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We have more and more investors who are interested in sustainability, who use this as an investmentcriterion, and so, clearly, that’s something we haveto take into account.
The Sustainable Organization: The Chief Financial Officer’s Perspective
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The Sustainable Organization: The Chief Financial Officer’s Perspective
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The Chief Financial
Officer’s Perspective
The Sustainable Organization: The Chief Financial Officer’s Perspective
"We have more and more investors who are interested
in sustainability, who use this as an investment
criterion, and so, clearly, that’s something we have
to take into account."
Gilles Bogaert, Chief Financial Officer, Pernod Ricard
The Sustainable Organization: The Chief Financial Officer’s Perspective
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The Sustainable Organization: The Chief Financial Officer’s Perspective
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Foreword
Chief financial officers are concerned about
the performance of their company—and
anything that could either bolster or impact
that. Over recent years, this has made
sustainability a growing consideration for
them. There are various serious risks from a
reputational or operational standpoint that
should not be overlooked, including from a
compliance perspective. More importantly,
leading finance chiefs 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 also clear
that both customers’ and investors’
expectations are shifting on the topic of
sustainability, which raises clear points
of interest for chief financial officers. In
short, for the world’s leading companies,
sustainability has become central to
running a company well, regardless of
whether they operate largely in developed
markets or emerging ones, such as China.
Inevitably, however, this transition remains
at an early stage; CFO Magazine reported
in 2012 that just 13% of chief financial
officers are “very involved” in sustainability,
with a further 52% “somewhat involved”.
1
At Accenture, we have had a ringside
seat for this ongoing transition of
the chief financial officer’s role. We
have developed a growing body of
research that has helped frame many
of the important considerations of
sustainability for chief financial officers.
Sustainability performance management:
How CFOs can unlock value, published in
association with the Chartered Institute of
Management Accountants,
2
and Long-
Term Growth, Short-Term Differentiation
and Profits from Sustainable Products
and Services,
3
drawing on a global survey
of senior executives in eight leading
markets, are just two examples.
To build on this research, this report
explores how sustainability is affecting
the role of the chief financial officer.
This influence is wide-ranging, using
financial rigor to ensure robust data
gathering and analytics; rethinking the
rationale for various investment cases
to take into account the opportunities
and risks of sustainability; determining
how material this all is for the business;
and effectively translating that
materiality for external stakeholders,
such as analysts and investors.
At its core, this report—like others in
this 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. As such, we welcome feedback
from any and all stakeholders that can help
us, collectively, to deepen the debate.
By Pamela J. Craig, Bruno Berthon, Steven
Culp and Donniel Schulman
Donniel
Schulman
Managing Director,
Finance and Enterprise
Performance,
Accenture
Pamela J. Craig
Chief Financial
Officer, Accenture
Steven Culp
Managing Director,
Risk Management,
Accenture
Bruno Berthon
Global Managing
Director, Accenture
Strategy and
Sustainability Practice
The Sustainable Organization: The Chief Financial Officer’s Perspective
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The Sustainable Organization: The Chief Financial Officer’s Perspective
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About this report
The chief financial officer holds sway over the
key investment decisions, while also acting as
a guardian of the business, with responsibility
for identifying potential risks on the horizon.
In all of these aspects of the job, leading chief
financial officers should be realizing that
sustainable business practices are key to the
long-term viability of their business—and that
they have a clear role to play in promoting these.
Some of the specific questions this report
seeks to answer include:
• How are sustainability considerations
impacting the major investment
decisions that chief financial officers
regularly make?
• What role is sustainability playing
in achieving a more nuanced
understanding of certain risks and
investment opportunities?
• How involved is the finance function in
identifying the metrics and indicators
that are truly material in assessing risk
and performance, and collecting these
data? What about integrated reporting?
• What is best practice in sustainability
reporting and how is this evolving?
• What impact is sustainability having on
relationships with mainstream investors?
• How is sustainability impacting the
value-creation approach of a company?
The Sustainable Organization: The Chief Financial Officer’s Perspective
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Research methodology and aim
This report is part of a multi-year program of research into the sustainable
organization, which seeks to open up a debate about the role of each
major C-suite or executive function and what contribution they need to
make to the implementation of sustainability. To do so, each report draws
on wide-ranging Accenture data and research, including those done in
collaboration with partner organizations, such as the United Nations
Global Compact, World Economic Forum and CDP, among others.
In consultation with Accenture’s overall leadership, as well as its
sustainability practice, the reports profile the specific trends and insights
that are affecting each role in turn. To provide specific examples and
current context, this report draws on interviews with a number of finance
executives and experts.
The Sustainable Organization: The Chief Financial Officer’s Perspective
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Sustainability knocks on the chief financial officer’s door
Among chief financial officers, awareness
of the importance of sustainability has
grown rapidly in recent years—and with
good reason, both from an external analysis
and an internal efficiency standpoint.
At a basic level, resource efficiency and
many elements of sustainability go hand
in hand—and achieving such savings is a
fundamental part of operational excellence.
Lauralee Martin, Chief Operating and
Financial Officer of Jones Lang LaSalle,
the commercial real estate business,
notes that businesses are nowadays more
often finding ways to use sustainability
to boost business value. “This works
best when it starts to affect competitive
differentiation, whether owing to more
innovation or a better brand, which in turn
allows us to win more business, attract
and retain more customers,” says Ms.
Martin. “Or, if there is an opportunity for
us to have a more robust cost structure
owing to savings we find within energy,
waste, water, and so on. These all become
value enhancers for the business.”
This can pay off. Recent Deutsche Bank
research found a marked correlation
between strong environmental and social
governance in companies on the one
hand and a lower cost of capital on the
other.
4
In essence, a better-run business
is more attractive to investors. More
generally, a 2011 Harvard Business School
study found that, over the long term,
companies that had strong sustainability
policies and performance substantially
outperformed those with weak ones in
terms of both profits and share-price
growth.
5
This is no surprise to the chief
financial officer of a large industrial
organization headquartered in the Middle
East, who asked to remain anonymous.
He sees “a very clear link between
sustainability and shareholder value,
and the chief financial officer is, by the
nature of the job, the one accountable for
protecting and helping create that value.”
Indeed, one key responsibility for chief
financial officers is to understand, forecast
and drive the improved future value of the
business. Sustainability can have a strong
impact on the long-term outlook for the
business, either through deteriorating
market conditions for an organization or
by changing the competitive environment.
Driving for future value therefore requires
a deep understanding and effective
tracking of these sustainability levers,
whether in terms of reputation, the impact
of issues such as emissions, or simply on
greater efficiency.
For leading chief financial officers, there
is also scope to support and measure
the potential for “shared value,” whereby
activity can generate both positive social
and business outcomes.
6
Nestlé, for
example, has developed an overarching
shared value orientation, which focuses
on developing sustainable solutions within
aspects of its business, such as water
and nutrition, with a view to developing
new business lines, as well as aiding local
development.
7
Over time, the chief financial
officer will become more closely engaged
in helping to measure the financial, social
and environmental value of such actions.
Another driver of sustainability is a
parallel evolution in the role of the chief
financial officer itself, towards being a
more strategic partner to various parts of
the business. Erika Karp, Head of Global
Sector Research at UBS Investment Bank,
explains that the increasingly cross-
functional perspective of the role will cause
it to evolve even further as it encounters
sustainability issues. One example might
be gaining a deeper understanding of
sustainable supply chains: “If you think
about return on investment associated
with different initiatives, there needs to be
a broader perspective on opportunity costs
and benefits,” she says.
"If you are in the beverage
industry and a good
portion of your water
comes from water-
stressed regions, you
have to think about risks
associated with that.”
Erika Karp, Head of Global Sector Research,
UBS Investment Bank
"[There’s] a very clear link
between sustainability
and shareholder value, and
the chief financial officer
is, by the nature of the
job, the one accountable
for protecting and helping
create that value.”
Chief Financial Officer, Industrial
Corporation
• We may need to campaign internally
to become more involved in—or even
become the driving force behind—the
management, measurement and
reporting of sustainability risks and
opportunities. To do so, we should be
ready to explain how sustainability
issues and financial performance
are now inextricably linked.
• Internal collaboration is key to
understanding the impact of
sustainability on traditional measures of
risk, capital and value. We should get the
right group of business leaders together
and drive the conversation about
sustainability in order to get a granular
picture of how these issues affect the
various parts of the business.
