Sometimes it seems as if corporate responsibility within the organisation for sustainability strategy is being passed around like a relay baton.
So far, those touched with responsibility for sustainability include the corporate social responsibility (CSR) team, marketing (because of the future brand and reputation implications in the UK of the Carbon Reduction Commitment (CRC) league tables), IT and Facilities who are having to manage and measure energy usage, and in theory, the CEO who should surely know the big picture at least.
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Now, an Ernst & Young report, ‘How Sustainability has Expanded the CFO’s Role’, recommends it is also the CFO’s turn to pick up the baton, because, in the US at least, as Triple Pundit explains, sustainability trends are shifting the role of the CFO into three key areas:
- Investor relations: “Shareholders are speaking much louder and much more stridently than they did just a few years ago. During the 2011 proxy season, 40 percent of shareholder resolutions were related to ESG issues. And over a quarter of ESG-related resolutions gained a 30 percent “Yes” vote, which Ernst & Young describes as a critical threshold (other observers say anywhere from a 10 to 20 percent vote can motivate companies to rethink their policies). Mutual fund companies are paying more attention to sustainability related issues, and the rating companies are directing more focus towards ESG matters as well. All this leads to a shift in the duties of companies’ investors relations staffs; and CFOs, according to Ernst & Young, will lend more than a few hands with the demands placed on IR departments.
- External reporting: More than 3000 multinationals issue sustainability (or CSR or ESG) reports, and many of these companies now provide more than static or trite glossy PDFs. Companies including UPS, Timberland, and Microsoft are raising the bar in offering frankness while encouraging increased stakeholder engagement. To that end, more companies are having their sustainability reporting audited by third parties (such as the Carbon Disclosure Project for carbon emissions performance). And that experience with third party performance falls into the CFO’s lap because they know how to balance the challenges and opportunities that arise from third-party verification.
- Operational controllership and financial risk management: Early last year, the US Securities and Exchange Commission issued guidelines to companies on how to disclose risks possibly related to climate change. Carbon data, and more frequently, water data, is becoming financial data because of these resources increasing price. What was once tangential to the costs of running businesses has and will be central to the financial risks that come when running a company. Whether evaluating the costs of large capital projects or ascertaining the reliability of sustainability data, CFOs and the departments they head will be careful when ensuring that all this data is accurate.”
Five suggested actions that CFOs can take to enhance corporate value through sustainability include the following:
• Actively pursue a sustainability and reporting program.
• Ensure that those responsible for sustainability matters do not operate in isolation from the rest of the enterprise — especially the finance function.
• Enhance dialogue with shareholders and improve disclosure in key areas, particularly those related to social and environmental issues.
• Ensure that directors’ skills are relevant to the chief areas of stakeholder concern, including risk management tied to social and environmental matters.
• Consider using nontraditional performance metrics, including those related to environmental/sustainability issues.