New Metrics

Back to the Future:
The Early Days of New Metrics (or How to Speak Your CFO's Language)

Many innovators want to express the uniqueness of their pioneering breakthroughs - a new organic product, a sustainability initiative, a green-building retrofit. But these new, exciting ideas are likely emphasizing benefits that are not easily heard. "New" and "exciting" are two words that typically attract attention to gain new customers and market share, like your latest mobile device or electric car.But CFOs, CEOs and Boards are skeptical of new and exciting; they like "old" and "boring" — like delivering on budget, on time and on the expectations of promises to Wall Street analysts and investors.

By R. Paul | Published 11 years ago | About a 4 minute read

But CFOs, CEOs and Boards are skeptical of new and exciting; they like "old" and "boring" — like delivering on budget, on time and on the expectations of promises to Wall Street analysts and investors.

How can you win over your CFO, CEO and Board? Speak their language. Specifically, the line items found on your income statement, balance sheet and cash flow statements. Revenue growth is the top line. Profit is the bottom line. Growing assets builds a solid foundation. Reducing liabilities pares risk. Both enhance equity of shareholders. Cash is king, and cash flow is the fuel of shareholder value, earnings per share and EBITDA (earnings before interest, taxes, debt and allowances).

What should you do? Try this. Ask your CFO, CEO or Board if they want a 3-month ROI, a 2-year positive-IRR, or to add another $0.05 to EPS*. If you don't speak in the language of financial statements and metrics, you will invest more time begging for funding and less time in action generating new cash flow and profits.

Back in 2011, after Sustainable Brands' first New Metrics conference, HIP Investor and the Sustainable Brands team compiled and co-produced an 8-page booklet: Surprising Business Value from New Metrics of Sustainability.

This New Metrics booklet profiles real brands using real metrics to produce real value: Campbell's Soup's "good for you" revenue metric, which aligns with growing market share and customer desires; Coca-Cola's water usage per liter of soda sold, saving money; Dow avoiding 95% of a new plant's capital spending by replicating nature's waste treatment.

All sustainability initiatives can plug into this financial statement format. Your duty as a visionary and implementer requires you to be an "ambassador" — understanding both old-world and new-world. Communicating in financial language attracts the funding you need to implement, and sets expectations of financial results to be delivered.

CFOs understand "revenue growth" (most sustainability markets are double- or triple-digit growth markets in single-digit growth industries). All of us know "cost reduction" and "capital efficiency" which use less "green" — dollars as well as materials, energy, waste, and water. "Reducing risk" is essential in today's world and maps potential liabilities.

Use this attached handbook as an introductory guide to familiarize yourself, your team and your organization with some basic ways of framing the beneficial results of sustainability in "old, boring" terms even the most skeptical CFO can understand. Once you do, they will be seeking more and more sustainability intiatives — and if you do your job right, they won't even use that "new, exciting" word, but just "I want more ROI, IRR, and EPS please." Your New Metrics (#NewMetrics) journey will have begun, and you will be ready to jump to the next level, as forward-looking members of the Sustainable Brands community will be, yet again, at the 3rd annual New Metrics of Sustainable Business conference in Philadelphia in late September.

*Translations: ROI = return on investment; IRR = internal rate of return; EPS = earnings per share; these are all typical corporate metrics to judge the success of investments in the business.]

R. Paul Herman is CEO of HIP Investor Inc., where HIP = Human Impact + Profit. HIP's 4000 scores of companies, and 500 governments and nonprofits that issue muni bonds, quantify the measurable results of sustainability and how they drive future risk and return potential. HIP's scores are used by investors, advisors and fund managers.