• The sustainability space is evolving
fast. Our teams should look beyond
our own organizations to leading
experts, networks, consultants and
other firms, in order to learn what
the best practices are and how to
implement them successfully.
Lessons for chief financial officers
Risk awareness
Societal interest in sustainability has
certainly presented some companies
with substantial opportunities. GE’s
Ecoimagination line of products
brought the company US$21 billion in
sales in 2011,
8
and P&G reports that,
between mid-2007 and mid-2011,
its Sustainable Innovation Products
earned US$40 billion in revenue.
9
However, sustainability is also an intrinsic
part of risk management. At Kelag, an
Austrian company that specializes in
the provision of clean energy, especially
hydroelectric power, sustainability-
related issues are now incorporated into
the company’s overall risk management
process, which is run by the Chief
Financial Officer, Armin Wiersma. “Our risk
management committee meets six to eight
times a year. Of course, sustainability risks
rarely dominate the discussion, but they
still have a place, and a process,” he says.
The most obvious and longstanding risk
is reputational. But, while by no means
insignificant, focusing solely on reputation
misses the broader point. It is not just
about avoiding a reputational “crisis”, but
about positioning for a strong license
to operate based on long-term respect.
As such, seeing through a sustainability
lens is becoming increasingly important
in understanding a host of long-term
issues. “If you are in the beverage industry
and a good portion of your water comes
from water-stressed regions, you have
to think about risks associated with
that; if you are in an extractive industry
and your new mine represents a huge
portion of the gross domestic product
in the country where you operate, you
better have good relationships with
the community,” explains Ms Karp.
Pernod Ricard, a major global manufacturer
of premium spirits, with over €8.2 billion
in annual sales, provides an example. Gilles
Bogaert, its Chief Financial Officer, explains
that the central tenet of its wide-ranging
sustainability policy focuses on the issue
of responsible consumption, which in
turn grants the company its fundamental
license to operate—and the ability to
compete more freely. “We are totally aware
that, if we don’t champion responsible
consumption, there will be more and
more constraints put on our business, in
terms of advertising, taxation, the ability
to sell our wares. We’re very aware of this,
and that’s why it’s really critical for us to
be very active on sustainability, to take
the initiative in all of this, and to show
that we are making progress,” he says.
The finance executives and other experts interviewed for this report
were all asked to provide their recommendations on various aspects of
sustainability, to guide other finance leaders. Their insights and advice
are captured throughout the report.
The Sustainable Organization: The Chief Financial Officer’s Perspective
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In practice, what relative importance would you place on the following appraisal criteria
for capital investments (other than regulatory or occupational health and safety)
Source: CPA Australia (2011)
Payback
Quantification of all social and
environmental impacts
Qualitative narrative (social impacts)
Qualitative narrative (environmental impacts)
Other
Financial Return (i.e. net present value,
internal rate of return etc.)
25%
9%
9%
8%
1%
48%
The Sustainable Organization: The Chief Financial Officer’s Perspective
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As with risk management, sustainability
is progressively playing a bigger role in
evaluating investment decisions. This starts
with investment 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% of firms.
10
But the real benefit comes
from a deeper understanding of how such
investments can support other parts of
the business, as chief financial officers are
often best positioned to help join the dots.
Pollution reduction, as just one example,
might substantially reduce environmental
remediation payments.
A more interesting trend, though, lies
in how sustainability considerations are
becoming factors in other investment
decisions. For example, a recent academic
study for CPA Australia, a major
accounting membership body, surveyed
the top 100 companies in that country
and found that 26% routinely included
sustainability impacts in their investment
decisions.
11
More strikingly, social and
environmental considerations, collectively,
have a substantial weight in making
such investment decisions (see chart ).
Accenture research highlights the fact that
the need for business growth is a key driver
for investing in sustainability initiatives,
which pushes this squarely into the chief
financial officer’s remit.
12
This interest reflects an increasingly
nuanced understanding of sustainability-
related opportunities and risks, and the
potential revenue and costs. Take as an
example an investment decision into a
gas or coal-powered electricity generating
plant, where, given the sharp environmental
differences between gas and coal, the
difference in hidden costs should be taken
into consideration, regardless of whether
there is a market price per ton of carbon.
In valuing the difference that sustainability
brings, the key question lies in the
materiality of indicators and how to
quantify that. This is difficult, almost
inevitably involving some estimation. Over
the last five years, however, shadow carbon
prices, used for projecting likely future
costs, have also become commonplace in
several countries, especially in the power
sector. The problem is that, so far, there
has been little agreement on such prices.
However, taking them into account shows
a better understanding of the true costs of
a decision than simply ignoring them.
Equally difficult for those making major
investment decisions is finding a way to
assess potential sustainability returns on
investment. Nigel Topping, Chief Innovation
Officer at the CDP,
13
explains that, when
companies get beyond the “no-brainer”
resource efficiency initiatives that pay for
themselves quickly, they reach spending
that is strategically more important in the
long term, but which may not involve the
typical rates of payback required internally.
Instead, as Mr. Topping puts it, “Somebody
might say ‘we’re going to relax the payback
requirements from our normal two years to
three years, because we need to kick-start
investment in an area that is certainly
strategically important going forward.’”
More and more often, finance functions are
willing to accept longer payback periods.
The CPA Australian study cited above
even indicates that 40% of chief financial
officers would consider accepting negative
net present equity for an investment, if
it were to yield substantial sustainability
benefits.
14
For example, a CDP France
report also shows a higher tolerance of a
longer investment return period on energy
efficiency investments.
15
Improving investment decisions
The Sustainable Organization: The Chief Financial Officer’s Perspective
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Sustainability considerations are also likely
to play an increasingly important role
when chief financial officers put a value
on certain existing assets that could easily
become stranded. Such considerations lie
at the intersection between investment
and risk management. In some cases, notes
Mr. Topping, there is a “massive disconnect
between the amount of natural capital,
which is depleted, and the stated value”.
Perhaps the most striking example of
this is in the valuation of existing carbon
deposits. A recent study by the Carbon
Tracker Initiative calculates that, in order
to meet the current target of no more
than a 2° Celsius rise in average world
temperature, it will be possible to burn only
20% of existing, listed fossil fuel reserves.
16
This leaves 80% theoretically unburnable,
but current valuations assume that they
will all be saleable. Chief financial officers
would be wise to consider, at the very
least, the risk that some of these assets
might become unusable in the future.
This highlights the importance of scenario
planning, to assess likely future outcomes
and implications for the business, in order
to inform key stakeholders—both investors
and the board—so that they understand
the company sees it as a responsibility
to do this.
Finally, management of corporate
sustainability involves considering any new
assets in which companies might choose
to invest, as well as any potential new
liabilities. Among the most prominent of
these are carbon taxes and carbon credits.
Determining how to account for such
instruments also remains very much in
progress. “We haven’t figured out how to
account for it properly yet. It’s staggering,
but true. There will be all sorts of technical
issues,” says Mr. Topping, who sits on the
Carbon Disclosure Standards Board. This
is no anomaly. Now that chief financial
officers have become convinced of the
relevance of sustainability to the enterprise,
they are becoming increasingly focused on
how to measure it.
"Somebody might say
‘we’re going to relax the
payback requirements
from our normal two years
to three years, because
we need to kick-start
investment in an area that
is certainly strategically
important going forward."
Nigel Topping, Chief Innovation Officer, CDP
The Sustainable Organization: The Chief Financial Officer’s Perspective
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1. Getting the basics right
Good compliance increasingly requires
companies to provide more accurate
sustainability information. A 2011
Harvard Business School study listed 24
countries that have introduced mandatory
reporting requirements since 2005
and, increasingly, these require third-
party assurance.
17
In the United States,
since 2010, chief financial officers have
even had to sign off personally on the
controls and procedures in place to report
material climate change-related risks.
Chief financial officers simply cannot
afford to leave such measurement
to others. It is critical that this is
independently checked, is analytically
sound and that assumptions are clear
and well communicated. As executives
highlight, this involves covering the
materiality of risks to the business. Indeed,
as the importance of such reporting
grows, Mr. Topping expects the skills and
resources that finance functions have
for data gathering to act as a magnet for
sustainability-related considerations.
At Kelag, the finance team leads the
process of collecting the company’s various
sustainability-related data. “We in finance
are directly leading the collection of all
sustainability-related data from across the
business. We provide the platform, and
guide our colleagues in other departments
on data collection and calculation,”
explains its Chief Financial Officer, Mr.
