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In recent years, sustainability has become a significant factor in strategic management. Companies now focus on sustainable practices to ensure their operations are environmentally friendly and can continue operating cost-effectively. Strategic management is a process of making decisions and taking action to achieve long-term goals. It involves setting goals, developing strategies and implementing plans to achieve those goals. Sustainability is an important consideration when conducting strategic planning because it helps to ensure that resources are used responsibly and efficiently. By incorporating sustainability into strategic management, companies can minimise their environmental impact while continuing to achieve desired results.

Finance professionals have a crucial role in ensuring that the sustainability metrics provided to internal and external stakeholders are relevant, compliant and accurate on the one hand and in supporting the overall execution of the sustainability strategy on the other.

Most of the planning, steering and reporting work CFOs do is focused on financial KPIs, but a company’s value and risks are not only expressed in financial statements. We are seeing increasing pressure from various stakeholders, including government regulators for compliance with non- financial (ESG) requirements, investors and analysts who prefer comprehensive sustainability reporting, and customers shifting their buying behaviour towards sustainable products.

As environmental, social & governance (ESG) factors become increasingly important in investment decisions, the question of ESG factors’ financial materiality informs the discussion from both a legal and economic perspective in the energy sector and the metro rail sector. Legally, ESG factors that are misleading or inaccurately reported could be a basis for liability.

Materiality measures the relative financial importance of a factor among a company’s ESG considerations. The Sustainability Accounting Standards Board defines material issues as those “that are reasonably likely to impact the financial condition or operating performance of a company and therefore are most important to an investor.”

It has been empirically validated that companies with higher ESG scores tend to do better than those with lower ESG scores regarding stock performance and underlying financial metrics. And there is much logic behind this finding. The integration of ESG factors reduces risk and increases efficiencies in various ways. For example, companies with higher ESG scores are less likely to be subject to monetary fines or reputational damage due to environmental shortcomings, such as improper waste management, excessive land use, or the release of air pollutants. Further, companies with higher S scores tend to be equal-opportunity employers with enhanced workers’ rights, which results in increased employee satisfaction.

Some critical pillars in the domain need focused attention to ensure the overall business dynamics include:

Environmental Pillar
Environmental factors consider the extent to which a company may act as a steward of nature and be involved in conserving the natural world. Specifically, environmental factors are centred around how much energy a business consumes and how much waste it produces. These factors also take into account an organisation’s contribution to climate change. Implementing sustainable practices into all the elements of business activity is another element of the environmental criteria. Sustainability is becoming a critical point of contention in the buyer decision-making process, as consumer tastes are inclined to pay a premium for sustainable products and services. We’ve seen this already in the egg industry, where free-range eggs are now becoming the industry standard rather than the exception. However, some of the complexities of the environmental pillar include supply chain management, resource usage, and product sustainability. Without considering these key factors, only highlighting sustainability can turn into greenwashing – where exaggerated or misleading marketing paints a company’s sustainability and environmental focus in a greater light than what it truly is. For a truly successful environmental strategy with a long-term vision for helping transform your industry for the better in terms of climate impact, you should consider your organisation and offer within its entire life cycle, from conception to end user. For example, if your partner suppliers are not committed to similar environmental goals, you risk undermining your ESG strategy. Similarly, if you’re in the product space, creating goods that are designed to last is paramount. Once again, regarding EHS, the environmental pillar overlap is clear, as both functions consider the environment. From an EHS perspective, the environment is critical. In day-to- day operations, your organisation’s physical environment should enhance employee health (i.e. high air quality, clean and safe working spaces) and not compromise their safety. Taking a step back, long-term EHS will look like a long-term investment in climate change and the organisation’s impact on the environment so that people are kept healthy and safe for generations to come.

