Turning the CFO into a champion for green growth

Ten years ago, ask­ing the chief finan­cial offi­cer (CFO) to accept respon­si­bil­i­ty for cli­mate change would have been like sug­gest­ing the chief exec­u­tive take per­son­al charge of diver­si­ty and inclu­sion. They may have liked the idea and seen val­ue in it, but it wasn’t a pri­or­i­ty. 

Today though, investors are like­ly to ques­tion why the CFO doesn’t have a man­date for sus­tain­abil­i­ty. The evo­lu­tion in atti­tudes over the decade has inten­si­fied in the past two years, con­vert­ing lofty cor­po­rate ambi­tions on social and envi­ron­men­tal issues into action­able tar­gets.

Account­ing for Sus­tain­abil­i­ty, which has been encour­ag­ing the inte­gra­tion of nat­ur­al cap­i­tal into busi­ness oper­a­tions since 2004, sur­veyed CFOs about incor­po­rat­ing nat­ur­al cap­i­tal into busi­ness in 2012. Their views? That envi­ron­men­tal and social fac­tors were “neb­u­lous”, “notion­al costs to soci­ety” and the case for their rel­e­vance to a board had “not yet been answered”.

Nowa­days, CFOs are cham­pi­oning the sus­tain­abil­i­ty agen­da. They are the obvi­ous can­di­dates at exec­u­tive lev­el to lead the charge and high­light the oppor­tu­ni­ties of sus­tain­able busi­ness. Finance chiefs have the req­ui­site skills of fore­cast­ing, risk man­age­ment, gov­er­nance, mea­sure­ment and report­ing to inte­grate the Unit­ed Nations’ 17 Sus­tain­able Devel­op­ment Goals (SDGs) into a com­pa­ny strat­e­gy and map out a plan to mea­sure and mon­i­tor progress. 

“Increas­ing­ly we see CFOs under­stand­ing and recog­nis­ing the val­ue of the broad range of fac­tors like social cap­i­tal and just how impor­tant the inter­ac­tion any organ­i­sa­tion has with soci­ety, whether it’s local com­mu­ni­ties or indeed increas­ing­ly the glob­al sup­ply chain,” says Jes­si­ca Fries, exec­u­tive chair of A4S.

Over the past year or so, more and more CFOs and their boards are review­ing strat­e­gy to account for social and cli­mate issues. Rob Hud­son, chief finan­cial and oper­at­ing offi­cer at St. Mod­wen, a FTSE 250 prop­er­ty com­pa­ny, began incor­po­rat­ing envi­ron­men­tal and social tar­gets into the busi­ness strat­e­gy a year ago. This year’s focus is to embed man­age­ment met­rics, key per­for­mance indi­ca­tors and year-on-year tar­gets to be able to mea­sure whether the com­pa­ny is meet­ing its tar­gets. St. Mod­wen has set itself six envi­ron­men­tal and social goals, incor­po­rat­ing the UN SDGs into its own rel­e­vant tar­gets. 

“We’re adopt­ing a test-and-learn approach,” says Hud­son. “It’s a big jour­ney ahead of us. And we’re at a rel­a­tive­ly ear­ly stage, but we’re keen to do every­thing we can to dri­ve deliv­ery against the com­mit­ments we have.”

Jacobs, US infra­struc­ture and engi­neer­ing com­pa­ny, and one of the found­ing mem­bers of the UN CFO Task­force, put in place a sus­tain­abil­i­ty strat­e­gy in 2018 and is cur­rent­ly map­ping out the next stage. It’s also using approved sci­ence-based met­rics to mea­sure its emis­sions tar­gets.

Kevin Berry­man, Jacobs CFO, says the com­pa­ny dis­tilled the UN SDGs into six “rel­e­vant” goals for its busi­ness. “Even if the goals that we estab­lish may be longer term, in terms of what’s called sci­ence-based progress, there are objec­tives and a com­mit­ment to start,” he says.

Due to the nature of its busi­ness, FTSE 100 ener­gy giant SSE has been focused on mea­sur­ing and report­ing on cli­mate mat­ters for around a decade and push­ing the green agen­da in finan­cial terms. Gre­gor Alexan­der, finance direc­tor at SSE, has over­seen the issuance of three green bonds worth a total of around £1 bil­lion for the com­pa­ny. In 2017 SSE issued the UK’s biggest-ever green bond at the time.

“It’s all about the direc­tion of trav­el,” says Alexan­der. “Some com­pa­nies will be a bit behind, some com­pa­nies will be ahead. But we all know that ulti­mate­ly our share­hold­ers are get­ting more and more focused on ESG, and not just envi­ron­men­tal but social and gov­er­nance as well. Get­ting that mes­sage across is real­ly impor­tant for us.”

As peo­ple endorse the theme of sav­ing the plan­et though, it can be hard to sep­a­rate the green­wash from mea­sur­able tar­gets. To date, thou­sands of busi­ness­es around the world have pub­licly pledged to be net-zero car­bon by 2050, at the lat­est. There are 12,000 sig­na­to­ries in more than 160 coun­tries to the UN Glob­al Com­pact, a non-bind­ing pact to encour­age busi­ness­es to adopt and report on sus­tain­able and social­ly respon­si­ble poli­cies. 

Yet, of the grow­ing list, how many of those busi­ness­es have quan­tifi­able tar­gets? And how much can we count on the report­ing of those goals with no glob­al­ly agreed set of stan­dards on sus­tain­abil­i­ty?

Investors are becom­ing savvi­er in cut­ting through the detail in sus­tain­abil­i­ty reports to get to the hard facts, but there’s more work to be done espe­cial­ly in terms of com­pa­ra­bil­i­ty. Sus­tain­abil­i­ty report­ing remains vol­un­tary in most juris­dic­tions, but pres­sure from investors, employ­ees, cus­tomers and stake­hold­ers will ensure it is increas­ing­ly best prac­tice with greater clar­i­ty and more scruti­ny of tar­gets. 

Admit­ted­ly, the goal is huge and there is no glob­al­ly agreed har­monised approach to incor­po­rat­ing finan­cial and non-finan­cial data. While some boards pre­fer stand­alone sus­tain­abil­i­ty reports, there is a push towards a mul­ti-cap­i­tal val­ue account­ing frame­work, where non-finan­cial data, such as water resources and staff turnover, runs along­side finan­cial data to cre­ate a sin­gle prof­it-and-loss account. Prac­tices are evolv­ing.

“These are real­ly big turn­arounds that you would not have imag­ined two years ago,” says Dr Del­phine Gibassier, pro­fes­sor of account­ing for sus­tain­able devel­op­ment at Auden­cia Busi­ness School in France.

As well as retrain­ing whole finance teams to incor­po­rate sus­tain­abil­i­ty data and finan­cial data into sys­tems and process­es, entire IT sys­tems will also need to be redesigned and auto­mat­ed. 

“It’ll be at least two years before we see some of the larg­er pub­lic com­pa­nies not just exper­i­ment­ing, but deploy­ing a mul­ti-cap­i­tal account­ing sys­tem. But I’m aston­ished at the speed with which finance teams are mov­ing,” says Gibassier.

There are many hur­dles to over­come, but it final­ly feels like cor­po­rate ambi­tion is trans­lat­ing into action by align­ing finance with social and envi­ron­men­tal goals to the ben­e­fit of the plan­et and peo­ple. CFOs are at the fore­front of this change prov­ing that pro­tect­ing peo­ple and places also equates to cre­at­ing com­mer­cial oppor­tu­ni­ties and busi­ness longevi­ty.