Wiersma. In turn, this is helping to deliver
increasingly strong insights back to other
departments within the business, such as
informing the sales division to what degree
environmental impact could be mitigated
by a switch to a particular product.
The same applies at Pernod Ricard, where
the finance function helps coordinate the
collection of all internal sustainability-
related data, which has been built up over
the past two years. “The data has to be
reliable and consistent across different
parts of the business. So we have worked
to put that in place, and also cooperating
closely with our external auditors on
that,” says Mr. Bogaert. “We didn’t
have this global view of our business
before, so this consistent view is very
helpful now in helping benchmark the
business and make progress on this.”
This highlights a core role for finance
in working on sustainability. Indeed,
the most common contributions of
the finance function to sustainability
projects, after business case analysis,
involves tracking related key performance
indicators and reporting sustainability
data to business customers.
18
John
Dyke, Chief Finance Officer at Zurich UK
General Insurance, believes that one of
his function’s main roles in this area is
putting metrics around sustainability
strategy to provide “a clear vision as to
what all this means, where we’re heading,
and how all of these different initiatives
come together to make up a longer-term
strategy. That’s the particular challenge.”
Bringing the rigor of finance to the world of sustainability
"We in finance are directly
leading the collection of
all sustainability-related
data from across the
business. We provide
the platform, and guide
our colleagues in other
departments on data
collection and calculation."
Armin Wiersma, Chief Financial Officer,
Kelag
• Sustainability data and projections
are frequently unreliable, incomplete
or imprecise. We should challenge
these numbers with the same rigor
as any financial data, upholding
the mantra of: accuracy, reliability,
completeness, and consistency and, at
the same time, reinforce the internal
and technical understanding of a
company’s resource productivity.
• We should make it our mission
to figure out how sustainability
is linked to value creation for the
organization, including both “shared”
and shareholder value. The challenge
is then to quantify that link using the
best available metrics, and to commit
to continually refining this process.
• Sustainability risk management demands
specialist knowledge. For example, the
ability to calculate risk-adjusted return
on investment from new projects that
incorporate sustainability considerations.
Lessons for chief financial officers
2. Materiality and making the
data do more
A further key contribution relates to
mapping out exactly how material the
contribution of sustainability is to the
overall business. This is an area where
companies are still pioneering, in terms
of defining hard quantifiable metrics. This
should not be a deterrent, but instead be
viewed as a compelling opportunity to set
up a baseline, which can be further refined
as more is learned. This requires the ability
to analyze the data collected within the
business, resolve any inconsistencies and get
a clear and robust picture of what exactly
sustainability means to the business. “I think
this is one of the things that chief financial
officers are increasingly watching, which
they may not have been doing before,”
says Jones Lang LaSalle’s Ms. Martin.
Philippe Tesler, the co-founder and Chief
Executive for North America at Enablon,
a sustainability software firm, says he’s
seen a steady development in materiality
assessments and processes across a range
of industries, led by the chief financial
officer. “We’re seeing more organizations
going through a robust and structured
exercise, to determine which issues are
material, and what metrics and key
performance indicators are relevant to
track,” he says. This is especially prominent
in those sectors where energy use and
resource efficiency are crucial to overall
operational efficiency, such as within oil and
gas, natural resources, and manufacturing.
Sometimes this involves little more
than asking different questions. Mr.
Dyke suggests, as one example, asking
procurement about the volume of energy
used, rather than just the overall cost, so
that reductions in both energy spending
and usage are apparent. “It’s just getting
to the next level of granularity, which
we haven’t done in the past,” he says.
Conceptualizing data in new ways can also
be helpful. Mr. Tesler notes a growing trend
towards more accurately mapping out what
different sustainability data mean for various
stakeholders, to help set expectations and
highlight both the risks and the scale of the
opportunity. “We’re seeing organizations
be much more proactive about using data
in multiple ways,” he says. For example,
there is a push to translate sustainability
metrics into real financial terms, so that the
full impact of various metrics can be better
understood. This not only helps confirm the
materiality of sustainability and clarify the
risks, but also aids wider efforts to improve
business performance. “Sustainability-related
business performance is the next step,
which is where the chief financial officer
comes in, by owning and controlling the
data relating to all of this,” says Mr. Tesler.
"Sustainability-related
business performance is
the next step, which is
where the chief financial
officer comes in, by
owning and controlling the
data relating to all of this."
Philippe Tesler, Co-Founder and Chief
Executive Officer, North America, Enablon
The Sustainable Organization: The Chief Financial Officer’s Perspective
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The Sustainable Organization: The Chief Financial Officer’s Perspective
13
Public sector chief financial officers face
rather different pressures from their
private sector peers in how they grapple
with sustainability investments. Despite
the absence of a specific profit driver,
they have to consider how to achieve the
best balance between cost and delivering
on the objectives of the community they
serve. At Berliner Stadtreinigung, Berlin’s
wholly city-owned waste organization
and Germany’s largest municipal waste
management company, this is driving
Chief Financial Officer, Michael Theis, to
develop new techniques and approaches
for reconciling the company’s and the city’s
sustainability desires with budget demands,
revising his private sector skills with a new
set of parameters.
One recent example was a push to
develop a biogas waste facility that
would generate biogas for use by the
city. This is now an award-winning
sustainability implementation, with Berliner
Stadtreinigung having helped blaze a trail
in proving the technology. But, as Mr. Theis
notes, despite the environmental benefits,
it’s an investment decision that would have
been unlikely in a private firm. “This will be
a ‘low profit return’ solution on paper, but
we can do this, provided there are other
criteria to do so,” he says. This doesn’t,
however, suggest that the organization
can buy any technology it likes at whatever
the cost. Rather, part of Mr. Theis’s remit
is to help develop a broader financial
calculus for such decisions, which can not
only account for the direct costs, but also
apply realistic values for the emissions
saved and other environmental benefits, to
provide a more robust means of evaluating
alternative choices. “For all investments in
future, we have to calculate the net profit
and the environmental and social impact,
and then try to come to a final decision
based on all of that,” says Mr. Theis.
And, despite the ability to choose to
invest in a technology that makes
little or no short-term profits, Berliner
Stadtreinigung nonetheless faces tight
financial scrutiny from Berlin’s political
parties, media and citizens on every euro it
spends. “It means we need as much rigor
in our calculations as private companies
have, to justify the more environmental
and societal-oriented investments and
choices we make. We need the key
performance indicators and budgeting,
and to communicate very clearly on all
of this to the city,” explains Mr. Theis. To
this end, Berliner Stadtreinigung produces
regular sustainability reports, as part of its
ongoing communication to the city and
the media. And, as Chief Financial Officer,
while he may not need to cajole analysts
into giving his company a positive rating,
Mr. Theis has to convince the citizens of
Berlin that Berliner Stadtreinigung remains
a responsible investor of their tax money.
Case study: A public sector perspective - Berliner Stadtreinigung
The Sustainable Organization: The Chief Financial Officer’s Perspective
14
Putting sustainability into reporting
Given the importance of sustainability
data to a company’s risk profile and
long-term economic prospects, the next
step for chief finance officers is to report
on it, both internally and externally. The
question, though, is how. There has been
substantial corporate experimentation on
how to report such information. According
to GreenBiz, 48% of S&P 500 companies
issue some form of corporate sustainability
report, but the content varies widely.
19
Some are genuinely seeking to innovate.
Puma, the sports shoe company,
made headlines by releasing a detailed
environmental profit and loss statement
(the so-called EP&L), which set out an
estimate for 2010 of the environmental
cost of its activities worldwide, totaling
€145 million.
20
The statement differed from
a more traditional environmental footprint
in that it attempted to put a monetary
value on this impact. However, the more
ambitious part of the project—attempting
to calculate the social costs and benefits of
the company’s operations, in order to come
to a true profit and loss statement—is still
being undertaken.
The ultimate goal of integrated reporting
means being able to connect the data
required to explain the ability of an
organization to create and sustain value.
Getting this right remains a technical
challenge today, with various obstacles, but
the data and analysis will only get better
over time, helping to make the goal of
integrated reporting a realistic one.
In the meantime, demands for such
integration information may start to
come from other sources. As Jones Lang
LaSalle’s Lauralee Martin highlights, her
business is having to pay more attention
to integrated reporting, simply because
more and more clients are asking the
firm to provide better data to aid their
own reporting efforts. “It’s an increasing
trend,” she notes, although she is quick
to add that the real impact comes from
a tight focus on the value creation
elements, rather than purely the metrics.
