Back in 2012, a Deloitte study remarked how chief finance officers (CFOs) were ‘coming to the table’ in matters relating to board-level sustainability. The CFO role has evolved to the point where it is now widely perceived as an enabler for sustainable business – customers, shareholders and other key stakeholders are increasingly looking to connect corporate financial performance to social and environmental impacts, and accountability for this tends to rest at the door of the CFO.
Given the competing priorities that CFOs have to deal with on a daily basis, throwing sustainability into the mix makes this juggling act even harder. How do CFOs balance pressing short-term measures against the recognition that long-term value is increasingly being determined by societal trends? This question was recently raised at a debate The CFO’s Dilemma held in London on January 5.
According to one finance director who spoke at the event, Gregor Alexander from Scottish & Southern Energy (SSE), the role of the CFO is changing given the weight of public scrutiny now bearing down on business.
“Our finance world needs to understand not only financial and manufactured capital, but we need to understand, respect and account for social, human and natural capital as well,” he argued.
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According to Alexander, the CFO’s dilemma is not a clear cut choice between soft and hard – for example, social value versus shareholder return – but rather “the choice of the actions you take to ensure you can achieve both.” He pressed home the point that corporate responsibility was now an essential part of the CFO’s toolkit.
“Sustainability and corporate responsibility is now a cornerstone of successful businesses, where finance teams are providing increasing leadership within their organisation to ensure decision-making fully encompasses economic, social and environmental impacts. In my view, companies that fail to ensure this will risk their overall business model and ultimately, the right to make an appropriate profit.”
So, as sustainability evolves into a hardened value driver, is there a case for a more integrated approach in terms of overseeing this transition? Do roles need to be redefined? Construction giant Interserve’s Tim Haywood finds himself in a fairly unique position – as both group finance director and head of sustainability.
Speaking to Sustainable Brands, he says a common misconception still exists - one in which the CFO is often characterized as someone who sees the cost of everything and the value of nothing, while the CSR team are seen as people who see values but don’t understand the business case.
“Sometimes I feel like a bit of a novelty act,” he reflects. His dual role however has been hugely beneficial to the company. Any sustainable progress measured at Interserve is backed up with a firm foundation of data and systems. Haywood has also helped short circuit some of the debate with internal dissenters, and ensured that the company doesn’t indulge in what he calls “green bling or vanity projects.”
Asked how CFOs can help reconcile short-term commercial pressures with longer-term sustainable investment, he replies: “There is a strong business case to be made. And the CFO, with his or her skeptical mindset, analytical skills and position of authority, is the ideal person to make it.”
Looking ahead, Haywood says Interserve has started the “lengthy, and not always easy, process of engaging with investors on a topic that they find somewhat uncomfortable. But again, the in-built credibility of the CFO role has opened doors and minds in this regard.”
Valuing and accounting for natural capital is one area where more work needs to be done by corporations – and CFOs readily admit this. SSE is to shortly publish a report quantifying the value of its human capital. Explaining the reasons behind it, Alexander said: “Unlike traditional assets, we borrow from society the people we employ, but that doesn’t mean we don’t have an obligation to invest in them like we do with any other asset.”
He added: “This new research will help us understand how to enhance that value, partly for company gain, but also for the individual’s benefit and society’s gain too. Human capital is simply the next step in our journey to understand and influence positively our overall impact in the world in which we operate.
Jaguar Land Rover’s CFO Kenneth Gregor was also in attendance at the London debate and said for his company, reducing CO2 emissions was the natural priority, but that natural capital was beginning to come to the fore.
“We’ve started our approach in terms of thinking about different sorts of measures internally within the business that are not purely financial measures, largely linked to the thing that is forefront of our mind in terms of sustainability and those CO2 emissions,” Gregor said.
Deirdre Mahlan, CFO of Diageo, pointed out that it was likely natural capital issues were resonating more with resource-intensive industries right now. “If you are a capital-intensive industry, it’s something that is much more front of mind because of the amount of resource you are using.”