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How can CFOs make better decisions through carbon accounting?

Only McKinsey Perspectives

DELIVERING ACTIONABLE INSIGHTS ON THE DAY’S NEWS

Brought to you by Alex Panas, global leader of industries, & Axel Karlsson, global leader of functional practices and growth platforms

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Carbon management challenges

In the news

•

Rethinking value. For CFOs who are required to disclose their companies’ climate-related information, reporting must now encompass more than the typical information on income and cash flow, an analyst says on FutureCFO.net. As organizations must start accounting for nonfinancial sources of value, CFOs have a leading role to play in helping their companies develop a more holistic perspective of value. Such a view could include, for instance, the short-, medium-, and long-term effects on an environmental issue to which the company’s activities have contributed. [FutureCFO]

•

An evolving landscape. As governments are drafting and enacting legislation that mandates corporate climate reporting, CFOs face a slew of new sustainability-related responsibilities, Raconteur reports. Yet as finance chiefs prepare to document their companies’ progress on environmental goals, an unclear regulatory outlook is “slowing [them] down,” shares an expert. One CFO says that to realize sustainability’s business benefits, finance leaders need to consider climate resilience as core to strategy and approach the matter from a commercial standpoint—rather than just a compliance-related one. [Raconteur]

By enforcing uniform, company-wide metrics and improving accountability, CFOs can use carbon reporting to help reduce decarbonization costs.

On McKinsey.com

•

CFOs and carbon management. For some companies, tracking and reporting carbon emissions is mission essential, legally required, or both. CFOs must ensure that their companies’ carbon management initiatives are both consistent with strategic and compliance needs and attuned to the needs of external stakeholders. Yet all too often, companies have multiple, inconsistent, and ineffective carbon data and analyses, or lack meaningful emissions data altogether, McKinsey senior partner Hemant Ahlawat and coauthors explain.

•

Improved data, improved decisions. Accurate, granular data are critical to the finance function’s success with carbon accounting. Done well, carbon accounting can enable companies to stay ahead of regulatory developments and create far-reaching business benefits. When finance teams use an enterprise-resource-planning system to align carbon accounting with financial accounting, carbon accounting can inform decisions in sales, product development, and sourcing that—when taken together—can create new value for the company. Consider the range of actions CFOs can take to help their organizations reduce emissions, and visit our COP29 page to connect with McKinsey’s delegates at the UN’s annual climate change conference.

Manage carbon effectively

—Edited by Belinda Yu, editor, Atlanta

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