The Sustainable Organization: The Chief Financial Officer’s Perspective
15
Indeed, beyond merely reporting the
figures, chief financial officers should
be at the forefront of taking such data
out to market and selling the story to
analysts and investors, to attract capital
into the business. “We have more and
more investors who are interested in that,
who use sustainability as an investment
criterion, and clearly that’s something we
need to take into account,” says Pernod
Ricard’s Mr. Bogaert.
The funds available from investors
specifically interested in sustainability
are not trivial: the Social Investment
Forum Foundation—the US membership
association for those engaged in
sustainable investing—estimated that over
US$3 trillion was under the management
of funds with some form of sustainability
criterion in the United States in 2010.
21
Eurosif, a think tank that seeks to develop
sustainability through financial markets,
put the European figure at €5 trillion.
22
Nevertheless, this remains a minority
interest. However, one obvious sign of
change is that activists are having more
success in campaigning from inside
the company. In the United States,
for example, many executives note an
increasing number of shareholder motions
at corporate annual general meetings
relate to sustainability. These are having
an effect; in 2012, of 110 such resolutions
tracked by Ceres, a sustainability advocacy
organization, 44 caused companies to
make commitments to act on a variety of
social and economic issues.
23
How widespread is such change? The
answer depends on where one looks.
When it comes to current investors,
little seems to be shifting. Despite the
rhetoric, investors are reluctant to pay any
premium for sustainability. Jones Lang
LaSalle’s Ms. Martin highlights the fact
that, while investors will typically support
anything that they believe improves the
value of the company, it remains a hard
sell in any instance where the financial
case is not clear-cut. “Investors are very
comfortable having sustainability if
there is no downside, but, if they think
this is something that might be viewed
as reducing value, they will likely invest
elsewhere,” she says. “You need the value
side of sustainability to be neutral to
positive, and chief financial officers are
finding more and more places to find the
positive. The communication to investors
is most successful when the focus starts to
be on competitive differentiation.”
Nevertheless, Mr. Topping expects that a
shift towards more risk-related questions
will, once it starts to catch hold, move
quickly. “When it comes, it could come
quite fast,” he argues. And when it does,
chief financial officers will need to be ready.
Managing analysts and investors
• The shift towards integrated reporting
will happen overnight. From now, we
should seek to understand sustainability
risks and opportunities in our businesses,
develop our organization’s capabilities
and internal incentives and determine
how we should measure and account for
any environmental impacts.
• Rise to the challenge of aligning
operations and metrics with the
sustainability strategy in a way that
allows for accountability. This means
determining what is most material
for the industry and the business,
and what metrics are most appropriate
or inclusive.
• Analysts and investors need to
understand the sustainability structure
and how it impacts the financial
statements. We should be prepared
for difficult questions in this arena,
while providing concrete examples
that demonstrate how sustainability
is improving shareholder value.
Lessons for chief financial officers
"You need the value side
of sustainability to be
neutral to positive, and
chief financial officers are
finding more and more
places to find the positive.”
Lauralee Martin, Chief Operating and
Financial Officer, Jones Lang LaSalle
The Sustainable Organization: The Chief Financial Officer’s Perspective
16
The Sustainable Organization: The Chief Financial Officer’s Perspective
17
Conclusion
If sustainability is, to use the common metaphor, a journey,
then chief financial officers have entered the fast lane. The
importance of sustainability for the traditional tasks of the
finance function (investment decisions, risk assessment,
corporate reporting, and investor relations) alone would
have made it impossible for the chief financial officer to
ignore it. Meanwhile, the ongoing transformation of the
role toward more cross-functional responsibilities further
reinforces its importance. The evolution of the concept of
value creation, towards more shared value, leveraging new
concepts such as environmental profit and loss, is driving the
convergence between financial and sustainability reporting.
Overall, the best way for chief financial officers to be well
positioned for the long-term changes of sustainability is
to get going on it: the analytics, the scenario planning,
the communication of a new direction, and so on. But
execution is not a one-way street. Not only should the chief
financial officer come to terms with sustainability, but the
management of corporate performance on sustainability also
requires expertise in data gathering and analysis. For most
companies, such expertise resides squarely within finance.
This is not about finance taking on the responsibilities of
others, but rather that it be a central part of the wider
change. From helping other leaders quantify the impact
of sustainability on their functions, through to shaping
the organization’s narrative on sustainability and related
investment decisions, chief financial officers have a crucial
role to play. This goes beyond simply tweaking existing
systems and processes, and involves a change in culture
and behaviors, within both finance and elsewhere across
the business. Leading that shift will be the chief human
resources officer, the subject of the next report in our series.
Please visit our website for further reports and podcasts in the series:
www.accenture.com/sustainabilitylessonsfromleaders
The Sustainable Organization: The Chief Financial Officer’s Perspective
18
Acknowledgements
Many people contributed to the creation of this report and
others in this series. We would like to thank: Omar Abbosh,
David Abood, Bruno Berthon, Paul Boulanger, Craig Bush,
Steven Culp, Ynse de Boer, Jo Deblaere, Trevor Gruzin, James
Harris, John Kaltenmark, Peter Lacy, Adrian Lajtha, Lori
Lovelace, Stephen Nunn, Jean-Marc Ollagnier, Jeffrey Osborne,
Nils Overaas, Mike Salvino, Aditya Sharma, Mark Spelman,
David Thomlinson and Sander van’t Noordende. In addition,
our thanks are especially due to the following individuals
for their time and insights for this particular report:
Gilles Bogaert
Chief Financial Officer, Pernod Ricard
John Dyke
Chief Finance Officer, Zurich UK General Insurance
Erika Karp
Head of Global Sector Research, UBS Investment Bank
Lauralee Martin
Chief Operating and Financial Officer, Jones Lang LaSalle
Philippe Tesler
Co-Founder and Chief Executive Officer, Enablon North America
Michael Theis
Chief Financial Officer, Berliner Stadtreinigung
Nigel Topping
Chief Innovation Officer, CDP
Armin Wiersma
Chief Financial Officer, Kelag
Anonymous
Chief Financial Officer, Industrial Corporation
References
1 “Green is the new lean”, CFO Magazine, 15 June 2012.
2 “Sustainability performance management: How CFOs can unlock
value”, Accenture and CIMA, 12 October 2011.
3 “Long-term growth, short-term differentiation and profits from
sustainability products and services”, Accenture, 22 May 2012.
4 “Sustainable Investing: Establishing Long Term Value and
Performance”, DB Climate Change Advisors, June 2012.
5 “The Impact of a Corporate Culture of Sustainability on
Corporate Behavior and Performance”, Harvard Business School
Working Paper 12-035, May 2012.
6 “Creating shared value”, Michael Porter and Mark Kramer,
Harvard Business Review, January-February 2011.
7 “Business at its best: Driving sustainable value creation”, Accenture
and Committee Encouraging Corporate Philanthropy, 2011.
8 “Progress: ecomagination report 2011”, GE website.
9 “2011 sustainability report”, Proctor & Gamble website.
10 “Sustainability performance management: How CFOs can unlock
value”, Chartered Institute of Management Accountants (in
association with Accenture), October 2011.
11 “The influence and impact of sustainability issues on capital
investment decisions”, CPA Australia, 2011.
12 “Long-Term Growth, Short-Term Differentiation and Profits from
Sustainable Products and Services”, Accenture, August 2012.
13 The former Carbon Disclosure Project has recently rebranded to
become CDP. Over ten years ago, the organization pioneered the
only global system for companies to disclose their environmental
impacts and strategies to investors. Since then, CDP has
expanded to cover a wider spectrum of the earth’s natural capital,
specifically water and forests. Today, the platform supports
multinational purchasers to build more sustainable supply chains,
enables cities to exchange information and take best practice
action. Over 4,000 organizations, including 81% of the world’s
largest public companies, now use CDP’s system to disclose vital
climate information to investors and major purchasers.
14 As per footnote 8.
15 “Carbon reductions generate positive ROI”, CDP, 2012.
16 “Unburnable Carbon—Are the world’s financial markets carrying
a carbon bubble?”, Carbon Tracker, March 2012.
17 “The Consequences of Mandatory Corporate Sustainability
Reporting”, Harvard Business School Working Paper 11-100,
March 2011, revised May 2012.
18 “Sustainability performance management: How CFOs can unlock
value”, Chartered Institute of Management Accountants (in
association with Accenture), October 2011.