Social pillar
These factors address the relationships you have across the board – both within your organisation and external stakeholders, including customers, suppliers and local communities. It’s hardly ground-breaking, but factors such as diversity and human rights are taking the front seat in business operations. Businesses that value these factors aren’t exceptions; instead, businesses that do not are no longer viable in today’s world. And rightly so – focusing on championing workplace diversity and the provision of equitable opportunities for all, has been a long time coming. Not only is equity key for building a better world, but businesses that focus on doing so reap the benefits of the availability of broader skill sets, perspectives and heightened out-of- the-box thinking. Consumer protection is another part of the social factor criteria, ensuring that consumers don’t get cheated, taken advantage of, or sold unsatisfactory goods. Other social factors cover include animal welfare, data protection and privacy, labour standards and community relations.

Governance Pillar
Effective governance ensures that organisations have fortified their internal structures – including systems, processes, and protocol – in a way that provides transparent, accurate decision-making is the modus operandi at all times. Some of the critical areas in governance to address for a comprehensive ESG strategy include board and executive compensation transparency. Ensuring the correct compensatory balance helps with a company’s performance and reputation. Within these factors come management structure (how your hierarchy is organised), employee relations and internal culture, and the need to disclose executive compensation. When making important decisions, governance factors prompt businesses to consider their stakeholders, not just the bottom line. Organisations that undergo good governance in their ESG strategy are transparent with their reporting and, therefore, their stakeholders. They don’t engage in preferential treatment or illegal activity, and their teams can thrive.

The success of your sustainability strategy depends on how you define your goals clearly and align them with your vision, mission, and values. Your goals should be SMART: specific, measurable, achievable, relevant, and time-bound. For example, you might want to reduce greenhouse gas emissions by 20% by 2025 or increase your social impact by supporting 100 local communities by 2030. Your goals should also reflect the material issues affecting your business and stakeholders, such as environmental, social, and governance (ESG) factors.

Select indicators that will help you track your progress and performance towards your goals. Indicators are quantitative or qualitative measures that reflect the changes or impacts of your sustainability strategy.

Collect and analyze the data that will inform your indicators and show your results. Data can be collected through various methods, such as surveys, interviews, audits, observations, or records. You should ensure that your data is accurate, complete, timely, and ethical.

The final step is communicating your results to your internal and external stakeholders, such as employees, customers, investors, regulators, and the media. Communication can be done through various channels, such as reports, presentations, websites, newsletters, or social media. You should use clear, concise, compelling language and visuals to convey your message and story. You should also be transparent, honest, and accountable for your achievements and challenges and invite feedback and dialogue. Communication can help you build trust, reputation, and engagement and inspire action and change.

Briefing my experience in different industrial sectors, I would say Professional commitment is beyond a commitment to a particular organisation and implies the individuals’ perspective towards their profession and the motivation that they have to stay in their job with a willingness to strive and uphold the values and goals of the profession.

Metro Rail – Rail-based transportation is the most environmentally friendly mode of mass transportation due to its inherent benefits in terms of energy efficiency and resource optimisation. Railways are approximately 12 times more efficient in freight traffic than road transport and 3 times more efficient in passenger transportation. Mobility shall be important as the Indian economy transforms, with economic growth and sustainable development as twin goals. The potential of metro rail networks is to ease urban traffic congestion and improve air quality, mobility, accessibility and the local economy.

Also Raed | Achieving a sustainable world together

Financial cost and benefits of the metro, identification and measurement of economic, environmental and social benefits are the critical areas of opportunity for the growth of a finance profession. It needs specific attention on –

A) Financial cost and benefits of the metro – Evaluation of CAPEX and OPEX, Evaluation of payback period and IRR, Revenue projection, Cost efficiency, Sensitive analysis, selection of resources for the project etc.

B) Environmental cost and benefit analysis – It analyses the environmental impacts, both positive and negative. Evaluation of GHG emission reduction, energy efficiency, reduction in petroleum consumption

C) Economic Cost and benefit analysis – Reduction in import bill and increase in forex reserve & GDP.

D) Social Cost and Benefit analysis- Evaluation of contribution to ease urban traffic congestion and improve air quality, mobility, and accessibility.

E) Sustainable projects need awareness and understanding of fiscal benefits regarding tax rebates, subsidies, viability gap funding, and government policy and acts.

