Evolution of finance function from Sustainability perspective

What is sustainable finance?

The term Sustainable Finance means the investment strategy which is not mainly aimed to maximize financial returns but to support overall socio-economic growth. Also, it keeps in mind the Sustainable Development Goals set by United Nations General Assembly to improve our World.  Mainly these goals are to drive and ensure No Poverty, Zero Hunger, Good health, Clean Water, Affordable and Clean energy & positive Climate Action.

The main pillars of Sustainable Finance are through –

• Corporate Social Responsibility (CSR)
• Sustainable and Responsible Investing (SRI)
• Environmental, Social, and Governance

Who are the key providers of sustainable finance?

Financial Institutions and Corporates across the globe are the main promoters of the initiative of building a Sustainable Environment adhering to the development goals and guidelines. Channelizing funds towards green investment through CSR initiatives.

Effective utilization of natural resources has turned into exploitation of natural resources and hence now we are talking about Sustainability. All these actions and the need for financing is to bring the balance back and harmonize the ecosystem.

Asian Development Bank and World Bank doing project funding in various developing countries to support the environmental, social, and governance (ESG) factors – Pollution control, Biodiversity destruction, Energy efficiency, Community relations, etc.

Large corporates are also engaged in supporting green investments through funding in multiple sectors including renewable energy, transportation, and infrastructure.

How can S/4 finance support Enterprises become Sustainable Intelligent Enterprises?

SAP introduces various solutions to measure and track the progress of corporates in the area of Sustainability. Solutions like Financial Compliance Management, Risk Driven Management- Asset Services, Carbon Trading, etc. are a few notable concepts used in this perspective.

Recently concluded Sapphire in Orlando, we came to know about the concept of Green Ledger. The solution is not there yet, but the idea is to capture/include a new dimension to track CO₂   in the books.

Another significant solution is SAP Profitability & Performance Management which empowers business users to make better decisions using advanced business modeling, granular profit and cost analysis, and simulation capabilities such as Energy Consumption per business Unit, Country wise Carbon Emission details with baseline value, and Targeted value.

Requirement for disclosure in Financial Statement

The existing global Accounting and Auditing standards do have provisions to disclose specific requirements. The important standards to refer to are – IAS 1 – Presentation of Financial Statements, IAS 2 – Inventories, IAS 36 – Impairment of Assets, and IFRS 9 – Financial Instruments.

These standards mainly require Corporates to manage and declare the assumptions in the Annual Report about the impact of climate change on their Asset and liabilities.

Two New Standards relating to ESG reporting to form a Comprehensive Global Baseline of Sustainability Disclosures are currently in the draft phase – IFRS S1 Sustainability Related Financial Disclosure and IFRS S2 – Climate-Related Disclosure.

• In March 2023. the ISSB(International Sustainability Standards Board) declared that the exposure drafts were close to issuance.
• Aim to finalize these standards by June 2023

The above topic was presented during the recently concluded SAP Inside Track Event at Kolkata along with my Colleague Mr.Jayabrata Maitra.