19 State of Green Business 2012, January 2012.
20 “PUMA announces results of unprecedented environmental
profit and loss”, Puma company press release, May 2011.
21 “Report on socially responsible investing trends in the United
States”, Social Investment Forum Foundation, 2010.
22 “European SRI study”, Eurosif, 2010.
23 “Shareholder Resolutions Spur U.S. Companies to Act on
Sustainability During 2012 Proxy Season”, Ceres, June 2012.
About Accenture Sustainability Services
Accenture Sustainability Services helps organizations achieve substantial improvement
in performance and value for their stakeholders. We help clients leverage their assets
and capabilities to drive innovation and profitable growth, while striving for a positive
economic, environmental and social impact. We work with clients across industries and
geographies to integrate sustainability approaches into their business strategies, operating
models and critical processes.
Our holistic approach encompasses strategy, design and execution to increase revenue,
reduce cost, manage risk and enhance brand, reputation and intangible assets. We
also help clients develop deep insights into sustainability issues based on our ongoing
investments in research, including recent studies on consumer expectations and global
executive opinion on corporate sustainability and climate change. To find out more about
how Accenture can help you meet your sustainability imperatives and chart a course
toward high performance, visit www.accenture.com/sustainability. Please also join our on-
going conversation about sustainability, business and policy by following us on Twitter @
ActSustainably and on Facebook at www.facebook.com/accenturesustainabilityservices.
About Accenture
Accenture is a global management consulting, technology services and outsourcing
company, with approximately 261,000 people serving clients in more than 120 countries.
Combining unparalleled experience, comprehensive capabilities across all industries and
business functions, and extensive research on the world’s most successful companies,
Accenture collaborates with clients to help them become high-performance businesses
and governments. The company generated net revenues of US$27.9 billion for the fiscal
year ended Aug. 31, 2012. Its home page is www.accenture.com.
Copyright © 2013 Accenture
All rights reserved.
Accenture, its logo, and High Performance Delivered are trademarks of Accenture.
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We have more and more investors who are interested in sustainability, who use this as an investmentcriterion, and so, clearly, that’s something we haveto take into account.
The Sustainable Organization: The Chief Financial Officer’s Perspective
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The Sustainable Organization: The Chief Financial Officer’s Perspective
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The Chief Financial
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The Sustainable Organization: The Chief Financial Officer’s Perspective
"We have more and more investors who are interested
in sustainability, who use this as an investment
criterion, and so, clearly, that’s something we have
to take into account."
Gilles Bogaert, Chief Financial Officer, Pernod Ricard
The Sustainable Organization: The Chief Financial Officer’s Perspective
2
The Sustainable Organization: The Chief Financial Officer’s Perspective
3
Foreword
Chief financial officers are concerned about
the performance of their company—and
anything that could either bolster or impact
that. Over recent years, this has made
sustainability a growing consideration for
them. There are various serious risks from a
reputational or operational standpoint that
should not be overlooked, including from a
compliance perspective. More importantly,
leading finance chiefs 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 also clear
that both customers’ and investors’
expectations are shifting on the topic of
sustainability, which raises clear points
of interest for chief financial officers. In
short, for the world’s leading companies,
sustainability has become central to
running a company well, regardless of
whether they operate largely in developed
markets or emerging ones, such as China.
Inevitably, however, this transition remains
at an early stage; CFO Magazine reported
in 2012 that just 13% of chief financial
officers are “very involved” in sustainability,
with a further 52% “somewhat involved”.
1
At Accenture, we have had a ringside
seat for this ongoing transition of
the chief financial officer’s role. We
have developed a growing body of
research that has helped frame many
of the important considerations of
sustainability for chief financial officers.
Sustainability performance management:
How CFOs can unlock value, published in
association with the Chartered Institute of
Management Accountants,
2
and Long-
Term Growth, Short-Term Differentiation
and Profits from Sustainable Products
and Services,
3
drawing on a global survey
of senior executives in eight leading
markets, are just two examples.
To build on this research, this report
explores how sustainability is affecting
the role of the chief financial officer.
This influence is wide-ranging, using
financial rigor to ensure robust data
gathering and analytics; rethinking the
rationale for various investment cases
to take into account the opportunities
and risks of sustainability; determining
how material this all is for the business;
and effectively translating that
materiality for external stakeholders,
such as analysts and investors.
At its core, this report—like others in
this 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. As such, we welcome feedback
from any and all stakeholders that can help
us, collectively, to deepen the debate.
By Pamela J. Craig, Bruno Berthon, Steven
Culp and Donniel Schulman
Donniel
Schulman
Managing Director,
Finance and Enterprise
Performance,
Accenture
Pamela J. Craig
Chief Financial
Officer, Accenture
Steven Culp
Managing Director,
Risk Management,
Accenture
Bruno Berthon
Global Managing
Director, Accenture
Strategy and
Sustainability Practice
The Sustainable Organization: The Chief Financial Officer’s Perspective
4
The Sustainable Organization: The Chief Financial Officer’s Perspective
5
About this report
The chief financial officer holds sway over the
key investment decisions, while also acting as
a guardian of the business, with responsibility
for identifying potential risks on the horizon.
In all of these aspects of the job, leading chief
financial officers should be realizing that
sustainable business practices are key to the
long-term viability of their business—and that
they have a clear role to play in promoting these.
Some of the specific questions this report
seeks to answer include:
• How are sustainability considerations
impacting the major investment
decisions that chief financial officers
regularly make?
• What role is sustainability playing
in achieving a more nuanced
understanding of certain risks and
investment opportunities?
• How involved is the finance function in
identifying the metrics and indicators
that are truly material in assessing risk
and performance, and collecting these
data? What about integrated reporting?
• What is best practice in sustainability
reporting and how is this evolving?
• What impact is sustainability having on
relationships with mainstream investors?
• How is sustainability impacting the
value-creation approach of a company?
The Sustainable Organization: The Chief Financial Officer’s Perspective
6
Research methodology and aim
This report is part of a multi-year program of research into the sustainable
organization, which seeks to open up a debate about the role of each
major C-suite or executive function and what contribution they need to
make to the implementation of sustainability. To do so, each report draws
on wide-ranging Accenture data and research, including those done in
collaboration with partner organizations, such as the United Nations
Global Compact, World Economic Forum and CDP, among others.
In consultation with Accenture’s overall leadership, as well as its
sustainability practice, the reports profile the specific trends and insights
that are affecting each role in turn. To provide specific examples and
current context, this report draws on interviews with a number of finance
executives and experts.
The Sustainable Organization: The Chief Financial Officer’s Perspective
7
Sustainability knocks on the chief financial officer’s door
Among chief financial officers, awareness
of the importance of sustainability has
grown rapidly in recent years—and with
good reason, both from an external analysis
and an internal efficiency standpoint.
At a basic level, resource efficiency and
many elements of sustainability go hand
in hand—and achieving such savings is a
fundamental part of operational excellence.
Lauralee Martin, Chief Operating and
Financial Officer of Jones Lang LaSalle,
the commercial real estate business,
notes that businesses are nowadays more
often finding ways to use sustainability
to boost business value. “This works
best when it starts to affect competitive
differentiation, whether owing to more
innovation or a better brand, which in turn
allows us to win more business, attract
and retain more customers,” says Ms.
Martin. “Or, if there is an opportunity for
us to have a more robust cost structure
owing to savings we find within energy,
waste, water, and so on. These all become
value enhancers for the business.”
This can pay off. Recent Deutsche Bank
research found a marked correlation
between strong environmental and social
governance in companies on the one
hand and a lower cost of capital on the
other.
4
In essence, a better-run business
is more attractive to investors. More
generally, a 2011 Harvard Business School
study found that, over the long term,
companies that had strong sustainability
policies and performance substantially
outperformed those with weak ones in
terms of both profits and share-price
growth.
5
This is no surprise to the chief
financial officer of a large industrial
organization headquartered in the Middle
East, who asked to remain anonymous.
He sees “a very clear link between
sustainability and shareholder value,
and the chief financial officer is, by the
nature of the job, the one accountable for
protecting and helping create that value.”
Indeed, one key responsibility for chief
financial officers is to understand, forecast
and drive the improved future value of the
business. Sustainability can have a strong
impact on the long-term outlook for the
business, either through deteriorating
market conditions for an organization or
by changing the competitive environment.
Driving for future value therefore requires
a deep understanding and effective
tracking of these sustainability levers,
whether in terms of reputation, the impact
of issues such as emissions, or simply on
greater efficiency.
