Thursday 24 November 2022 7:00

The recent COP27 summit in Egypt further reinforced the urgency of the climate threat. As countries, as organizations and as individuals, we need to do much more to fight climate change and act much faster than we are doing today.

I believe finance professionals can play a crucial role in the collective effort to halt climate change and help accelerate the transition to a more sustainable future. To fulfill this role, however, they will need to evolve and expand their core competencies, and many will need to rethink their approach to planning, budgeting and forecasting.

Bigger view of performance

Performance planning and management paradigm, new global research conducted by ACCA and Chartered Accountants Australia and New Zealand (CA ANZ), in association with PwC, highlights the scale of the challenge. Planning and performance are integral activities for finance functions, with budgeting and planning cycles requiring a significant amount of time and effort. However, these cycles remain largely financially focused, despite sustainability being a global priority and many organizations facing resource constraints.

Transitioning to a more sustainable economy requires finance teams to take a broad view of performance and value. However, only 16% of respondents surveyed for the research said that environmental, social and governance (ESG) forecasting was “fully integrated” into their financial planning and performance process. Additionally, just over half (56%) said they currently give “equal” attention to financial and non-financial areas, such as sustainability and supply chain issues.

Fortunately, finance professionals themselves recognize the impetus for change. A large majority (82%) agreed that new forms of performance measurement, as opposed to purely financial measures, are needed to meet the expectations of investors, analysts and capital markets.

Future focus

In addition to adopting a broader perspective, finance teams need to shift their focus away from purely historical performance. While it’s important to tell the story of the past, this shouldn’t come at the expense of understanding the drivers of future performance, the likely risks and opportunities their organization may encounter, and the actions needed to ensure success.

Research shows that a culture shift is needed to bring about this change. Today, the key area of ​​focus for financial planning and analysis (FP&A) activity in organizations is still understanding how reals perform against budget, cited by 57% of respondents. In contrast, only 24% focused on robust “what if” scenarios, even though scenario analysis would help their organizations better understand the potential impact of climate-related risks and opportunities.

There is also a need to review processes. Looking to the future requires flexible and straightforward processes, which are sadly lacking in many organizations. For example, research has found that most organizations (57%) take one to three months to complete an annual planning cycle. In other words, it takes up to a quarter of a year to plan for the next one.

Digital transformation

If finance teams are to become more agile with budgeting and forecasting, they need to have the right technologies and methodologies in place. These include tools and processes that support assumptions and constantly changing macroeconomic factors, such as inflation and employment levels. Finance teams also need access to internal and external data sources.

Despite the plethora of purpose-built planning tools and business planning modules that exist today, finance teams continue to rely heavily on spreadsheets. In fact, the research found that 82% of respondents relied primarily on spreadsheets to manage planning and performance within their organization.

In contrast, only 34% used next-generation tools, such as extended planning and analytics (xP&A) applications that have built-in artificial intelligence and machine learning. These tools, which are both business and financial tools, should be an important component of organizations’ digital transformation strategies.

Don’t prepare, prepare to fail

Over the coming months and years, organizations will come under increasing pressure, from their investors and other stakeholders, to achieve their net zero goals. If they are to achieve these goals, they will need a plan – an integrated plan that incorporates operational and financial considerations while drawing on the expertise of each internal team.

As an organisation, we are supporting the journey that the accountancy profession needs to take by integrating the necessary knowledge into our qualification and providing CPD opportunities and research, such as this latest report, which will help drive the necessary changes.

Finance teams are already recognized as valuable business partners by their peers within their organizations. So, we need to invite them to play an instrumental role in this planning process, taking an organization-wide, value-based view of performance that embraces purpose and people, as well as profit. By transforming the way organizations approach business planning, finance can help save the world.

To find out more about ACCA research, Click here

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