Sustainability and the CFO
Going green can help companies cut costs, mitigate risks, and do more with less. That’s why chief financial officers are embracing sustainability initiatives.
Two-thirds of CFOs say they are involved in driving sustainability strategies in their organizations, and more than half say their involvement has increased over the last year, according to a 2012 global survey by Deloitte Touche Tohmatsu Limited.
Sustainability issues are increasingly seen as material risk factors.
Authority over sustainability is moving from CEOs to CFOs and COOs.
Joel Makower, chairman and executive editor of the GreenBiz Group, an Oakland-based company that tracks sustainability issues, notes this is a significant change from the days when sustainability was “viewed as ‘too soft’ to be relevant to hard-nosed bean counters.”
That change stems from the growing awareness that sustainability issues -- like greenhouse gas emissions, toxic ingredients in products, and reliable access to water, energy, and raw materials – are increasingly seen as material risk factors.
And thus, they are falling into the bailiwick of the CFOs whose job it is to manage risk, compensation, disclosure and financial performance. The key constituents of CFOs -- shareholders, customers, and regulators – are focusing more scrutiny on sustainability, as well. More than three-quarters of CFOs in the survey indicated that it is important or very important to communicate about sustainability to share¬holders and institutional investors.
A key finding of the Deloitte report was that sustainability authority is moving from CEOs to CFOs and COOs. Over the past year, the percentage of CEOs with sustainability authority dropped from 56 percent to 44 percent. Meanwhile, the percentage of CFOs with that authority rose from 17 percent to 26 percent.
This shift, as the report noted, “represents a transfer of sustainability authority from line sustainability managers and ‘face of the brand’ CEOs into the hands of those empowered with operating authority– and substantive budgets.” The study found that CFOS are focusing spending on three areas to reduce travel and energy use: video conferencing (56 percent), data center efficiency equipment (52 percent), and electric vehicles (35 percent).
Many CFOs are engaged with sustainability as it relates to core finance activities like financial auditing and reporting, and compliance. Disclosure concerns are propelling the move toward integrated reports, which combine financial and non-financial matters in one comprehensive document.
In 2012, Ernst & Young issued a paper suggesting companies consider producing an integrated report that connects sustainable business practices; tangible and intangible assets; material financial and non-financial capital risks and opportunities; and short-, medium- and long-term value creation and preservation.
The consultancy said this new brand of “integrated thinking” offers numerous benefits that go beyond risk management and compliance. For one thing, companies can enjoy better cross-functional alignment across business units by linking financial and non-financial matters. Integrated thinking could also lead to additional opportunity for innovation and new revenue streams.