For leading chief financial officers, there
is also scope to support and measure
the potential for “shared value,” whereby
activity can generate both positive social
and business outcomes.
6
Nestlé, for
example, has developed an overarching
shared value orientation, which focuses
on developing sustainable solutions within
aspects of its business, such as water
and nutrition, with a view to developing
new business lines, as well as aiding local
development.
7
Over time, the chief financial
officer will become more closely engaged
in helping to measure the financial, social
and environmental value of such actions.
Another driver of sustainability is a
parallel evolution in the role of the chief
financial officer itself, towards being a
more strategic partner to various parts of
the business. Erika Karp, Head of Global
Sector Research at UBS Investment Bank,
explains that the increasingly cross-
functional perspective of the role will cause
it to evolve even further as it encounters
sustainability issues. One example might
be gaining a deeper understanding of
sustainable supply chains: “If you think
about return on investment associated
with different initiatives, there needs to be
a broader perspective on opportunity costs
and benefits,” she says.
"If you are in the beverage
industry and a good
portion of your water
comes from water-
stressed regions, you
have to think about risks
associated with that.”
Erika Karp, Head of Global Sector Research,
UBS Investment Bank
"[There’s] a very clear link
between sustainability
and shareholder value, and
the chief financial officer
is, by the nature of the
job, the one accountable
for protecting and helping
create that value.”
Chief Financial Officer, Industrial
Corporation
• We may need to campaign internally
to become more involved in—or even
become the driving force behind—the
management, measurement and
reporting of sustainability risks and
opportunities. To do so, we should be
ready to explain how sustainability
issues and financial performance
are now inextricably linked.
• Internal collaboration is key to
understanding the impact of
sustainability on traditional measures of
risk, capital and value. We should get the
right group of business leaders together
and drive the conversation about
sustainability in order to get a granular
picture of how these issues affect the
various parts of the business.
• The sustainability space is evolving
fast. Our teams should look beyond
our own organizations to leading
experts, networks, consultants and
other firms, in order to learn what
the best practices are and how to
implement them successfully.
Lessons for chief financial officers
Risk awareness
Societal interest in sustainability has
certainly presented some companies
with substantial opportunities. GE’s
Ecoimagination line of products
brought the company US$21 billion in
sales in 2011,
8
and P&G reports that,
between mid-2007 and mid-2011,
its Sustainable Innovation Products
earned US$40 billion in revenue.
9
However, sustainability is also an intrinsic
part of risk management. At Kelag, an
Austrian company that specializes in
the provision of clean energy, especially
hydroelectric power, sustainability-
related issues are now incorporated into
the company’s overall risk management
process, which is run by the Chief
Financial Officer, Armin Wiersma. “Our risk
management committee meets six to eight
times a year. Of course, sustainability risks
rarely dominate the discussion, but they
still have a place, and a process,” he says.
The most obvious and longstanding risk
is reputational. But, while by no means
insignificant, focusing solely on reputation
misses the broader point. It is not just
about avoiding a reputational “crisis”, but
about positioning for a strong license
to operate based on long-term respect.
As such, seeing through a sustainability
lens is becoming increasingly important
in understanding a host of long-term
issues. “If you are in the beverage industry
and a good portion of your water comes
from water-stressed regions, you have
to think about risks associated with
that; if you are in an extractive industry
and your new mine represents a huge
portion of the gross domestic product
in the country where you operate, you
better have good relationships with
the community,” explains Ms Karp.
Pernod Ricard, a major global manufacturer
of premium spirits, with over €8.2 billion
in annual sales, provides an example. Gilles
Bogaert, its Chief Financial Officer, explains
that the central tenet of its wide-ranging
sustainability policy focuses on the issue
of responsible consumption, which in
turn grants the company its fundamental
license to operate—and the ability to
compete more freely. “We are totally aware
that, if we don’t champion responsible
consumption, there will be more and
more constraints put on our business, in
terms of advertising, taxation, the ability
to sell our wares. We’re very aware of this,
and that’s why it’s really critical for us to
be very active on sustainability, to take
the initiative in all of this, and to show
that we are making progress,” he says.
The finance executives and other experts interviewed for this report
were all asked to provide their recommendations on various aspects of
sustainability, to guide other finance leaders. Their insights and advice
are captured throughout the report.
The Sustainable Organization: The Chief Financial Officer’s Perspective
8
In practice, what relative importance would you place on the following appraisal criteria
for capital investments (other than regulatory or occupational health and safety)
Source: CPA Australia (2011)
Payback
Quantification of all social and
environmental impacts
Qualitative narrative (social impacts)
Qualitative narrative (environmental impacts)
Other
Financial Return (i.e. net present value,
internal rate of return etc.)
25%
9%
9%
8%
1%
48%
The Sustainable Organization: The Chief Financial Officer’s Perspective
9
As with risk management, sustainability
is progressively playing a bigger role in
evaluating investment decisions. This starts
with investment 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% of firms.
10
But the real benefit comes
from a deeper understanding of how such
investments can support other parts of
the business, as chief financial officers are
often best positioned to help join the dots.
Pollution reduction, as just one example,
might substantially reduce environmental
remediation payments.
A more interesting trend, though, lies
in how sustainability considerations are
becoming factors in other investment
decisions. For example, a recent academic
study for CPA Australia, a major
accounting membership body, surveyed
the top 100 companies in that country
and found that 26% routinely included
sustainability impacts in their investment
decisions.
11
More strikingly, social and
environmental considerations, collectively,
have a substantial weight in making
such investment decisions (see chart ).
Accenture research highlights the fact that
the need for business growth is a key driver
for investing in sustainability initiatives,
which pushes this squarely into the chief
financial officer’s remit.
12
This interest reflects an increasingly
nuanced understanding of sustainability-
related opportunities and risks, and the
potential revenue and costs. Take as an
example an investment decision into a
gas or coal-powered electricity generating
plant, where, given the sharp environmental
differences between gas and coal, the
difference in hidden costs should be taken
into consideration, regardless of whether
there is a market price per ton of carbon.
In valuing the difference that sustainability
brings, the key question lies in the
materiality of indicators and how to
quantify that. This is difficult, almost
inevitably involving some estimation. Over
the last five years, however, shadow carbon
prices, used for projecting likely future
costs, have also become commonplace in
several countries, especially in the power
sector. The problem is that, so far, there
has been little agreement on such prices.
However, taking them into account shows
a better understanding of the true costs of
a decision than simply ignoring them.
Equally difficult for those making major
investment decisions is finding a way to
assess potential sustainability returns on
investment. Nigel Topping, Chief Innovation
Officer at the CDP,
13
explains that, when
companies get beyond the “no-brainer”
resource efficiency initiatives that pay for
themselves quickly, they reach spending
that is strategically more important in the
long term, but which may not involve the
typical rates of payback required internally.
Instead, as Mr. Topping puts it, “Somebody
might say ‘we’re going to relax the payback
requirements from our normal two years to
three years, because we need to kick-start
investment in an area that is certainly
strategically important going forward.’”
More and more often, finance functions are
willing to accept longer payback periods.
The CPA Australian study cited above
even indicates that 40% of chief financial
officers would consider accepting negative
net present equity for an investment, if
it were to yield substantial sustainability
benefits.
14
For example, a CDP France
report also shows a higher tolerance of a
longer investment return period on energy
efficiency investments.
15
Improving investment decisions
The Sustainable Organization: The Chief Financial Officer’s Perspective
10
Sustainability considerations are also likely
to play an increasingly important role
when chief financial officers put a value
on certain existing assets that could easily
become stranded. Such considerations lie
at the intersection between investment
and risk management. In some cases, notes
Mr. Topping, there is a “massive disconnect
between the amount of natural capital,
which is depleted, and the stated value”.
Perhaps the most striking example of
this is in the valuation of existing carbon
deposits. A recent study by the Carbon
Tracker Initiative calculates that, in order
to meet the current target of no more
than a 2° Celsius rise in average world
temperature, it will be possible to burn only
20% of existing, listed fossil fuel reserves.
16
This leaves 80% theoretically unburnable,
but current valuations assume that they
will all be saleable. Chief financial officers
would be wise to consider, at the very
least, the risk that some of these assets
might become unusable in the future.
This highlights the importance of scenario
planning, to assess likely future outcomes
and implications for the business, in order
to inform key stakeholders—both investors
and the board—so that they understand
the company sees it as a responsibility
to do this.
