Embed Climate in Corporate Finance Teams

Integrating climate into financial management can strengthen long-term performance, improve capital allocation, and help organizations manage emerging business, market, and regulatory requirements (i.e., California SB253 and SB261, EU CSRD, etc.)  if in scope. Finance leaders and their teams play a critical role in ensuring climate-related considerations are incorporated into strategy, investment decisions, risk management, disclosure, assurance, and performance management. As a result, organizations that demonstrate credible, well-grounded climate strategies through their disclosures are better positioned to attract capital and differentiate themselves among investors. 

Achieving this requires reliable, decision-useful data. Finance leaders and their teams can help standardize cross-functional data and translate environmental metrics into measurable financial outcomes through approaches like Marginal Abatement Cost Curves, which evaluate emissions reduction potential of options available ranked by their cost-effectiveness, that leadership teams can evaluate alongside traditional financial performance indicators such as return on investment, operating margins, and revenue growth.  

In a December 2024 Kearney survey of 500 CFOs at private companies across the UK, US, UAE, and India, 92% expected their organization to significantly increase net sustainability investment in the year ahead. When climate data is treated only as a reporting requirement rather than a core financial input, companies face greater exposure to regulatory, physical and transition climate risks and market volatility. 

High-quality disclosure is an important outcome of integrating climate into financial decision-making. While more than 95% of S&P companies publish sustainability reports, few translate these metrics into investor materials or core financial models. This creates a disconnect with capital markets: approximately 85% of investors now consider ESG factors, including climate-related risks, in capital allocation and risk assessments, yet many finance leaders and their teams do not clearly demonstrate how climate efforts affect financial performance. Organizations that connect climate information to financial outcomes are better positioned to communicate their strategy, demonstrate progress, and build credibility with investors and other stakeholders.  

Contribute to Climate Data Infrastructure Inputs and Integrate into Financial Management Systems 

Contributing to climate data infrastructure inputs and embedding it into financial management requires treating climate emissions data with the same discipline as financial data–in other words, translating climate data into KPIs that can be tracked alongside financial performance. In practice, this means applying GHG accounting standards, establishing verifiable data pipelines, and integrating metrics such as emissions (e.g., CO2eq), energy use (e.g., kWh), and resource efficiency (e.g., utilization) into regular financial reporting and review processes. 

Since much of this data resides outside the finance function—particularly Scope 3 emissions across the value chain—cross-functional collaboration is typically required with teams such as procurement, operations, and suppliers to collect, validate, and standardize information. When structured and input effectively, this integrated approach strengthens departmental accountability, improves visibility into cost drivers such as energy use to material waste, and supports more informed capital allocation and supplier decision-making. 

In practice, data from operations to procurement departments is aggregated into a greenhouse gas accounting system, which applies emission factors in line with established standards. Measured and supplier-specific data should be prioritized, otherwise use activity data or then spend-based estimates. The results can be reconciled with familiar financial fields such as entity, cost center, and supplier, which can be integrated into organizational reporting tools and dashboards.  

Peer groups, including the Accounting for Sustainability CFO Leadership Network, provide data management tools through resources such as the Reporting Maturity Map, which support updates to financial systems to accommodate emissions data. The objective is not to build a separate sustainability system, but to ensure that climate data flows through the same controls, validation processes, and reporting cycles as financial data. 

Embed Climate Considerations into Budgeting and Financial Planning 

Contributing to climate data infrastructure inputs is crucial for budgeting and setting carbon limits and helps ensure that all emissions are accounted for in financial plans. It is also important to consider potential cost savings and the risks of inaction, including future costs and lost opportunities if climate action is delayed. 

Climate considerations can be integrated into planning by using existing budgeting and forecasting systems to incorporate new cost drivers and assumptions, such as energy price projections, carbon costs, or planned sustainability investments. This typically involves adding new line items, scenario drivers, or modeling assumptions into financial planning tools so that climate-related impacts are reflected directly in forecasts, rather than tracked separately. 

Integrate Climate into Capital Allocation and Investment Decisions 

In addition to planning and budgeting, finance teams should integrate climate considerations into capital allocation and investment evaluation. Consider adopting an internal carbon price – a monetary value a company voluntarily assigns to each ton of its own CO₂e emissions – whether as a shadow price, internal fee, or implicit price to help quantify future emissions-related costs and assess the resilience of investment decisions under different regulatory to market scenarios.  

Along with regulatory costs, supply chain constraints, and transition risks, internal carbon pricing can be incorporated into discounted cash flow models, hurdle rates, and return expectations so they influence project selection, go/no-go decisions, and portfolio-level capital allocation. This is especially important for major capital projects, mergers and acquisitions, and infrastructure investments. Adjusting terminal values, depreciation schedules, and risk-adjusted discount rates for climate exposure helps translate environmental risks and opportunities into financial terms, improving pricing, capital allocation, and alignment with long-term value creation. 

Companies are more likely to achieve climate commitments when responsibility for results is clearly assigned and tied to leadership and financial performance. To align incentives with company climate goals, organizations can identify the leaders who most directly influence climate-related outcomes and risks, such as C-suite executives, procurement leaders, operations leaders, and plant managers, and incorporate clear, measurable climate-related objectives into their performance expectations.  

This may involve integrating financial incentives for select leaders’ contributions to organizationally measurable emissions reductions, progress against transition plans, operational resilience, energy efficiency, sustainable sourcing, and/or other priorities aligned with the organization’s climate strategy.  

Long-term commitments can then be translated into defined annual milestones and linked to variable compensation. CDP’s 2025 Corporate Health Check, based on 2024 disclosures covering companies representing 67% of global market capitalization, found that 78% of companies on track to meet their emissions targets linked executive-level pay to climate outcomes, compared with 48% of companies that were lagging. In these instances, accountability can be reinforced where underperformance against agreed climate objectives results in proportional compensation adjustments, applying an approach similar to adjustments for missed revenue, profit, or strategic performance targets. 

Deploy Sustainable Finance Mechanisms to Manage Climate-Related Risk and Opportunity  

Finance leaders and their teams can use a range of financial mechanisms to support climate goals and transition plans. These may include sustainability-linked loans, green or transition financing, internal carbon pricing, and climate-informed capital allocation frameworks that incorporate future regulatory costs, transition risks, and emissions-related considerations into investment decisions.  

Where appropriate, finance teams can also strategically use climate transition planning and emissions abatement to high-quality removals for residual emissions aligned with industry standards (i.e., SBTi, ISO 14064) to support broader climate objectives. By integrating these mechanisms into financing and investment decisions, organizations can better align capital deployment with long-term business and climate priorities.