Regulators worldwide are increasingly asking for emissions disclosures as part of environmental, social, and governance (ESG) reporting. That is prompting companies to establish carbon net-zero strategies. These strategies aim to reduce carbon emissions by either no longer generating them or counterbalancing them by removing an equivalent amount of carbon already in the atmosphere.
Finance teams have a role to play in achieving these net-zero targets — by assessing cost-effectiveness of approaches, budgeting for emissions, monitoring, and reporting.
“CFOs who typically drive strategy and allocate budgets can ensure that sustainability considerations are embedded in their company’s business planning exercise,” said Anita Menon, ACMA, CGMA, chief risk officer at Prudential BSN Takaful Berhad (PruBSN) in Kuala Lumpur, Malaysia.
Menon and Ganesh Kumar Vijayakumar, an India-based consultant who helps companies devise sustainability strategies, offer five tips for finance on how to incorporate sustainability practices in the workplace:
Establish a sustainability framework
PruBSN has developed its sustainability framework by drawing upon its group’s ESG strategies and guidelines issued by the Central Bank of Malaysia (Bank Negara Malaysia): the Climate Change and Principle-based Taxonomy and a Value-based Intermediation for Takaful (VBIT) Framework. Bank Negara Malaysia has since issued the CRMSA (Climate Risk Management and Scenario Analysis) that is intended to serve as a standard for financial institutions in enhancing their climate risk resilience.
Takaful is like an Islamic insurance and based on the concept of mutual assistance that is in accordance with Shariah laws, whereby pooled contributions from Takaful participants are used to protect and safeguard the interests of fellow participants against any loss or damage that has been agreed upon.
The three core pillars guiding PruBSN’s sustainability framework are to provide accessible health and financial protection, responsible investment, and sustainable business, Menon said.
“We have incorporated this framework within our business plan to ensure that we take a conscious approach towards embedding sustainability in all our initiatives,” she said.
The framework helps PruBSN to prioritise the businesses they decide to invest in and the way they incentivise and allocate budgets for initiatives that promote sustainability, such as micro-insurance (Takaful) programmes for the poor. PruBSN has also recently launched a Shariah compliant ESG fund to enable customers to have an ESG option in their fund selection, while at the same it has worked on reducing the carbon exposure in existing funds.
Motivate and train employees
Employees’ understanding of sustainability concepts relevant to their roles can be enhanced through training and interactive events like lunch-and-learn sessions, as well as by incorporating sustainability into company policies.
Sustainable choices and decisions need to be made consciously and deliberately to centre them in the organisation’s culture.
However, in addition to adhering to company policies on sustainability, employees should consider adopting practices and habits in other aspects of their work and lives.
As an example, Vijayakumar said: “Often on my visits [to organisations], I notice that [they] are doing a good job on the policy front, and then I visit the canteen and observe employees heaping up their plates and eventually wasting enormous quantities of food.” He added: “This adds up to the [greenhouse gas] emissions and carbon footprint.”
Choose sustainability metrics and assess performance
Vijayakumar suggested that companies carefully select KPIs for evaluating their sustainability efforts and assessing their environmental impact. The KPIs selected and measured depend on the individual businesses and their sustainability goals.
He said that carbon footprint is a narrow concept and doesn’t always reflect the right way to assess a company’s environmental impact.
“I’d rather measure and monitor the GHG [greenhouse gas] emissions produced by a business and strive to reduce that through greener alternatives,” he said. In some cases, supply chain miles ie, how far a product has traveled to reach a factory, might be a more powerful indicator of sustainability.
Other environmental sustainability KPIs include energy consumption rate, product recycling rate, supplier environmental sustainability index, water footprint, waste reduction rate, and waste recycling rate.
Identifying the right KPIs and measuring and recording them will allow businesses to efficiently track, manage, and control the sustainability level of a business.
Adopt green solutions for everyday use
Shortly after Menon joined PruBSN about ten years ago, she noticed the large amounts of paper being used to print 40 page-long policy documents for customers in two languages, English and Bahasa Malaysia. These documents were hardly ever read.
“That’s a lot of paper and quite a number of trees per year,” she remembered thinking.
A careful reading of the regulatory requirements relating to Takaful certificates helped her consolidate most of the documents to 20 pages and make them available online.
“We have gone mostly digital,” Menon said. “Much thought goes into waste elimination and recycling. Our office building is a certified green building, and we monitor various metrics such as energy consumption, minimising or eliminating waste, and integrating sustainable practices wherever practical.”
She said that investments in reducing greenhouse emissions, such as using solar panels, might seem large initially, “but with being more energy efficient and user-friendly, these investments return a higher reward”.
Include stakeholders in initiatives
It’s important to start speaking about the organisation’s sustainability practices to everybody affected — including suppliers, investors, and customers.
“Organisations adopting sustainability principles provide better stakeholder value from a financial perspective. They are being increasingly seen in a better light by investors and the capital markets,” Menon said.
She added that companies that operate sustainably are also better positioned to attract and retain talent, especially now that younger workers in particular prefer to work for businesses that place sustainability at their core.
The social element of ESG can mean promoting accessibility and empowerment for the underprivileged. As an example, Menon said that businesses operating in the insurance sector can include in their basic products options through riders whereby the premiums or contributions they receive can be pooled into a trust fund, which can then be used to provide microinsurance or microtakaful coverage to individuals who are in the bottom income category.
— Swati Sanyal Tarafdar is a freelance writer based in India. To comment on this article or to suggest an idea for another article, contact Oliver Rowe at Oliver.Rowe@aicpa-cima.com.