The following is a contributed piece from Anthony Coletta, CFO of SAP North America. Opinions expressed are the author's own.
Sustainability has never been more important for business than it is today, in light of rising carbon emissions and calls to develop better systems for mitigating climate change. However, the ability to track related metrics is difficult (and has been for quite a while) given the lack of standards in this area.
This is partially why so many initiatives over the past decade have failed to pick up steam. For example, in 2012, Accounting for Sustainability, a project dedicated to making finance more sustainable, surveyed CFOs who described the environmental and social impacts of sustainability to be “nebulous” and said the case for relevance “had not yet been answered.”
Today, following a year of global pandemic, racial reckoning and increasing threats to our planet’s climate, those questions no longer exist. Instead, they’ve been replaced by new ones. What does sustainability actually look like? Who’s going to make this happen? And how do we measure it?
This new way of thinking is well-encapsulated by a larger movement for corporate reform called Environmental, Social, and Governance (ESG). And companies are turning to their CFOs to play a key role in this transformation.
Put simply, sustainability must be part of a long-term strategy of change and an integral piece of an overarching mission. And CFOs should lead the way, especially in the area of measurement, process integration and next practices.
The CFO opportunity
Research from Harvard Business Review earlier this year found that for many companies, nonfinancial metrics — like carbon emissions, energy outputs and other sustainability measurements — can spur hundreds of millions of dollars in savings and even growth. For large companies, the number could be in the billions.
The long-time dichotomy between financial performance and sustainability has historically obfuscated this reality. But there are other challenges, too, including the difficulty of measuring oft-“intangible” benefits, the struggle to accurately capture and compare sustainability performance data, and the belief that the monetary benefits of sustainability activities aren’t sufficient enough to warrant tracking them.
For CFOs, now is the time to explicitly link finance and sustainability — to take advantage of the burgeoning moral and economic opportunity. We must factor climate change into the decision-making process the same way we would interest rates or cash flow.
How can CFOs get their organizations on the right path? It starts with —
• Connecting sustainability performance measurements to value
• Improving internal and external reporting
• Enhancing information quality through the oversight of internal controls
• Managing risk in relation to sustainable business initiatives
• Improving supply chain or procurement/sourcing oversight
A green thumb
Different companies announce new carbon emission and net-zero energy goals seemingly every day. But how many of them have quantifiable targets? And how can we even count on the resultant reporting without a globally agreed upon set of standards on sustainability?
The path toward unity and consistency is long — but it’s being paved. The World Economic Forum, for instance, created a set of standards based in “governance, planet, people and prosperity” (which the Big Four accounting firms recently agreed to) that enable them to set and understand performance metrics focused primarily on activities within organizations’ boundaries, such as emissions, diversity and anti-corruption. For example, the Big Four standards define which greenhouse gasses to track — carbon dioxide, methane, nitrous oxide, F-gases, among others — and how to measure their release.
Recently, the Securities and Exchange Commission announced that it is preparing to issue new rules that require public companies to disclose additional information about how they respond to climate change. This could be a major step in understanding certain risks and opportunities, not only at an individual company level, but possibly on a global level.
The way forward can feel messy, time-consuming and amorphous for CFOs, but this is an extraordinary time in history to tackle these challenges. And, sure, the world won’t change in a day. But make no mistake: The decisions you make today will resonate for a very long time.
As the main financial advisor to the CEO, investors and shareholders, CFOs are positioned to create and present innovative sustainability strategies that will positively affect their companies’ bottom lines. The role is all about driving awareness, by running events on sustainability topics, reporting clearly and consistently communicating benefits.
For example, SAP launched the first SAP Sustainability Summit in April. It showcased our suite of sustainability solutions that can help organizations in their journey to becoming a sustainable enterprise. Other steps forward can include:
• Setting science-based targets for sustainability goals
• Developing data-driven objectives in support of social issues
• Creating a strong governance structure
• Designing an executable roadmap of strategic initiatives
By integrating sustainability initiatives into the skeleton of the finance department — and into the business — accountability for a sustainability transformation will be inescapable. And the path forward will be walkable.
Four roles to embrace
At SAP, we’ve been working to reduce our footprint year after year. We reached the No. 1 spot in the Dow Jones Sustainability Index by embracing analytics, reinventing procurement, introducing integrating reporting and more. SAP has been a leader in this ranking for 14 consecutive years and takes its responsibility as a sustainability leader very seriously.
While there’s still work to be done, I thought it would be instructive to think about the way an organization such as ours — one focused on providing transformational change for its customers — approaches transformational change within itself.
For instance, the way I like to think of the position of the CFO relative to sustainability is through the embrace of four different key roles, laid out recently in a Deloitte research report on the subject.
1. The catalyst
As Deloitte puts it, CFOs are in position to drive a timely transition to sustainability, not only within the finance function, but across the entire enterprise. By involving all levels and all departments, CFOs can ensure there is both the will and the budget necessary to implement the required practices and plans. This role of catalyst is ultimately shaping a company’s future by steering sustainable financial success.
2. The steward
The CFO must also protect the vital assets of his or her company, ensuring compliance within any and all regulations and communicating value effectively to investors, stakeholders and the board. No one else is in a better position when it comes to embracing sustainability initiatives and quantifying their impact on long-term performance.
3. The strategist
CFOs must use their core skills in resource allocation to reporting systems and financial analysis to facilitate the transition to a sustainable enterprise. They are already versed in quantifying financial value created and in smoothing out the integration of new initiatives into the overall corporate strategy. They are poised to get everyone on board — and on the same page.
4. The operator
Finally, CFOs must ensure their departments operate efficiently and effectually, above all else, providing reliable information on sustainability and ensuring reporting improves apace. This means integrating new data sources, data flows and, possibly, entire new systems. Everything must be positioned to enable quick access and interpretation of all that’s happening.
To be clear, this is just where the conversation starts for today’s CFOs.
But it’s a simple starting point: Companies who treat the environment — and their employees — well are positioned to serve as better long-term investments for stakeholders everywhere. And it’s all possible because the department holds the purse strings. It is already part of the core mission of a growing number of corporations. It is a rising expectation from employees and customers. And it has become an imperative for many investors.
Sure, there may be work to be done in building requisite infrastructures, creating proper frameworks and orchestrating systematic reporting that captures where things are headed. But no one is in a better position to answer the questions of tomorrow than today’s CFOs.
Are you ready to lead the way?