Stakeholders Calling Business to Account: Flip the Coin from Internal Review to External Reporting

Authored by Paula Kensington FCCA - FutureValue Director, Group Finance & Beyond Sustainability

As I reflect on my 35 years of experience across large service and technology businesses and now, as CFO for a regenerative development company, I continue to recognise the need for an evolution of knowledge. An evolution that adds to the wisdom I’ve accumulated over the years. It’s a wisdom honed through countless hours spent in the trenches, yet still, I find there’s a fresh, critical shift required in my thinking, especially in the context of sustainability and climate action.

One of the biggest challenges businesses face today is transitioning from internal risk management systems, built up over decades, to the new era of climate and sustainability external reporting. How can business leaders successfully manage the shift from inward-focused, operational risk assessments to external, mandated reporting that is transparent and open for scrutiny by a broader range of stakeholders?

Perhaps the uncomfortable feeling we have as finance leaders is that we being asked to expose our strategic decision-making prowess and organisational vulnerabilities through mandated reporting. These international reporting requirements may also create challenges for the organisation down the track as potential gaps appear between organisational action not aligning with the expectations of stakeholders including those such as business impact to nature and the environment in which we operate.

Historically, risk management has been a more insular practice, with many businesses focused on managing internal risks without the full visibility or accountability to a broader range of external stakeholders. However, the advent of global sustainability mandates and climate reporting requirements means that the traditional inward focused approach is no longer sufficient. External reporting is not only about showing the achievements but also revealing the gaps, what has not been done, what actions are still missing, and where businesses are failing to move the needle on climate action or embeding sustainability into the heart of business models.

In my career, I’ve often encountered resistance when it comes to risk management. There seems to be a hesitation to openly acknowledge the full depth of risk, including the likelihood and potential impact of negative events. This hesitation extends to governance frameworks and the operational management of risk, where many organisations still shy away from presenting full, unvarnished details of their vulnerabilities.

But as CFOs, it is time to step forward as the speakers of truth, leading the way by shedding light on what is truly happening within our businesses and demonstrating how we plan to navigate these risks, especially as they pertain to climate and sustainability.

The Crucial Question: How Do I Eloquently Review the True Business Leadership of My Organisation, and Embrace Its Opportunity to Lead in Sustainability?

This question requires careful consideration, especially as businesses face mounting pressure from regulators, investors, and the public to show meaningful action on sustainability. It’s not enough to simply report on numbers; we need to create a narrative that not only speaks to our successes but also to the gaps where we still have work to do.

Three Key Areas to Focus On

1. Spotlight on the Data – Understanding and Embracing Uncertainty The first step in this journey is recognising the importance of data. Sustainability and climate action are inherently uncertain, and acknowledging this uncertainty is key to managing it effectively. CFOs must first identify what data is crucial to measure climate-related risks and opportunities, then put systems in place to collect and analyse it. This process involves not only gathering data but ensuring it’s robust enough for accurate reporting, especially when the data will be scrutinised by external stakeholders.

2. Inclusive Business Review – New Perspectives on Risks and Opportunities Internal risk reviews must evolve to consider a broader range of perspectives. The Future Value (FV) regenerative risk matrix and heat map is one tool that we have built to help organisations navigate the complexities of regulatory requirements, particularly when it comes to sustainability. By incorporating a wider variety of risks and opportunities such as financial, environmental, social, and governance, this tool allows CFOs to more holistically assess their business’s readiness for sustainability reporting. This more inclusive approach helps identify potential blind spots and aligns internal business reviews with external sustainability standards.

3. Managing All Stakeholders – Expectations & Narrative Sustainability and climate action are no longer just internal matters, they are a conversation that involves a diverse range of stakeholders. From investors and regulators to employees, communities, and consumers, managing stakeholder expectations is crucial. CFOs must ensure that the company’s sustainability narrative resonates with all audiences, addressing the direct and indirect impact of the company’s actions. This narrative should be authentic and transparent, recognising both successes and shortcomings in a way that builds trust and accountability with all stakeholders including the seen and the unseen, with voices both loud and quiet.

Conclusion

The transition from internal review to external reporting is a complex but necessary step for businesses in today’s regulatory and social environment. As CFOs, we must lead the charge by ensuring our businesses are prepared for transparency and accountability. By focusing on data, embracing inclusive business reviews, and managing stakeholder expectations, we can not only meet the demands of external reporting but also seize the opportunity to position our companies as leaders in sustainability. It’s time to turn the page and embrace a new era of risk management, one that extends beyond the internal walls of our businesses and into the broader, more impactful world of external accountability. When we lift the tide of reporting quality for all organisations then we lift the standard of accountability and transparency which leads to a better understanding by all stakeholders of the actions and implications that our businesses have on the world and its systems.