Finally, management of corporate
sustainability involves considering any new
assets in which companies might choose
to invest, as well as any potential new
liabilities. Among the most prominent of
these are carbon taxes and carbon credits.
Determining how to account for such
instruments also remains very much in
progress. “We haven’t figured out how to
account for it properly yet. It’s staggering,
but true. There will be all sorts of technical
issues,” says Mr. Topping, who sits on the
Carbon Disclosure Standards Board. This
is no anomaly. Now that chief financial
officers have become convinced of the
relevance of sustainability to the enterprise,
they are becoming increasingly focused on
how to measure it.
"Somebody might say
‘we’re going to relax the
payback requirements
from our normal two years
to three years, because
we need to kick-start
investment in an area that
is certainly strategically
important going forward."
Nigel Topping, Chief Innovation Officer, CDP
The Sustainable Organization: The Chief Financial Officer’s Perspective
11
1. Getting the basics right
Good compliance increasingly requires
companies to provide more accurate
sustainability information. A 2011
Harvard Business School study listed 24
countries that have introduced mandatory
reporting requirements since 2005
and, increasingly, these require third-
party assurance.
17
In the United States,
since 2010, chief financial officers have
even had to sign off personally on the
controls and procedures in place to report
material climate change-related risks.
Chief financial officers simply cannot
afford to leave such measurement
to others. It is critical that this is
independently checked, is analytically
sound and that assumptions are clear
and well communicated. As executives
highlight, this involves covering the
materiality of risks to the business. Indeed,
as the importance of such reporting
grows, Mr. Topping expects the skills and
resources that finance functions have
for data gathering to act as a magnet for
sustainability-related considerations.
At Kelag, the finance team leads the
process of collecting the company’s various
sustainability-related data. “We in finance
are directly leading the collection of all
sustainability-related data from across the
business. We provide the platform, and
guide our colleagues in other departments
on data collection and calculation,”
explains its Chief Financial Officer, Mr.
Wiersma. In turn, this is helping to deliver
increasingly strong insights back to other
departments within the business, such as
informing the sales division to what degree
environmental impact could be mitigated
by a switch to a particular product.
The same applies at Pernod Ricard, where
the finance function helps coordinate the
collection of all internal sustainability-
related data, which has been built up over
the past two years. “The data has to be
reliable and consistent across different
parts of the business. So we have worked
to put that in place, and also cooperating
closely with our external auditors on
that,” says Mr. Bogaert. “We didn’t
have this global view of our business
before, so this consistent view is very
helpful now in helping benchmark the
business and make progress on this.”
This highlights a core role for finance
in working on sustainability. Indeed,
the most common contributions of
the finance function to sustainability
projects, after business case analysis,
involves tracking related key performance
indicators and reporting sustainability
data to business customers.
18
John
Dyke, Chief Finance Officer at Zurich UK
General Insurance, believes that one of
his function’s main roles in this area is
putting metrics around sustainability
strategy to provide “a clear vision as to
what all this means, where we’re heading,
and how all of these different initiatives
come together to make up a longer-term
strategy. That’s the particular challenge.”
Bringing the rigor of finance to the world of sustainability
"We in finance are directly
leading the collection of
all sustainability-related
data from across the
business. We provide
the platform, and guide
our colleagues in other
departments on data
collection and calculation."
Armin Wiersma, Chief Financial Officer,
Kelag
• Sustainability data and projections
are frequently unreliable, incomplete
or imprecise. We should challenge
these numbers with the same rigor
as any financial data, upholding
the mantra of: accuracy, reliability,
completeness, and consistency and, at
the same time, reinforce the internal
and technical understanding of a
company’s resource productivity.
• We should make it our mission
to figure out how sustainability
is linked to value creation for the
organization, including both “shared”
and shareholder value. The challenge
is then to quantify that link using the
best available metrics, and to commit
to continually refining this process.
• Sustainability risk management demands
specialist knowledge. For example, the
ability to calculate risk-adjusted return
on investment from new projects that
incorporate sustainability considerations.
Lessons for chief financial officers
2. Materiality and making the
data do more
A further key contribution relates to
mapping out exactly how material the
contribution of sustainability is to the
overall business. This is an area where
companies are still pioneering, in terms
of defining hard quantifiable metrics. This
should not be a deterrent, but instead be
viewed as a compelling opportunity to set
up a baseline, which can be further refined
as more is learned. This requires the ability
to analyze the data collected within the
business, resolve any inconsistencies and get
a clear and robust picture of what exactly
sustainability means to the business. “I think
this is one of the things that chief financial
officers are increasingly watching, which
they may not have been doing before,”
says Jones Lang LaSalle’s Ms. Martin.
Philippe Tesler, the co-founder and Chief
Executive for North America at Enablon,
a sustainability software firm, says he’s
seen a steady development in materiality
assessments and processes across a range
of industries, led by the chief financial
officer. “We’re seeing more organizations
going through a robust and structured
exercise, to determine which issues are
material, and what metrics and key
performance indicators are relevant to
track,” he says. This is especially prominent
in those sectors where energy use and
resource efficiency are crucial to overall
operational efficiency, such as within oil and
gas, natural resources, and manufacturing.
Sometimes this involves little more
than asking different questions. Mr.
Dyke suggests, as one example, asking
procurement about the volume of energy
used, rather than just the overall cost, so
that reductions in both energy spending
and usage are apparent. “It’s just getting
to the next level of granularity, which
we haven’t done in the past,” he says.
Conceptualizing data in new ways can also
be helpful. Mr. Tesler notes a growing trend
towards more accurately mapping out what
different sustainability data mean for various
stakeholders, to help set expectations and
highlight both the risks and the scale of the
opportunity. “We’re seeing organizations
be much more proactive about using data
in multiple ways,” he says. For example,
there is a push to translate sustainability
metrics into real financial terms, so that the
full impact of various metrics can be better
understood. This not only helps confirm the
materiality of sustainability and clarify the
risks, but also aids wider efforts to improve
business performance. “Sustainability-related
business performance is the next step,
which is where the chief financial officer
comes in, by owning and controlling the
data relating to all of this,” says Mr. Tesler.
"Sustainability-related
business performance is
the next step, which is
where the chief financial
officer comes in, by
owning and controlling the
data relating to all of this."
Philippe Tesler, Co-Founder and Chief
Executive Officer, North America, Enablon
The Sustainable Organization: The Chief Financial Officer’s Perspective
12
The Sustainable Organization: The Chief Financial Officer’s Perspective
13
Public sector chief financial officers face
rather different pressures from their
private sector peers in how they grapple
with sustainability investments. Despite
the absence of a specific profit driver,
they have to consider how to achieve the
best balance between cost and delivering
on the objectives of the community they
serve. At Berliner Stadtreinigung, Berlin’s
wholly city-owned waste organization
and Germany’s largest municipal waste
management company, this is driving
Chief Financial Officer, Michael Theis, to
develop new techniques and approaches
for reconciling the company’s and the city’s
sustainability desires with budget demands,
revising his private sector skills with a new
set of parameters.
One recent example was a push to
develop a biogas waste facility that
would generate biogas for use by the
city. This is now an award-winning
sustainability implementation, with Berliner
Stadtreinigung having helped blaze a trail
in proving the technology. But, as Mr. Theis
notes, despite the environmental benefits,
it’s an investment decision that would have
been unlikely in a private firm. “This will be
a ‘low profit return’ solution on paper, but
we can do this, provided there are other
criteria to do so,” he says. This doesn’t,
however, suggest that the organization
can buy any technology it likes at whatever
the cost. Rather, part of Mr. Theis’s remit
is to help develop a broader financial
calculus for such decisions, which can not
only account for the direct costs, but also
apply realistic values for the emissions
saved and other environmental benefits, to
provide a more robust means of evaluating
alternative choices. “For all investments in
future, we have to calculate the net profit
and the environmental and social impact,
and then try to come to a final decision
based on all of that,” says Mr. Theis.
And, despite the ability to choose to
invest in a technology that makes
little or no short-term profits, Berliner
Stadtreinigung nonetheless faces tight
financial scrutiny from Berlin’s political
parties, media and citizens on every euro it
spends. “It means we need as much rigor
in our calculations as private companies
have, to justify the more environmental
and societal-oriented investments and
choices we make. We need the key
performance indicators and budgeting,
and to communicate very clearly on all
of this to the city,” explains Mr. Theis. To
this end, Berliner Stadtreinigung produces
regular sustainability reports, as part of its
ongoing communication to the city and
the media. And, as Chief Financial Officer,
while he may not need to cajole analysts
into giving his company a positive rating,
Mr. Theis has to convince the citizens of
Berlin that Berliner Stadtreinigung remains
a responsible investor of their tax money.
