SUSTAINABILITY
This evolution means that finance leaders need to filter vanity indicators and prioritise metrics that can be mapped directly to financial statements – with Cara Williams, Senior Partner and Global Head of Climate and Sustainability at Mercer, suggesting that financial materiality is one of the most important benchmarks for financial reporting.“ Start with what is financially material,” she says.“ A useful KPI should tell you something about revenue, cost or risk. The real test is whether you can connect it back to business factors such as cash flow, margins, asset values or earnings at risk. If you can’ t, I’ d question how useful the KPI really is.”
Understanding climate risks When it comes to financial reporting, it can be hard to understand how more abstract concepts – like unknown environmental threats – can be modelled within conventional reporting frameworks. Many leading institutions, however, are now converting physical climate risks, biodiversity degradation and regulatory shifts into more concrete financial investments. In fact, private capital investments in nature projects have increased roughly five-fold over the last decade, reaching US $ 14bn in 2025, according to the World Economic Forum. According to Saffron, CFOs can structure sustainability across three core areas: revenue, cost and risk.
Nature may be the source of the risk, but finance needs to understand where it lands financially
Cara Williams Senior Partner and Global Head of Climate and Sustainability Mercer
“ For revenue, financial institutions could measure the proportion of revenue generated from sustainable or transitionrelated products, the amount of transition finance deployed and the percentage of clients requiring new sustainability-related financial products,” she says.“ For cost, they could measure energy efficiency, operational resource costs, regulatory compliance costs and the cost of manual sustainability and regulatory reporting.” Risk, Saffron says, is where regulatory intelligence“ becomes particularly valuable”.“ A bank, for example, could measure the proportion of its lending portfolio exposed to sectors facing significant regulatory transition, the amount of revenue or assets exposed to emerging climate regulation and potential EBITDA or credit losses under different transition scenarios,” she explains.
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