F) Needs understanding of global financial architecture. It is time that the multilateral economic regime recognises the need for engaging with global financial regulatory frameworks such as the Bank for International Settlements, International Monetary Fund and International Accounting Standard Board, UN bodies, World Bank & other International bodies.

G) Ensures sustainable finance encompassing social, environmental and economic aspects.

POWER

• Reassessing timescales for capital investments and efficiency improvement schemes to offset reductions in revenue.
• Determining the level of sustained investment to maintain individual assets until the market improves.
• Assessing impacts on cash flows, credit rating and financing capability of impaired assets.
• Identifying alternative business models and partnerships to offer alternative services and approaches to pricing and recovery.
• Justifying regulatory tariff requirements given forward revenue and volume projections.
• Shaping the proactive role to be taken with the regulator to make the case for new sources of revenue or defend existing ones.
• Managing the obligation to deliver accurate and timely financial and regulatory reporting during significant business change
• Forecasting business performance and demonstrating continuous improvement through periods of regulatory and policy uncertainty.

A) The economic approach in Investment in new coal-fired power plants persists globally despite misalignment with a net zero economy and the falling costs of renewable energy technologies

B) Beyond the operational risks, the interplay between grassroots opposition, environmental and geopolitical considerations, and domestic policy decisions can play an outsized role for a finance leader in coal Industry in India.

C) The traditional business model in the coal sector has moved the CFO role towards the fiduciary end of the spectrum rather than the visionary end. But now, this role is becoming more about strategy than stewardship and value realisation and optimisation.

D) Set of key capabilities that can be leveraged to strengthen strategic, financial and market positioning. These capabilities must evolve from emphasising rigorous planning and budgeting and financial performance management to building business acumen and designing effective collaboration models.

The time has come for all finance professionals to ensure the demonstrated ability to construct and manage an accounting and finance structure, people and systems that comply with Generally Accepted Accounting Practices (GAAP) and all applicable regulatory requirements and to follow the following principles.

Strategy design: As the direction of the corporate scenario shifts, the finance professionals’ role in harmonising diverse business strategies becomes critical to aligning risks and rewards. As this strategy devises and leverages new investment structures, our profession is at the heart of considering how these models are best structured and managed.

Governance model: Effective alignment and decision-making within the enterprise are fundamental to both strategic and financial success. The CFO is at the centre of designing how to increase collaboration and transparency within the business to support decision-making and reinforce accountability.

Inorganic growth: Organic business expansion will need to be complemented by targeted inorganic growth to support future enterprise success. In addition to creative transaction structuring, the CFO has to display a dispassionate corporate conscience overvaluation and priority among options.

Portfolio optimisation: The selected strategies also lead to a more diverse portfolio of businesses and assets, many of which do not co-exist. The CFO needs to be both the custodian and craftsman of all sources of shareholder value, instilling the discipline to optimise the parameters and composition of the current portfolio.

Capital allocation: The disciplined deployment of investment capital is a distinctive way to ‘stretch’ financial resources. CFOs need to sharpen the criteria employed to assess alternative investment uses so that the allocation of capital flows to the most attractive blend of available options and projects.

Market positioning: Once the enterprise has selected ‘where and how to play’, a requirement still exists to communicate the strategy in a compelling manner. The CFO is the face of the company to the market and will need to articulate positioning and value in a distinctive and differentiating manner.

Risk management: The future utility competitive environment and market model are redefining the nature of industry risks and uncertainties. These emerging challenges require the CFO to rethink how to frame relevant risks and to reassess how to evaluate and mitigate their impacts.

Performance management: After the corporate strategies and deployment decisions are executed, outcomes become the yardstick for whether results conform to expectations. The CFO performs a vital role in not simply tallying the resulting metrics, but in shaping the overall assessment framework.

Sustainable development is a fundamental break that’s going to reshuffle the entire deck. There are companies today that are going to dominate in the future simply because they understand that.

Views expressed by Dr. Prassana Kumar Acharya, Director Finance, NLC India Ltd (A Navaratna Govt. Of India Enterprise)

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