and social value, resulting in boycotts or even in loss of license to operate.

■ Helping suppliers navigate challenges. Widespread and binding requirements for suppliers may require them to report and then reduce emissions as companies target scope 3 emissions.

■ Partnering with legal teams. CFOs need to be aware of the prospect of major litigation from a combination of NGOs that have suffered loss, activists, and class-action lawyers. These could be material and, if successful, they may incur balance sheet impacts up to and including bankruptcy.

This type of scenario planning should be undertaken by each business considering its own circumstances. It’s important to approach this not as an exercise in forecasting but rather as a consideration of plausible scenarios and the subsequent impacts on the company.

By running this type of exercise, CFOs can better understand the ‘value at risk’ of business as usual and the cost of inaction with respect to both the operations and full value chain collaboration.

Value chain collaboration

What will likely become increasingly evident is that companies will depend on the performance of the full value chain to a greater extent than they previously have. If the final product sold to a consumer has a sustainability claim, or has regulations to comply with, then each input to that final product has a part to play. For this reason, CFOs should engage with their partners and critical suppliers and customers to understand their planned rate of transition to make sure the full value chain is aligned.

To deliver on this effectively, CFOs may need to look at various carrots and sticks. In encouraging suppliers to change their operations through specification changes, contract term extensions or even co-funding have been used as incentives. On the other hand, in some cases, a simple requirement for suppliers to change as a ‘ticket to play’ can be used to force change. This all requires careful analysis to work out the cost of action, the cost of inaction, and the opportunities that can be created through leading change.

Value beyond compliance

There is a significant focus and effort at the moment on understanding the emerging reporting requirements, making sure that companies have a reliable single source of truth of sustainability data, so that the company can be compliant. At the same time, the responsibility for sustainability data and reporting is often in the process of transferring from the sustainability team to the CFO and controller teams.

In addition to the need for compliance, CFOs also have an opportunity to harness the same data to think through and deliver risk mitigation and value creation. There are a few activities that CFOs can consider, such as ensuring that as new data gathering and analytics systems are designed and deployed, additional capability is included to use this same data to optimise operational performance, manage supply chain transparency, and prioritise capital allocation.

As emissions reduction and other sustainability-related targets are set, CFOs can use the baseline and ongoing data to develop clear pathways—including resource allocation, financial and otherwise—to deliver on those commitments. These pathways may include uncertainties and dependencies, which need to be considered, as do contingencies. Some of this work might then be published as a Climate Action Transition Plan [2] to provide clear guidance to the market about how the company will change and how it will fund those changes to meet market needs. Put simply, don’t waste the required effort of compliance just on delivering compliance. Rather, harness that same effort to drive real business value.

Emerging trends

The most impactful trends lie in evolving stakeholder expectations and where there might be step-changes in demands. To effectively provide value for the company, CFOs need to understand the possible scenarios for change and identify and monitor signals [3] that might indicate that changes are approaching.

For instance, signals that might be worth considering when bearing in mind investor expectations include:

■ Increasing divestment activity from institutional and retail investors

■ Increasing percentage of individual uptake of socially aware/low-carbon portfolios

■ Shareholder resolutions/engagement on sustainability issues

To protect and create high-quality value from these macro trends, CFOs should also be aware of technology changes that facilitate more effective real-time monitoring and traceability of sustainability impacts. This can enable them to take quicker corrective action and improve opportunity selection.

It is also important for CFOs to understand the breadth of sustainability demands in addition to carbon emissions, which has been a primary focus at the moment. Nature, water, land, community, waste and recycling, and circularity targets are all starting to be adopted and this can extend the sustainability remit for CFOs significantly. While not all of these will be material for every business, a consideration of the materiality can help organisations determine that they develop the most effective sustainability strategies.

For already-stretched CFOs, this can feel at times like a whole new set of requirements that doubles their work. However, this is the result of a changing business environment that has encompassed new requirements from customers, financiers, and governments and requires additional information to be collected, analysed, and acted upon.

With that view, it is no different than considerations of safety, digital, cyber, and AI. Sustainability ought to be understood and integrated into the overall company strategy to deliver the best outcomes for owners through efficiently and effectively meeting the needs of stakeholders.

John O’Brien is partner, Deloitte Sustainability, Deloitte & Touche LLP

1. “The Chairperson’s Guide to Climate Stakeholders: Understanding how key groups are responding today and how they might respond tomorrow,” World Economic Forum Climate Governance Initiative in collaboration with Deloitte, April 2022.

2. “How to Chart a Credible Path to Net Zero? Try a Climate Transition Action Plan,” WSJ Pro Sustainable Business, October 9, 2023.

3 “The Chairperson’s Guide to Climate Stakeholders: Understanding how key groups are responding today and how they might respond tomorrow.”

As published by the Deloitte US Chief Financial Officer Program in the 13 November 2024 edition of The CFO Journal in WSJ.   

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