CFOs increasingly in driver’s seat on sustainability

As sustainability measures increasingly gain favour at organisations worldwide, the executives who control the purse strings are playing a more significant role in implementing them.

Twenty-six per cent of CFOs reported that they are the person in the organisation who is accountable to the board for their company’s sustainability strategy in a recent Deloitte Touche Tomatsu Limited (DTTL) global survey. That’s an increase of nine percentage points over 2011.

A majority of CFOs (53%) said their involvement in sustainability increased in the past year; even more (61%) expect greater involvement in sustainability in the next two years.

Chief operating officers (COOs) also are more involved; they were identified as the person accountable to the board for the sustainability strategy in 10% of organisations, up from 3% in 2011.

DTTL Sustainability Leader Dave Pearson said the increased attention from CFOs and COOs indicated in the survey of 250 CFOs from 14 countries on five continents is an important development for sustainability practices.

“Often the sustainability agenda has sat outside of those functions where they have less political clout, less ability to implement, less ability to influence the CEO and the board agendas,” Pearson said. “By moving that to the CFO and COO … it’s meaning that companies are much more serious about this being important to their future.”

Pearson said sustainability is “turning the corner a little bit” in terms of gaining a prominent foothold in companies’ cultures, governance and practices. For years the dollar value of sustainability practices has been questioned in many companies because significant costs often were required to generate comparatively small savings in energy or resource uses, for example.

But that appears to be changing, as 49% of CFOs surveyed said they saw a significant link between sustainability performance and financial performance. And 34% of respondents said they are in the process of implementing an organisational transformation relating to energy, the environment and sustainability.

Melissa Swift, DTTL’s associate director for sustainability, said increasing energy costs appear to be contributing to the rising popularity of sustainability practices. She said that as energy costs increase, volatility in those energy costs has more of an effect on the bottom line for companies. When prices are high, a price change by even a small percentage means a bigger number in terms of actual currency.

“You’ve got this sort of multiplied impact of higher costs, and companies are having to look at that very holistically,” Swift said. “… So they’re starting to really look at the topic strategically and say, what can I do, fundamentally, not just in the demand side of the equation but changing the supply side as well. They start looking at things like on-site renewables as a solution, or changing their building’s energy mix. We’re at a very interesting transition point where the higher costs are forcing a more strategic look at the issue.”

Technology often provides at least part of the solution with regard to energy costs. Fifty-six per cent of CFOs said they plan to invest in video conferencing as companies attempt to use virtual meetings to reduce travel costs. More than one-third (35%) plan investments in electric vehicles to take advantage of the fuel savings associated with them. And 52% plan to put money into efficiency equipment that will decrease energy costs for their data centres.

Part of the effort to reduce energy costs has included implementation of systems to capture more energy data. Pearson said one of the new challenges companies face is deciphering all the numbers and figuring out how to use the data strategically.

“If you’ve implemented strong energy management systems, you have more data than you can probably ever imagine,” Pearson said. “And now you have to process that to make sure you’re implementing the right changes, the right controls.”

Pearson said the operations function usually is responsible for developing the energy strategy, but the CFO gets involved in discussions of which energy-saving processes to invest in, and what the return on those investments might be.

Eric Hespenheide, global leader of the DTTL sustainability group within audit and enterprise risk services, said CFOs also look for opportunities for strategic sourcing and cost savings in their supply chains, where sustainability performance also is important. There is risk involved for companies who do not consider sustainability in their supply chains.

Technology such as social media has made it easier for supply-chain sustainability problems to become public knowledge, Pearson said. That same technology makes it easy for the public to connect supply-chain sustainability shortcomings to companies at the top of the chain – and hold them responsible.

“You’re known by the company you keep and perhaps by the products that you sell,” Hespenheide said. “Increasingly we see evidence that if a company has a problem in their supply chain, it could result [in problems for the company.]”

Pearson said sustainability is gaining traction more quickly in Europe and emerging markets, while Hespenheide said US business have more of a “prove it to me” attitude. But the increasing involvement of CFOs could be evidence that the use of sustainability measures is destined to grow as a way to foster innovation.

“I think the fact that the organisational structure is putting the CFO in a level of responsibility for the sustainability agenda is going to lead to it being operationalised more often,” Pearson said. “Also, that tells us that it’s being perceived as relevant to those particular companies.”

Additional CGMA sustainability resources:

“How to Assess the Impact of Climate Change on Your Organisation”: Adapting to environmental factors including those related to climate change will impact how you compete in a changing economic landscape. This tool provides a mechanism to record where further action needs to be taken and provides a basis on which a climate-change strategy can start to be formulated.

“How to Drive Value From Sustainability Performance Management and the CFO’s Role”: Based on a report produced by the Chartered Institute of Management Accountants in association with Accenture, this tool is intended to assist those implementing a sustainability strategy to define their role in performance managing the sustainability of their organisations.

“Cultivating and Reporting ESG Success Can Be Profitable”: Understanding the perceptions of stakeholders who are keeping track of environmental, social, and governance (ESG) issues can lead to reduced risk and lower cost of capital, according to a Deloitte report. Reporting ESG successes can lead to increased valuation.

“Enhancing Value Through Sustainability: Tips for the Finance Team”: Finance professionals can expect to play a bigger role in sustainability reporting, says Stephen T. Starbuck, CPA, the Americas leader for climate change and sustainability services at Ernst & Young, who offered some tips for the finance team at the American Institute of CPAs International Business Conference in Washington.

“P&L Pioneer”: German sports apparel maker Puma is the first major company to quantify and report the monetary cost of its environmental impact in a formal profit-and-loss statement. The company’s chairman and chief executive explains the rationale and business benefits.

“Three Views on Integrated Reporting”: Could integrated reporting be the way the world’s large corporations communicate with investors in the future? We asked an investor, a preparer and an advocate for their takes on integrated reporting.

—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.