Unlocking The Value of Mandatory Reporting: 3 Crucial Mindset Shifts for CFOs

Last month, the Bill that will usher in what the Australian Institute of Company Directors has labelled ‘the most significant shift in corporate reporting in a generation,‘ was tabled in Parliament. The mandatory climate-related financial disclosure regime, which is proposed to begin from 1 January 2025, sees Australian-based CFOs enter a pivotal period. Beyond obligations to help organisations prepare for compliance with new laws, CFOs face a significant leadership opportunity.  An opportunity to help organisations expedite investment in sustainable transformation to build business resilience and bolster value creation.

Embracing this dual necessity and opportunity is far from straightforward. From conducting climate risk assessments to running practice-runs of disclosure reports, there is plenty that requires attention. However, amidst operational tasks lies a bigger challenge: the need for shifts in mindset. Shifts that are essential if CFOs are to help their business unlock the value-creation opportunities that mandatory climate reporting presents.

With that in mind, here are THREE crucial mindset shifts CFOs must embrace:

From Positive to Necessary

In the past, sustainability initiatives were seen as peripheral to a CFO’s core responsibilities. Some budget may have been allocated to ‘feel-good’ projects but beyond that there was minimal impact on financial performance. The introduction of mandatory climate reporting and growing emphasis on sustainability-related financial risks requires that perspective to shift. Today’s CFOs must recognise that sustainability transformation isn’t merely a ‘positive’ endeavour but critical to safeguard a company’s ability to survive and thrive in the years to come.

Key to this shift is embracing a broader view of value-creation. This includes building a thorough understanding of how a changing climate and evolving stakeholder expectations impacts value-creation and creates new opportunities to build value. Take nature, for example, which is a priority for protection, as committed to by the Australian Government. CFOs that arm themselves with a solid understanding of their business’ dependencies and impacts on nature will be well placed to help their business respond. If you work for a business with a significant agricultural supply chain this response might include investing to support regenerative farming practices that improve soil health and carbon sequestration. Doing so may not only help the business navigate nature-related risks, like water scarcity or drought, but generate broader upsides such as attracting increased investment from environmentally conscious investors.

From Mitigating to Reimagining

Mitigating financial risks has long been a cornerstone of the CFO role, with a focus on identifying, assessing, and managing various risks that could impact the financial health and stability of the organisation. Mandatory climate reporting requirements are being introduced because climate-related financial risks, such as those posed by flooding, rising temperatures and a shifting energy mix, can and will affect financial performance. Despite this, mandatory reporting shouldn’t only be viewed through the lens of risk. It also presents an opportunity for CFOs to reimagine how their business can thrive amidst a changing climate and evolving stakeholder expectations.

The scenario analysis required as part of the upcoming mandatory climate reporting regime is an excellent opportunity to embrace a ‘reimagining mindset’. Although conducting two scenarios is likely to be a requirement under the Standards, the value of undertaking these analyses goes beyond compliance. Scenario analysis, whether quantitative and/or qualitative, presents an opportunity for CFOs to play a leadership role to help their business uncover potential risks, challenge assumptions, and identify opportunities for adaption based on varying complex and disruptive changes in climate. Climate scenario analysis may require a reimagining of commercial models and necessitate innovative thinking about how the value that’s created over time will vary from the value that’s created today. A great example of a business reimagining and adapting for the future is UK fashion retailer Selfridges. In committing to a target of 45% of transactions coming from circular products and services, such as repairs and rentals, by 2030, Selfridges has fundamentally reimagined the future of its business.

From Siloed to Holistic

Climate change and sustainability are no longer peripheral topics; they’re fundamental forces shaping the business landscape. For CFOs to navigate this new reality, a shift is needed – from a siloed focus on financial returns to a holistic approach that recognises long-term value creation must also include environmental and social returns. Inside businesses, this requires CFOs to become more active collaborators, working across departments with functions like sustainability, operations, and marketing. Together, these teams can identify and invest in projects that create long-term value that go beyond pure financial metrics. In doing so, CFOs can help build a sustainable competitive advantage that positions the company for success in an uncertain world.

Collaboration shouldn’t stop at internal departments either. A deep understanding of and collaboration with the entire supply chain is also essential. As mandatory climate reporting takes effect, understanding your value chain’s environmental impact and collecting data from suppliers will become mission critical. This data will not only be required for mandatory reporting but can be used to inform strategic decision-making and unlock new opportunities for collaboration and innovation. By working with suppliers to implement sustainable practices and measure their environmental impact, CFOs can play a key role in investing in the co-creation of value-creating solutions that benefit all parties.

Author

Stuart Wragg is Managing Director of Salterbaxter Australia, an advisory, engagement and reporting consultancy at the service of sustainability. Stuart works with a local and international team of sustainability advisory, activation and reporting experts to deliver bespoke support for Australian-based businesses. His passion lies in delivering actionable advisory that helps businesses unlock value-creation in an increasingly uncertain future.