Chapter 1
Taking a leading role in the ESG agenda
Finance leaders should take a more proactive approach to the ESG agenda and lead from the front line.
Finance leaders are playing an increasingly central role in the ESG agenda.
Regulators, investors and capital markets are increasingly expecting organizations to measure and report their ESG performance and demonstrate how they are managing their ESG and climate-related risks, as well as their impact on performance. Therefore, organizations should establish effective ESG programs, from setting ambition and strategy, to implementing ESG initiatives, through to collecting, analyzing and reporting on ESG performance.
Momentum over ESG is expected to continue increasing as a result of multiple trends:
- Investors' move to a more disciplined and rigorous approach to evaluating companies’ nonfinancial performance as part of the investment decision making process
- Significant progress globally toward establishing global sustainability reporting standards, such as the creation of the International Sustainability Standards Boards (ISSB) by the International Financial Reporting Standards (IFRS) Foundation, which is tasked with creating a single set of standards “to meet investors’ information needs”
- Regulatory requirements, as ESG reporting is gradually evolving to become mandatory
- Launch of sustainability-themed indexes by stock exchanges as a requirement for companies to be listed
When asked about external reporting, 73% of finance leaders say that external reporting will begin to provide forward-looking information in areas such as strategy, sustainability and how risks are being managed. However, while a majority of survey respondents are involved in ESG, only 38% say it is an area of high or significantly high involvement for them. These results suggest that finance leaders should take a more proactive approach to ESG reporting and lead from the front line.
The way forward:
There are four main steps that finance leaders can take to advance the ESG journey
Chapter 2
Transforming finance with a focus on technology, data and analytics
Finance leaders will benefit by advancing data and analytics capabilities to provide forward-looking predictive insights and improve efficiency.
Technology is a common enabler for value protection, optimization and creation.
Through improved data and analytics capabilities, finance leaders can transform forecasting and risk management, which are critical for value protection. New technology, such as automation, can also optimize value by improving process efficiencies across the organization while reducing operating costs. Moreover, analytics-driven insights, such as those offered by new ERP generations, can help identify potential areas for cost reduction and spending efficiencies across the organization. Predictive analytics can provide the forward-looking insights that are necessary for strategy and value creation.
Percentage of finance leaders who say the following technology initiatives are a high priority for them:
Our experience working with MENA CFOs, as well as our survey results, suggest:
1. Finance systems are a priority, but there are challenges to overcome
In our survey, 80% of finance leaders are using ERP but need to overcome several challenges to fully unlock its potential, mainly:
- Optimizing use of ERP, such as by unlocking its full functionality — a challenge for 44% of finance leaders
- Fully aligning finance systems, as interfaces between systems continue to exist and require either manual or automated interventions — a challenge for 24% of finance leaders
- Using ERP in line with business requirements — a challenge for 12% of finance leaders
For finance leaders to maximize the potential of finance systems, there are four priorities to focus on:
- Aim to implement a unified finance system covering all divisions and business units across the organization
- Seek to automate end-to-end accounting and reporting cycles to enable straight-through processing
- Identify routine, repetitive manual activities not covered by ERP, and automate them through robotics for processing-related tasks, and AI for judgment-related tasks
- Where ERP has been implemented, perform a quality review of its functionalities to enhance and align them with business requirements
2. Data, analytics and AI are a priority, but should move from historical to forward-looking:
Finance leaders recognize the need to advance data and analytics capabilities, with 59% of respondents saying that doing so is a high priority. However, they should look to evolve from reporting on historical data to providing forward-looking insights that can be available in real time.
Finance leaders are also aware of the ways that AI will contribute to value: by helping to drive compliance (37% of responders) and identifying suspicious activities to combat fraud (48% of responders), by enabling process automation to reduce cost of finance (66% of responders), and by providing insights and analytics for strategic decision-making (63% of responders).
We propose four priorities for finance leaders to capture the potential of AI, data and analytics:
- Utilize advanced analytics and visualization techniques to convert large volumes of unstructured data into structured data that can be analyzed and accessed in real time
- Where multiple sources of data exist — and with different semantics and formats — leverage AI to reconcile data and create a single, coherent representation of the truth
- Establish a formal enterprise-wide, robust data governance and control framework
- Build algorithms that can gradually move data from historical views to forward-looking, predictive and prescriptive analytics
3. New finance delivery models are required
Hybrid working and technology create the business case for finance leaders to evolve the finance delivery model. Instead of delivering almost all activities locally or in house, finance functions will benefit by evolving to a more effective and efficient model that combines local and in-house capabilities with offshore and external capabilities.
Centers of excellence, shared services centers, managed services and outsourcing capabilities can provide flexible platforms that can be scaled and continuously structured in line with business requirements. They also unlock access to innovative technologies and methodologies that are difficult to acquire or develop in house.
Chapter 3
Redefine what long-term value means and the role that finance can play
Finance teams should have more clarity about the definition of long-term value, what contributes to it, and how its different dimensions can impact financial performance.
Long-term value is important for finance leaders, but financial value is taking strong precedence over societal, human and customer value.
It comes as no surprise that for finance leaders, the financial dimension of value is the highest priority.
However, there is a pronounced imbalance between the priority that finance leaders assign to financial value compared with customer, people and societal value. For instance, while 94% of respondents consider financial value to be a high priority, only 32% feel the same about societal value. These results suggest that finance teams should have more clarity about the definition of long-term value and what contributes to it.
Long-term value goes beyond financials, and investors recognize this. It is about sustainable and inclusive growth that benefits all stakeholders. That’s the real bottom line, and finance functions will need to deliver it.
Finance leaders, therefore, will need to drive a mindset change within finance so value can be seen through the eyes of the stakeholders, rather than only the shareholders. To close this gap, organizations will need to have a more solid understanding of the different areas that contribute to their unique value in the long term, and define the nonfinancial KPIs to measure and report. Already, finance leaders recognize this need, with 60% of respondents saying that, in the coming three years, it will be a high priority to identify the KPIs or metrics that are the greatest contributors to long-term value — including intangible value — and to put in place robust processes to report on them. Survey respondents also recognize the gap in value reporting:
The way forward:
To drive a mindset change in the definition of long-term value, finance leaders should collaborate with other leaders of the business to:
- Establish a common understanding of the organization’s value creation approach, as well as its key stakeholders and how each dimension of value — financial, customer, people and societal — contributes to long-term value
- Define a common way to drive, measure and evaluate enterprise value across each dimension
- Set and measure KPIs across each dimension and toward different stakeholders, and use them to guide business and investment decisions
- Connect the dots with ESG reporting to communicate the value creation process through reliable and trusted external reporting
Summary
The EY MENA Financial Accounting Advisory Services (FAAS) CFO survey gathered the responses of more than 120 Finance Leaders in MENA. The survey revealed that the role of the finance leader is a skillful balance between value protection and value creation. There are three emerging priorities to increase focus on: take a leading role in the ESG agenda, transform finance with a focus on technology, data and analytics, redefine what long-term value means for the organization and the role that finance can play.