Case study: A public sector perspective - Berliner Stadtreinigung
The Sustainable Organization: The Chief Financial Officer’s Perspective
14
Putting sustainability into reporting
Given the importance of sustainability
data to a company’s risk profile and
long-term economic prospects, the next
step for chief finance officers is to report
on it, both internally and externally. The
question, though, is how. There has been
substantial corporate experimentation on
how to report such information. According
to GreenBiz, 48% of S&P 500 companies
issue some form of corporate sustainability
report, but the content varies widely.
19
Some are genuinely seeking to innovate.
Puma, the sports shoe company,
made headlines by releasing a detailed
environmental profit and loss statement
(the so-called EP&L), which set out an
estimate for 2010 of the environmental
cost of its activities worldwide, totaling
€145 million.
20
The statement differed from
a more traditional environmental footprint
in that it attempted to put a monetary
value on this impact. However, the more
ambitious part of the project—attempting
to calculate the social costs and benefits of
the company’s operations, in order to come
to a true profit and loss statement—is still
being undertaken.
The ultimate goal of integrated reporting
means being able to connect the data
required to explain the ability of an
organization to create and sustain value.
Getting this right remains a technical
challenge today, with various obstacles, but
the data and analysis will only get better
over time, helping to make the goal of
integrated reporting a realistic one.
In the meantime, demands for such
integration information may start to
come from other sources. As Jones Lang
LaSalle’s Lauralee Martin highlights, her
business is having to pay more attention
to integrated reporting, simply because
more and more clients are asking the
firm to provide better data to aid their
own reporting efforts. “It’s an increasing
trend,” she notes, although she is quick
to add that the real impact comes from
a tight focus on the value creation
elements, rather than purely the metrics.
The Sustainable Organization: The Chief Financial Officer’s Perspective
15
Indeed, beyond merely reporting the
figures, chief financial officers should
be at the forefront of taking such data
out to market and selling the story to
analysts and investors, to attract capital
into the business. “We have more and
more investors who are interested in that,
who use sustainability as an investment
criterion, and clearly that’s something we
need to take into account,” says Pernod
Ricard’s Mr. Bogaert.
The funds available from investors
specifically interested in sustainability
are not trivial: the Social Investment
Forum Foundation—the US membership
association for those engaged in
sustainable investing—estimated that over
US$3 trillion was under the management
of funds with some form of sustainability
criterion in the United States in 2010.
21
Eurosif, a think tank that seeks to develop
sustainability through financial markets,
put the European figure at €5 trillion.
22
Nevertheless, this remains a minority
interest. However, one obvious sign of
change is that activists are having more
success in campaigning from inside
the company. In the United States,
for example, many executives note an
increasing number of shareholder motions
at corporate annual general meetings
relate to sustainability. These are having
an effect; in 2012, of 110 such resolutions
tracked by Ceres, a sustainability advocacy
organization, 44 caused companies to
make commitments to act on a variety of
social and economic issues.
23
How widespread is such change? The
answer depends on where one looks.
When it comes to current investors,
little seems to be shifting. Despite the
rhetoric, investors are reluctant to pay any
premium for sustainability. Jones Lang
LaSalle’s Ms. Martin highlights the fact
that, while investors will typically support
anything that they believe improves the
value of the company, it remains a hard
sell in any instance where the financial
case is not clear-cut. “Investors are very
comfortable having sustainability if
there is no downside, but, if they think
this is something that might be viewed
as reducing value, they will likely invest
elsewhere,” she says. “You need the value
side of sustainability to be neutral to
positive, and chief financial officers are
finding more and more places to find the
positive. The communication to investors
is most successful when the focus starts to
be on competitive differentiation.”
Nevertheless, Mr. Topping expects that a
shift towards more risk-related questions
will, once it starts to catch hold, move
quickly. “When it comes, it could come
quite fast,” he argues. And when it does,
chief financial officers will need to be ready.
Managing analysts and investors
• The shift towards integrated reporting
will happen overnight. From now, we
should seek to understand sustainability
risks and opportunities in our businesses,
develop our organization’s capabilities
and internal incentives and determine
how we should measure and account for
any environmental impacts.
• Rise to the challenge of aligning
operations and metrics with the
sustainability strategy in a way that
allows for accountability. This means
determining what is most material
for the industry and the business,
and what metrics are most appropriate
or inclusive.
• Analysts and investors need to
understand the sustainability structure
and how it impacts the financial
statements. We should be prepared
for difficult questions in this arena,
while providing concrete examples
that demonstrate how sustainability
is improving shareholder value.
Lessons for chief financial officers
"You need the value side
of sustainability to be
neutral to positive, and
chief financial officers are
finding more and more
places to find the positive.”
Lauralee Martin, Chief Operating and
Financial Officer, Jones Lang LaSalle
The Sustainable Organization: The Chief Financial Officer’s Perspective
16
The Sustainable Organization: The Chief Financial Officer’s Perspective
17
Conclusion
If sustainability is, to use the common metaphor, a journey,
then chief financial officers have entered the fast lane. The
importance of sustainability for the traditional tasks of the
finance function (investment decisions, risk assessment,
corporate reporting, and investor relations) alone would
have made it impossible for the chief financial officer to
ignore it. Meanwhile, the ongoing transformation of the
role toward more cross-functional responsibilities further
reinforces its importance. The evolution of the concept of
value creation, towards more shared value, leveraging new
concepts such as environmental profit and loss, is driving the
convergence between financial and sustainability reporting.
Overall, the best way for chief financial officers to be well
positioned for the long-term changes of sustainability is
to get going on it: the analytics, the scenario planning,
the communication of a new direction, and so on. But
execution is not a one-way street. Not only should the chief
financial officer come to terms with sustainability, but the
management of corporate performance on sustainability also
requires expertise in data gathering and analysis. For most
companies, such expertise resides squarely within finance.
This is not about finance taking on the responsibilities of
others, but rather that it be a central part of the wider
change. From helping other leaders quantify the impact
of sustainability on their functions, through to shaping
the organization’s narrative on sustainability and related
investment decisions, chief financial officers have a crucial
role to play. This goes beyond simply tweaking existing
systems and processes, and involves a change in culture
and behaviors, within both finance and elsewhere across
the business. Leading that shift will be the chief human
resources officer, the subject of the next report in our series.
Please visit our website for further reports and podcasts in the series:
www.accenture.com/sustainabilitylessonsfromleaders
The Sustainable Organization: The Chief Financial Officer’s Perspective
18
Acknowledgements
Many people contributed to the creation of this report and
others in this series. We would like to thank: Omar Abbosh,
David Abood, Bruno Berthon, Paul Boulanger, Craig Bush,
Steven Culp, Ynse de Boer, Jo Deblaere, Trevor Gruzin, James
Harris, John Kaltenmark, Peter Lacy, Adrian Lajtha, Lori
Lovelace, Stephen Nunn, Jean-Marc Ollagnier, Jeffrey Osborne,
Nils Overaas, Mike Salvino, Aditya Sharma, Mark Spelman,
David Thomlinson and Sander van’t Noordende. In addition,
our thanks are especially due to the following individuals
for their time and insights for this particular report:
Gilles Bogaert
Chief Financial Officer, Pernod Ricard
John Dyke
Chief Finance Officer, Zurich UK General Insurance
Erika Karp
Head of Global Sector Research, UBS Investment Bank
Lauralee Martin
Chief Operating and Financial Officer, Jones Lang LaSalle
Philippe Tesler
Co-Founder and Chief Executive Officer, Enablon North America
Michael Theis
Chief Financial Officer, Berliner Stadtreinigung
Nigel Topping
Chief Innovation Officer, CDP
Armin Wiersma
Chief Financial Officer, Kelag
Anonymous
Chief Financial Officer, Industrial Corporation
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About Accenture Sustainability Services
Accenture Sustainability Services helps organizations achieve substantial improvement
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Our holistic approach encompasses strategy, design and execution to increase revenue,
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About Accenture
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company, with approximately 261,000 people serving clients in more than 120 countries.
Combining unparalleled experience, comprehensive capabilities across all industries and
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and governments. The company generated net revenues of US$27.9 billion for the fiscal
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