This article originally appeared in Radar Issue 03: What Chance Change? Exploring Sustainable Finance.
Jessica Fries helps companies integrate sustainability into core business processes and activities. Denise Delaney, based in SustainAbility’s London office, caught up with her on the latest initiatives by A4S and IIRC.
Denise Delaney: Why establish a CFO Leadership Network?
Jessica Fries: The CFO Leadership Network is part of The Prince of Wales’s Accounting for Sustainability Project (A4S). A4S’s primary focus is on the role of the finance and accounting community in creating sustainable business models and a sustainability economy. We did some research in 2012, which really highlighted the perception among different groups that CFOs were unconvinced that there was a commercial rationale for integrating sustainability into the running and operation of the business. We had been working with a number of CFOs who felt very strongly that the commercial case was clear and were interested in developing practical ways to integrate sustainability into financial decision-making, understand what others were doing to advance thinking and convince their peers of the imperative to act. The CFO Leadership Network emerged.
What is the expectation of CFOs in terms of commitment to the Network?
All of the CFOs have signed up to a charter, which publicly sets out their commitments. The great thing about working with CFOs is that they wanted very clear outcomes and targets, making sure that the network wasn’t just a talking shop, but focused on driving a shift in thinking and action. What I also find very encouraging is the strong personal commitment from CFOs, demonstrated through individual participation in the quarterly network meetings, speaking publicly on sustainability issues and what they are doing about them, and ensuring their teams have the time and support to really contribute to the development of relevant tools and techniques being created by the network. Approaches developed through the network will be open source with the aim of scaling up adoption as quickly as possible. This is where the link to A4S’s International Accounting Bodies Network comes in. With members representing about 60% of accountants from around the world and a commitment to integrate accounting for sustainability into education and qualification, there is real potential to accelerate the adoption of techniques globally.
What are the CFO Leadership Network’s priorities?
There are five key projects this year:
- Peer learning and the commercial case: sharing what has and hasn’t worked to integrate sustainability into financial decision-making.
- Capital expenditure: looking at how to embed environmental and social issues into capital expenditure decision-making.
- Risk and uncertainty: what techniques can be used to better future-proof decisions in response to environmental and social risks and opportunities that companies face.
- Accounting for natural and social capital: contributing to the development of a Natural Capital Accounting Protocol through the work of the Natural Capital Coalition (formerly TEEB for Business) and exploring approaches to value social capital.
- The investment community: improving the effectiveness of engagement with a company’s investor ‘ecosystem’ around sustainability risks and opportunities and the quality of questions asked by mainstream investors in response.
Given your deep involvement with the IIRC, and the release of the first integrated reporting framework to improve the quality of information available to providers of financial capital, what is the CFO Leadership Network doing to advance approaches to integrated reporting?
It is no accident or surprise that a number of the members of the CFO network are those that are adopting integrated reporting, either explicitly by being members of the IIRC pilot programme or by moving their reporting in this direction. A key difference is that most of the projects in the CFO Leadership Network are very much focused on internal decision-making, and integrated reporting is for external communication. You need both.
What skill sets – other than accounting – do companies need to embark on their integrated reporting journey?
The feedback we have received in the pilot programme is that it is very much a cross- functional journey. The most strides are happening where there is close collaboration between the finance, sustainability and strategy teams, but if you look at the six capitals that underpin integrated reporting, all functions have a role to play – for example, HR in the context of human and intellectual capital dimensions. Bringing together an integrated team is of course much easier when it is led top down, when the company’s board and CEO have an integrated approach – ‘integrated thinking’ in the IIRC’s language.
From your perspective, what do you see as the greatest challenge for a company in approaching integrated reporting for the first time?
Companies should not try to do everything in year one. Strike a balance between achieving some quick wins with the longer-term process of getting the necessary information and systems in place. Develop a three-year or five-year plan towards integrated reporting and take it step-by-step, focusing on the company’s priority areas. In terms of quick wins, consider how to use diagrams and images to communicate how different sections of the report link together. For example, how does the discussion of market context link to the strategy section, KPIs and risks? Are the KPIs listed linked to remuneration? Are the issues highlighted as strategic priorities aligned with the topics discussed by the Board as part of the governance section? Do the performance measures used align with the strategy and KPIs, giving insight into future direction, not just past performance? Are all the capitals relevant to the business covered, and is it clear how they underpin the business model?
Some of the pilot companies highlight the challenge of getting over thinking that an integrated report is about integrating financial and sustainability reports into one and instead realising that they need to ask a completely different question about what value means to their business and how this will be sustained – their ‘aha moment’ – which helps them to think more holistically about their material issues.