Sustainability is a growing and more urgent priority around the world—culturally, operationally, and as a focus of regulation. As sustainability grows from what used to be a niche concern into a way to move the needle on enterprise value, the work of quantifying it is becoming part of an organisation's core plan of action. That means incorporating sustainability into the practice of Enterprise Performance Management.

Why evolve EPM now?
 

What's driving this? Multiple factors, from multiple directions. Customers, shareholders, and employees value sustainability more strongly and increasingly demand it of every organisation.1 For regulators, these demands are expressed in line with prescriptive frameworks such as the Corporate Sustainability Reporting Directive (CSRD) in the EU, the International Sustainability Standards Board (ISSB) globally, and others.

This is a job for finance.
 

Is sustainability a finance concern? The logic is clear: Since the CFO is responsible for translating the organisational vision, strategies, and activities into financial terms, it follows that is the leader who should also measure and drive performance on emerging sources of value presented by sustainability. Finance should lead the way in evolving EPM to include sustainability and, when it does, the CFO will likely be better able to guide business decisions that achieve sustainability ambitions.

This responsibility aligns with the "four faces of the CFO" - Strategist, Catalyst, Operator, and Steward. Embedding sustainability into EPM is likely to help the CFO carry out each of those roles.

• Strategist: Influencing the future strategic direction of the organisation with insights that help align business, financial, and sustainability strategies to grow the business in a way that is not only coincident, but also consistent, with meeting social impact expectations.
• Catalyst: Embedding sustainability and climate considerations into cost of capital, investment decisions, and capital allocation processes can stimulate and drive the change needed throughout the organisation to help achieve sustainability commitments.
• Operator: The CFO can drive efficient, effective, and integrated processes that include sustainability performance—from managing carbon accounting to climate risk scenario planning to strategic planning and financial forecasting. This integration can make it easier to measure the two-way relationship that connects sustainability progress to enterprise value.
• Steward: It may be the CEO who gets to hold a press conference announcing the goal to, say, be carbon-neutral by 2050, but it’s the CFO who guides the rest of the C-Suite in how to fund that goal and in what ongoing decisions and compromises may likely need to be made.

Why folding sustainability into EPM can be difficult
 

Currently, the idea of doing a comprehensive sustainability report in 30 days is likely untenable for many organisations. There’s just too much to process. Consider only one sample variable: tracking the use of jet fuel. A global company might receive some of its fuel invoices in imperial gallons, or US gallons, or liters—and all that must be reconciled before it even begins to address the different currencies involved. And that’s only one example. Sustainability requires the use of a common language that could cover hundreds or even thousands of data categories.

Sustainability performance management and reporting
 

The process begins with understanding the requirements and setting up KPIs to monitor and report ESG compliance, aligning on the visions and target goals, planning and executing various initiatives. This process continues reiteratively basis a monitoring and feedback loop.

Fitting a new job into an existing structure
 

To meet the challenge of integrating sustainability within EPM, it can help to break the problem into its main components—and also to see it along a timeline. This is often a multi-horizon journey in which organisations will likely expand and improve capabilities over time, especially as it relates to tracking and aggregating data, informing and mobilising initiatives, and understanding and measuring the impact of different sustainability efforts. A systematic approach can not only help tame the large data and technology needs that lie ahead, but also steer the organisation toward a true “green balance sheet” that satisfies strategic needs as much as it serves reporting requirements. There appears to be a greater emphasis on accountability and transparency by employees, shareholders, and stakeholders, and EPM can help address those demands. When these components all come together, they can help answer the challenge of internalising sustainability as a new dimension of business performance.

A few key steps to consider include:

• Identify and place the right accountabilities
• Put necessary structures in place
• Integrate sustainability-related risks and opportunities to decision-making
• Include sustainability in your core "decision rituals"
   

To achieve the above, a few core enablers should be in place:
 

• Processes and policies: Identifying the real operational levers to turn performance decisions into effective operational changes on a day-to-day basis, and providing clarity on ESG-related policies and accounting methodologies can be important in order to evaluate performance and variances in comparable ways. An ESG accounting manual could come in handy here. Do you have one?
• Organisation readiness: Identify how to organise Finance around sustainability, looking at new roles and responsibilities or updating traditional ones, and focusing on upskilling the Finance organisation and their stakeholders in the business.
• Data and technology: Navigate the technology landscape and define an appropriate strategy to integrate sustainability requirements in the finance systems and data landscape, while also bringing sustainability data up to the appropriate quality for decision making. Many of you may be already implementing or considering a new finance system or data implementation – have you considered ESG requirements in your future scope? Proactive thinking now could potentially mitigate a lot of reactive spending later
   

Survive, drive, thrive
 

Like many finance evolutions, the integration of sustainability into EPM won't happen all at once, and it can be worthwhile to envision the change in stages from the immediate needs-"survive"-through progressive levels that let an organisation "drive" meaningful change and eventually "thrive" in a way that's distinct from the competition. The difference here, however, is that fast-moving regulatory changes may put emphasis on the “survive” modality even for organisations with mature approaches.

Take the (crystal) ball and run
 

It's the comprehensive nature of this change that makes it important not only to see the big picture, but to be able to bring change everywhere it's needed in a coordinated way. Embedding sustainability into EPM involves all of performance management- including areas such as risk management, human resources, and others. Being able to address each of those areas is a plus. Being able to address them all as part of a single vision can be a source of advantage.