Recently, Ernst & Young released a reported entitled How Sustainability has expanded the CFO’s role. In the introduction, they cite that “Investors, business customers and other stakeholders have shown a growing desire to connect a company’s financial performance to its social and environmental impact”.
As a result, “sustainability issues and financial performance have begun to intertwine. CFOs are getting involved in the management, measurement and reporting of the companies’ sustainability activities. This involvement has expanded the CFO’s role in ways that would have been hard to imagine even a few years ago.”
In more practical terms, as illustrated by Joel Makower (on Greenbiz.com):
There’s good reason for the shift. Institutional investors like pension funds, insurance companies, and university endowments increasingly are viewing sustainability issues — climate change, toxic ingredients, natural resource constraints, labor issues — as risk factors bearing on a company’s reputation and financial performance. Equity analysts — individuals who study companies and markets in order to assess a company’s future financial and stock performance — are beginning to incorporate sustainability metrics. Today, more than 300,000 Bloomberg terminals provide corporate sustainability data — on emissions, energy consumption, sustainability and governance policies, and more — to analysts and traders worldwide.
That is to say: The CFO’s principal stakeholders, both internally and externally, are tuning in to sustainability.
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3 critical areas are identified in this emerging trend (summarised by Sustainable Planet):
Investor relations
Investors are considering the sustainability rankings of the companies in which they invest. Shareholder voting patterns provide convincing evidence of investors’ belief that a company’s social and environmental policies correlate strongly with its financial performance. Credit-rating agencies, such as Moody’s and Standard & Poor’s, now want to know about companies’ sustainability practices. So do the more specialized providers of sustainability ratings, such as the Dow Jones Sustainability Indexes (DJSI).
External reporting and assurance
Customers increasingly want to know that a company’s distribution model has a low carbon footprint; that its procurement policies take “fair trade” issues into account; and that its supply chain uses alternative energy sources.
Third-party assurance mitigates the risk of misstatements associated with sustainability reporting and sends a message that reports are relevant, reliable and free from bias. This is where the CFO’s perspective becomes important. Most CFOs have vast experience in the world of third-party assurance providers.
Operational control and financial risk management
In February 2010, the SEC issued guidance to companies regarding their responsibility to disclose material risks related to climate change. The guidance notes that a company’s CEO and CFO must certify that the company has installed “controls and procedures” enabling it to discharge its climate change disclosure responsibilities. In other words, sustainability has found its way into the realm of controllership and financial risk management.
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Read the full report.
They say time is money.
But now, sustainability is money too.
