The redesign of the CFO's role and the new frontier of governance

Considering the three ESG dimensions — Environmental, Social and Governance —, this last pillar, Corporate Governance, can be seen as the CFO's “comfort zone”, since the most advanced knowledge in this area is already, or should be, traditionally required of financial professionals.

In recent years, the establishment of governance practices in companies has undergone significant changes, leading CFOs and their teams to strengthen internal control instruments in order to avoid financial and trust crises. Now, there are more demands on the horizon. The CVM (Securities and Exchange Commission of Brazil) imposes, from 2026, the presentation of ESG reports for publicly traded companies. Many companies — even those that do not have shares on the stock exchange — already act to comply with the requirements related to these reports. Thus, the financial area gains even more responsibilities, with the need to create unique indicators and ensure consistent monitoring of ESG guidelines.

With this, the “G”, which in recent years has been predominantly focused on issues of creating anti-fraud devices and protecting the financial health of the company, is increasingly also related to the management of socio-environmental initiatives. And the starting point for the consolidation of the ESG agenda within offices has been the promotion of diversity.

Diversity and other social obligations

The “S” (Social) pillar of ESG is mainly supported by diversity issues. Within companies, the expectation is that, in the medium and long term, this agenda will advance to leadership positions, starting from a more diverse employee base. For this, companies need to worry about not only attracting talent but also retaining them.

Given this scenario, one of the first steps for the implementation of ESG initiatives is to reassess hiring criteria and adopt a patient approach to internal leadership development. Often, requirements that are not present in the selection process are imposed on the first day of the professional in the company, which can compromise inclusion initiatives and talent growth of underrepresented groups.

If the dissemination of ESG agendas from within companies faces some resistance, the challenges increase when it comes to external actions. Over the years, companies have been responsible for several socio-environmental disasters caused by their economic initiatives, making it necessary to create conditions for sustainable development for the population as an answer to these impacts.

If organizations can be marked by playing a role in problems of this magnitude, substantial benefits to the environment and its populations can also be linked to the name of companies permanently. To this end, executives can count on partnerships with non-governmental organizations, private institutions, authorities and civil society, either through specific initiatives or agreements and consortia for more ambitious actions.

Responsible for the numbers, the CFO has a more oriented path to develop initiatives that favor the dissemination of ESG guidelines within and outside the company, without compromising the financial results of the operation. In this sense, he can also lead or integrate committees dedicated to the development of sustainable and social practices, ensuring that sustainability is integrated into the business strategy.

Indicators

In order to understand how the initiatives are generating results, the Finance area must participate in the creation and calculation of ESG indicators. Thus, the executive will have subsidies to identify how much each initiative costs and what is the expected return for the company and society. Consequently, the CFO plays a key role in centralizing, evaluating, prioritizing, and approving these initiatives. Afterward, the CFO can pass the data to the area that will implement the action, such as Products or Projects, for example.

In this context, there are different challenges for each ESG vertical. The measurement of social actions, for example, may be more subjective and more complex calculation, especially thinking about how the company can benefit from the results. On the other hand, the environmental issue seems more advanced in the sense of discovering what needs to be done and what is the return for society and the company.

If the measurement of the result is not so much the problem in these cases, on the other hand, the success of these initiatives can mean another obstacle for the CFO: there is a great chance that these actions will reduce the company’s profitability in the short term. The acceptance of this factor by market agents requires a drastic cultural change; otherwise, it will be difficult to include ESG demands in companies' strategies in a structural and definitive way.

Sustainable financing instruments

In Brazil, some Finance executives claim that the benefits provided to companies with truly sustainable projects are still limited. These companies are subject to the same profitability requirements as others that do not have ESG actions in their strategy, which discourages the adhesion to this type of financing instrument, since green bonds impose additional requirements on companies and demand performance that non-sustainable companies do not need to follow. In this way, organizations end up taking on the high risk inherent to innovation and sustainability projects alone.

This makes the CFO’s challenge even more difficult, as they help in debt structuring, participate in measurement, and provide transparency about operations to the market. Going further, the Finance executive who accumulates the function of Investor Relations is in charge of talking to the financial market and persuading it to shift its focus from profit at any cost to a constructive long-term socio-environmental project.

Therefore, a shift in the market's mindset is necessary, based on the understanding by market agents that companies cannot independently drive the consolidation of a more sustainable economy. The challenge is significant, but not insurmountable, especially if major financial players help in building this new culture.

The CFO and the new challenges

Initiatives such as the inclusion of new financing options focused on sustainable development and mandatory reports on ESG-related projects place a substantial burden on the CFO, who will be significantly affected by these demands. This will require professional improvement in the medium and long term for these topics. While the demand for ESG-specialized executives is not yet intense (which is a point of concern), soon, hiring directors, vice presidents, and CEOs will necessarily require a detailed knowledge of sustainable development strategies.

In the best of worlds, in terms of socio-environmental development, these professionals will be evaluated by companies for their ability to seek the best encouraged financing instruments, create sustainable development strategies, build diverse teams, talking to the financial market in terms of sustainable growth, and measure the returns — for both the company and society— of ESG actions structured within and outside the company

In light of this, educational institutions will need to offer courses for CFOs and CEOs that address the ESG topic in all its depth and relevance. However, academic learning will not replace the reality that CFOs already know: the most significant lessons come from day-to-day work. Therefore, the ESG attributes required by companies of executives must start being developed by professionals now.