Faisal Khan, James Stacey, Sam Sloman, Daniel Holod
The SustainAbility Institute: Aiste Brackley, Andrew Angle

This report explores the evolving relationship between ESG, capital markets, and corporate finance. It argues that CFOs and corporate finance teams will play a critical role in integrating ESG risks and opportunities into corporate strategy and operations.

By proactively responding to ESG risks and opportunities and improving ESG performance, CFOs have an opportunity to gain competitive advantage and capitalize on a broad range of new sustainable finance instruments. Sustainability-linked bonds and sustainability- linked loans have experienced exponential growth in recent years, and their uptake is expected to continue to expand at a rapid pace.

This report draws on findings from interviews with more than a dozen CFOs, investors, and lenders as well as insights from extensive ERM expertise. We explore four areas that CFOs and finance teams should prioritize and provide actionable recommendations:

1. Leverage a structured framework to identify material ESG risks and opportunities:

  • Leverage frameworks and tools including TCFD, SASB, GRI, and <IR> to identify material ESG risks and opportunities.
  • Develop scenario analyses for climate-related financial risks and opportunities and use them to inform financial planning.
  • Advocate for your company to produce a TCFD report and lead in this effort.

2. Integrate material ESG risks and opportunities into corporate strategy:

  • Manage material ESG issue performance measurement and reporting with the same analytical rigor and controls as financial reporting.
  • Integrate ESG analytics into the company’s financial reporting infrastructure.
  • Digitize integrated (financial and ESG) data aggregation and reporting.

3.Use ESG performance to be better positioned to access sustainable finance:

  • Develop your company’s understanding of sustainable financial products and identify those that are best aligned with your company’s needs.
  • Leverage your company’s ESG story and performance into your financing strategy and communication plans.
  • Engage lenders to discuss new sustainable finance options.

4. Ensure comprehensive disclosure and reporting that meets the needs of all stakeholders:

  • Advocate for and lead the integration of financial and non-financial reporting.
  • Apply best practice reporting frameworks and develop an ESG reporting baseline that can be built upon when regulations are introduced.
  • Maintain a dialogue with your investors and ESG raters and rankers.
  • Engage with regulators and standard setters on emerging requirements.

Find out more within the report.