CFO Involvement Is Key to Reviving Stalled Sustainability Efforts
November 18, 2013
Research by the nonprofit BSR (Business for Social Responsibility) and consulting firm GlobeScan suggests that sustainability efforts are not becoming well-integrated across corporate enterprises. In fact, Chris Coulter, GlobeScan co-CEO, has gone so far as to assert that “sustainability is stalled at most companies.”
The BSR research points to lack of engagement with the corporate finance function as a key contributor to the problem. Clinton Moloney, managing director of the Sustainable Business Solutions (SBS) practice at professional-services firm PwC, believes better engagement with the company CFO (chief financial officer) could help a lot in moving things along.
“The best CFOs are all about trying to enable the strategies for the business,” he told Green & Clean Journal in an interview. An effective corporate sustainability officer (CSO) will help the CFO “understand where sustainability can help amplify the overall strategy.” Moloney stressed that “the role of the sustainability professional has to be not just advocating that it’s the right thing to do, but to learn the language of the finance organization and help them interpret the sustainability challenges through the lens of the business.”
(Note: Charts shown here are reproduced courtesy of BSR. The BSR/GlobeScan State of Sustainable Business Survey 2013 is available in full at https://www.bsr.org/en/our-insights/report-view/bsr-globescan-state-of-sustainable-business-survey-2013.)
In the fifth annual BSR/GlobeScan State of Sustainable Business Survey, researchers interviewed 711 corporate sustainability professionals globally in August and September about the implementation of programs in their companies. Sixty-two percent of respondents identified “integration of sustainability into core business functions” as one of the two most important leadership challenges in their companies, a figure that has remained consistent over the past three years of the survey. The second-most-cited challenge was “convincing investors that sustainability enhances value,” but that finding trailed the integration problem at only 28 percent.
Coulter’s provocative statement that sustainability is “stalled” at most companies is based on the survey’s finding that only about one in five companies “report significant levels of sustainability integration across their business and operations.” Fifty-three percent of sustainability professionals said their companies had moderate levels of integration, 24 percent reported little integration, and only 23 percent said they saw significant integration across core business and operations.Connection Between the CFO and the CSO Crucial to Breaking the Logjam
Asked to identify the top obstacle to integration of sustainability, survey respondents pointed to the mentality of company leadership and the difficulty of convincing them of the value of sustainability. Engagement of sustainability with investor relations, human resources and marketing is low -- a crucial finding, given these functions’ relationships with external and internal stakeholders.
However, perhaps one of the most worrisome findings for the profession is that the lowest level of engagement out of all functions is with corporate finance, only 16 percent of sustainability executives reporting good engagement with their colleagues in finance. BSR’s report says, "
The ongoing disengagement between the finance and sustainability functions is a major barrier to the long-term planning needs of corporate sustainability."
The difficulty of measuring return on investment (ROI) for sustainability efforts stands out as a chief difficulty in engaging the finance function in companies. The BSR report finds that 39 percent of companies measure the ROI of their efforts, a number that has not grown since 2011. Fifty-one percent don’t measure ROI, although many say that they will soon. Respondents say that the big difficulties in this area are that ROI is too complicated to measure; that they don’t have methodologies, tools, metrics or data to do so; that it’s not a priority or relevant to the company; or that resources are limited.
For companies that do measure the ROI of sustainability efforts, the most commonly cited metrics have to do with energy reduction and adoption of alternative energy sources. Many also measure the impact of sustainability on company brand or reputation, cost savings, environmental projects, or social and philanthropic programs. Companies less frequently cite measures having to do with water, carbon, and the impact on employee recruiting and retention.
PwC’s Moloney pointed out that the CSO and the CFO should be able to engage around some of the short-term benefits of sustainability programs, “using environmental performance to improve the operations of the business, as in water consumption or production of waste.” These are areas where environmental impact and cost reductions often go hand-in hand. “Sustainability and finance need to work together to understand what kinds of investments are required and the value of focusing on those sustainability issues that deliver value in the short term.”
However, CFOs are not all about short-term financial performance, Moloney stressed. “The CFO has to think bigger than ROI,” he said. Much of the CFO’s job has to do with “the balancing act between the long-term and the short-term interests of the business. The pressures from Wall Street are all on the short term, and that tends to dominate the conversation within the organization. Unless someone at the decision-making level like the CFO brings the long term into the conversation, there’s a danger of just being dominated by the next quarter’s results. This is not new to the CFO, who’s always thinking about the long-term strategic angle anyway. The trick for the CFO is to know how sustainability and social performance connect to the long-term interests of the business.”
Often the CSO can help by supplying the right kind of language, Moloney said: “How do we convert from environmental and social language to business and CFO language?” PwC has developed sustainability valuation methods that help sustainability professionals describe their priorities and their efforts in terms financial professionals can understand and make use of.The CFO and Assessment of Corporate Risk
Moloney told Green & Clean Journal that another key area for engagement between CSO and CFO is around “helping the CFO understand risk to the business going forward. New environmental and social risks are not always well understood.”
Both CFOs and CSOs are telling him that “they’re seeing they have to apply this really long-term lens to the sustainability question.” Because of the global integration of supply chains, manufacturers can be especially vulnerable to extreme weather events. “You need to build in resiliency to things like climate change, which might not be occurring locally but could be occurring in the global value chain. The challenge for manufacturers is to be able to make the right connection between risks and the likely impact on the next quarter’s earnings should an event occur.”
The BSR report shows that human rights, workers’ rights, and climate change are the top three priorities on corporate sustainability agendas. However, during the five years of the survey, human rights has replaced climate change as the number-one priority. Since 2009, the percentage of respondents identifying climate change as a significant priority has declined from 66 percent to 58 percent, whereas the corresponding figure for human rights has increased from 56 percent to 65 percent.
Respondents particularly expect climate change and water management to increase in importance on the sustainability agenda over the next 12 months. Because of its complexity, climate change is seen as a high-priority issue that will require collaboration with partners and multiple stakeholders, unlike issues such as human and workers’ rights, which are seen as more internal to companies.