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Chief financial officers (CFOs) are concerned about the performance of their company and anything that can either bolster or impact it.
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In recent years, this concern has made sustainability a growing consideration. For one, there are serious risks from a reputational or operational standpoint that cannot be overlooked—including from a compliance perspective. More importantly, leading CFOs are finding that sustainability can be a means for making better investment decisions, creating improved performance metrics, reducing costs and capturing more valuable data about the business.
Beyond these core issues, it is clear that both customers’ and investors’ expectations are shifting on the topic of sustainability, which raises clear points of interest for chief financial officers. As part of an on-going study into the impact of sustainability on the executive leadership team, this paper looks at how sustainability affects the decision making process in areas of investment, data gathering and analytics. It considers the risks and opportunities of sustainability, and how this translates and impacts analysts and investors.
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Learn more about The Sustainable Organization: Lessons From Leader Series
CFOs hold sway over fundamental investment decisions, while also acting as guardians of the business, responsible for identifying potential risks looming on the horizon. In all of these aspects of the job, leading CFOs are increasingly realizing that sustainable business practices are critical to the long-term viability of their business and that they have a clear role to play in promoting these.
This report, like others in the series which examine the roles of various C-suite executives grappling with sustainability, aims to help start a discussion about the role of sustainability within the company and where this is headed. Each report draws on wide-ranging Accenture data and research. In consultation with our overall leadership, as well as its sustainability practice, the reports profile the specific trends and insights that are affecting each role and provide specific examples and current context. This report also draws on interviews with a number of finance executives and experts.
As with risk management, sustainability is progressively playing a far bigger role in evaluating investment decisions. This starts with an investment strategy designed specifically to enhance corporate sustainability. A survey by the United Kingdom’s Chartered Institute of Management Accountants, a professional management accounting body, found that the finance function either led or assisted in developing and analyzing the business case for such spending at 56 percent of firms.
But the real benefit comes from a deeper understanding of how such investments can support other parts of the business, and CFOs are often best positioned to help join the dots. Pollution reduction, for example, might substantially reduce environmental remediation payments.
A more interesting trend, though, lies in how sustainability considerations are becoming factors in other investment decisions. More strikingly, social and environmental considerations collectively have a substantial weight in making such investment decisions. Our research highlights that driving business growth is a key reason for investing in sustainability initiatives, which pushes this squarely into the CFOs territory.
In valuing the difference that sustainability brings, the decisive question lies in the materiality of indicators and how to quantify them. This is difficult, almost inevitably involving some estimation.
Over the last five years though, shadow carbon prices, used for projecting likely future costs, have also become commonplace in several countries, especially in the power sector. The problem so far is that there is little agreement on prices. But taking them into account shows a better understanding of the true costs of a decision than simply ignoring them.
Finance executives and other experts shared their insights and advice on various aspects of sustainability. Some of the recommendations provided were:
Campaign internally to become more involved in, or even become the driving force behind, management, measurement and reporting of sustainability risks and opportunities.
Collaborate internally to truly understand the impact of sustainability on traditional measures of risk, capital and value.
Look to leading experts, networks, consultants and other firms in order to learn what the best practices are, and how to implement them successfully.
Challenge sustainability data and projections with the same rigor as any financial data. They are frequently unreliable, incomplete or imprecise.
Confirm how sustainability is linked to value creation of an organization, including both ‘shared’ and shareholder value.
Seek to understand sustainability risks and opportunities in the business. Develop the organization's capabilities and internal incentives, and determine how they should measure and account for any environmental impacts.
Align operations and metrics with the sustainability strategy in a way that allows for accountability.
Be equipped to clearly explain to analysts and investors the sustainability structure, and how it impacts the financial statements and improves shareholder value.
May 13, 2013
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