CFOs who embrace sustainability can help improve an organisation’s performance in several key areas: risk management, capital productivity, and innovation and growth.
That’s according to a report about sustainability’s challenges and opportunities, based on case studies and interviews and published by Corporate Eco Forum and the World Environment Center.
The report defines sustainability as protecting and strengthening foundations for long-term success, and, as it relates to companies, the ability “to do business in ways that minimize social and environmental harm.”
Finance is taking a greater role in sustainability as companies do more reporting on non-financial information. The rise in such reporting is a response to stakeholders’ seeking more information from businesses on environmental and social matters. Customers increasingly make decisions on how environmentally friendly a company is. Meanwhile, investors are pressing companies on sustainability because they see it as a way for companies to cut costs.
The top benefit of sustainability reporting, according to a global EY survey, was an improved reputation, followed by increased employee loyalty.
Here are some of the sustainability challenges that are threatening business value, according to the report:
- Operational resources: Dealing with price volatility and availability of resources is a challenge. CFOs should work with supply-chain managers to better anticipate and manage in a volatile environment, the report said.
- Government regulation: Beyond compliance, the challenge for CFOs is to be prepared for how new regulations may increase costs or change the business environment.
- Mergers and acquisitions: As companies change, either by adding or divesting assets, CFOs must recognise the sustainability impact of such decisions.
- Major investors: CFOs should recognise that interest from institutional investors is likely to increase and that companies should prepare for a future in which sustainability factors affect the cost of capital.
- Activist shareholders: More and more, shareholder resolutions are related to the environment. CFOs should help their organisations resolve the issues that lead to the resolutions to avoid reputational or financial hits.
- Reporting requirements: As external stakeholders demand more information, CFOs must continue to make progress on integrating financial reporting with sustainability reporting.
- Talent acquisition: Reputation is more than the opinion of customers and investors. Current and potential employees also want to see evidence of a company’s commitment to sustainability. CFOs can work with HR to make sure the message is getting to existing and future staff.
Related CGMA Magazine content:
“How Management Accountants Can Lead Their Organisations Towards Sustainable Success”: Many companies have yet to embed sustainability concerns in their decision-making process. A CGMA report offers practical ways to guide your organisation towards sustainable business success.
“Investors Yearn for Sustainability Disclosures”: Institutional investors want more sustainability information from corporate disclosures in most regions, a 2014 survey shows.
—Neil Amato (firstname.lastname@example.org) is a CGMA Magazine senior editor.