CFOs Can Give Us Straight Talk on Sustainability
By Andrew Savitz
Financial Times - October 26, 2006
Corporate sustainability — the idea that profits can and should go hand in hand with social and environmental responsibility — has been around for a long time. Now, though, it has reached a tipping point. Nearly 70 per cent of chief executives of mid-sized to large companies believe that sustainability is vital to their profitability, and more than two-thirds say it will remain a high priority, according to recent global surveys by PwC of its clients.
Many companies are already practising sustainable business with success. General Electric has doubled its investment in clean technology, recognising that addressing climate change can be great business. Unilever is training developing-world villagers to market and sell single-use sachets of soap, creating profits, economic growth and public health benefits. And Toyota has hit the jackpot with its electric hybrid, the Prius.
Yet many chief financial officers do not see the value that sustainability offers their companies. They simply shake their heads, saying "No, no, no", whenever internal advocates try to propose sustainable business initiatives.
CFOs are trained to be sceptical and analytical: these are sterling qualities that help them to avoid getting swept up in corporate fads. But rather than fighting a rearguard action against a sustainability movement that is here to stay, CFOs should apply their analytic rigour to testing and strengthening their businesses' sustainability programmes. Here are three ways they can contribute to the effort and dramatically bolster their companies' long-term profitability in the process.
Substantiate the business case for sustainability. Gary Pfeiffer, CFO at DuPont, described one of his roles as "sweeping up after the elephant parade". His chief executive, Charles Holliday, has made a mantra of sustainability, pushing the idea that DuPont should shift from making petroleum to biotechnology-based products, for example. Mr Pfeiffer's job is to apply a financial reality check to this and any other visionary ideas about sustainability.
Sustainability is not philanthropy; if there is no profit payback, your company should rethink its commitment. CFOs such as Mr Pfeiffer play an important role in making sure their companies' investments in sustainability produce results.
Measure the results from sustainability initiatives in financial terms. In his role as chairman and chief executive at PepsiCo, Steve Reinemund has shown his commitment to diversity. But diversity is not just a public relations exercise or merely an ethical choice: it brings competitive advantages to PepsiCo in the creation of new products, penetration of growing markets, and access to the best employee talent. The company measures the financial benefits of diversity and has pegged them at more than $100m.
Now PepsiCo's senior vice-president for finance, Matt McKenna, has helped to develop a CapEx Sustainability model whereby capital investments of more than $10m are systematically screened and measured for environmental, social and financial results. This powerful "triple bottom line" analysis ensures every big project the company undertakes is sustainable as well as profitable.
Communicate the value of sustainability to shareholders. The CFO can play an important role in educating investors about the benefits of sustainability. Alan Schwartz, of Bear Stearns, the securities and investment banking group, said at a conference on sustainability in Washington in 2004 that companies should present sustainability goals the same way Warren Buffett presents Berkshire Hathaway's annual business objectives: here's what we are going to do, here's how we'll measure it and here's how you can evaluate our performance this time next year. The CFO is uniquely positioned to explain the logic of sustainability to investors with this kind of straight talk.
Sustainability without a real business case is mere philanthropy; without measurement, mere whimsy; without meaningful reporting to shareholders, mere public relations. Today's best-run companies — and smartest investors — are seeing sustainability for what it truly is: a strategic business driver that will separate the winners from the losers in the next decade. Companies seeking to establish strong, successful sustainability programmes will need the active participation of their CFOs.
Copyright The Financial Times Limited 2006