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Wednesday 01 July, 2015


Why have CFOs been slow to embrace sustainability?

Our economies in their present form are unsustainable. Our planet has been subjected to the “Great Acceleration” of humankind’s impact which presents immense risks to the health of the biosphere in which we exist, and to our civilization. This increase in our impact is directly linked to global economic growth. It is clear that our economic system is bound to change to one that is moresustainable. The question is not “if”, but rather how and when.

As we argued in our report Changing Tack, business can be a great driver of change but the rules of engagement in business, finance and markets have remained largely unchanged since the 19th century. A change in how we run our economies and business is urgently needed. And for that we need leadership.

Evidence shows that CEOs increasingly recognize the importance of sustainability issues in their business strategies yet a 2013 Accenture/UNGC survey among over 1,000 CEOs found that 67% do not believe that business is doing enough to address global sustainability challenges. But we cannot rely on CEOs alone. The influence of the c-suite as a whole is required and nowhere more so than the office of the Chief Financial Officer. Yet engagement of the CFO on sustainability issues continues to be insufficient.

Last year at a conference on business and sustainability I asked how many people present had the word “finance” in their job title… just one person responded. Should we be surprised though? Of all the roles in the corporate sector, that of CFO is surely one of the most challenging. The CFO sits at the confluence of many pressing demands including managing risk, making capital investments, identifying opportunities for growth, maintaining investor confidence, and reporting accurately and transparently.

But look again at those CFO functions – managing risk, making investments, identifying growth opportunities, and reporting. It is almost obvious that these are “sustainability issues”. So why have CFOs largely been slow embrace sustainability? Three reasons stand out. First, the well documented apparent lack of interest from investors. Second, the failure by the sustainability community to engage CFOs on the CFO’s terms. Third, the rules of the game are stuck in an old paradigm. All three of these reasons are about to change…

The lack of analyst and investor interest has been much commented upon but changes are occurring. To offer one example, in June 2015 the second Conference for Inclusive Capitalism took place with a gathering of people with $23tn worth of assets under management. The agenda was clear: owners and managers of financial capital have a responsibility to ensure that the system changes for the good of all. The event itself was all the more striking as the impetus for it came from outside of the “sustainability” sphere - it was designed by Lady de Rothschild of the Rothschild family.

Looking at how the “sustainability community” have engaged with CFOs, the reality is that we often appear rather naïve when it comes to the financial world. It is rare to find a CFO who gets sustainability. But it’s probably even more rare to find someone in a sustainability role that fully understands discounted cash flow, ROCE and collateralisation. We simply haven’t been speaking the same language! When we can find that common language we will surely make rapid progress.                                                  

Third, the “rules of engagement” are bound to change. Given all that we know, it is unlikely the way we value an enterprise today will be the same in 2030. How will and what will we value and is being driven by the work of organisations including The Prince’s Accounting for Sustainability initiative, the Natural Capital Coalition, the Capital Institute’s work on the “regenerative economy”, the UNEP Inquiry, the World Bank’s WAVES partnership, the drive for integrated reporting from IIRC, and SASB… the list goes on. Eventually, this experimentation will result in new policies and regulations that will stimulate still more change.

CFOs have a key role in influencing both the ‘when’ and the ‘how’ of the transition to a sustainable economy. And we urgently need them on board, showing leadership. It will require CFOs to embrace the qualitative as well as the quantitative, and place a greater focus on intangibles. And we need to adapt our sustainability language to be more accessible to the CFO. There will be new ways of informing and interpreting the ‘numbers game’ in keeping with the demands of the “great acceleration”. But with the wave of change already underway, it is a game worth playing.

 

Rob Cameron

Executive Director, SustainAbility

Rob Cameron is Executive Director in SustainAbility’s London office. Until January 2012, he was Chief Executive of Fairtrade International, the global coordinating body for Fairtrade where he was engaged in leading a strategy to strengthen Fairtrade’s organisation, broaden its reach and deepen its impact. During this time he worked closely with farmers and coop leaders helping to raise their profile within the Fairtrade movement and international community.

Prior to joining Fairtrade, Rob was owner and executive chairman of Flag, an international sustainability and CSR communication company.

Rob’s interest in and experience of sustainable development issues has led to involvement in many organisations in the sustainability arena, including four years on the board of sustainable development research group and standards setter AccountAbility. Rob was elected a Fellow of the RSA in 1998, and appointed a UK Prince of Wales’ Ambassador for Corporate Responsibility in June 2007.

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