Our economies in their present forms are unsustainable. Our planet has been subjected to the Great Acceleration of humankind’s impact, which presents immense risks to the health of the biosphere and our civilization. Our impact is directly linked to global economic growth.
At SustainAbility, as we argued in our report Changing Tack, business can be a great driver of change but the present rules of engagement in business, finance and markets are largely unchanged since the 19th century. Meanwhile, global growth has stalled and, eight years after the financial crash, many developed world economies continue to be moribund. A change in how we run our economies and business is urgently needed. And for that we need leadership.
Results from numerous surveys show that an increasing number of CEOs recognize the importance of sustainability issues in their business strategies. A 2013 Accenture/UNGC survey of over 1,000 CEOs found that just 32% believe that the global economy is on track to meet the demands of a growing population within global environmental and resource constraints. 67% do not believe that business is doing enough to address global sustainability challenges. But we cannot rely on a handful of CEOs alone. The influence of the C-suite as a whole is required and specifically the office of the chief financial officer. And yet, CFO engagement in sustainability issues continues to be insufficient.
Last year at a conference on business and sustainability I asked the audience how many had the word “finance” in their job titles. Just one person responded – from the sponsors. Should we be surprised though? Of all the roles in the corporate sector, that of the CFO is surely one of the most challenging. The CFO sits at the confluence of many pressing demands such as managing risk, making capital investments, identifying opportunities for growth, maintaining investor confidence, and reporting accurately and transparently. It’s a tall order, which is no wonder why CFOs don’t show up at our conferences!
But look again at those CFO functions. In the context of the urgent need to accelerate the transition to a sustainable economy, most, if not all, of these functions can – indeed, should – be addressed through a sustainability lens. There is a need and an opportunity for the CFO to become, de facto, a CSO—as is indeed the case at Walt Disney where the CFO, Jay Rasulo, is also responsible for the company’s CSR effort.
The question, “Who manages sustainability?” is problematic. We don’t want to “manage sustainability.” Rather, we want business to be managed – sustainably. And in so doing the CFO has an important role today.
Managing risk, making capital investments, identifying growth opportunities, and reporting: it’s obvious that these are “sustainability issues.” So why have CFOs been slow to embrace the sustainability agenda? Three reasons stand out. First, the well-documented apparent lack of interest from investors. Second, a failure by the sustainability community to engage CFOs on the CFO’s terms. Third, the rules of the game are stuck in an old paradigm – the very one that got us here. All three of these reasons are about to change…
The lack of analyst and investor interest has been much commented upon. And it is true that there are vested interests and short-term investors. But changes are occurring. For example, on Friday June 27th 2015, the second Conference for Inclusive Capitalism took place with a gathering of people with some $23tn worth of assets under management. The agenda was clear: owners and managers of financial capital have a responsibility to ensure that the system changes for the good of all. The agenda could have been designed by any of us sustainability folk, but instead it was designed by Lady de Rothschild of the Rothschild family. And there are more concrete examples. Investors surely take note when GE announced that its Ecomagination initiative has generated revenues of $200bn to date and $25bn in 2013 alone. And it is hard to ignore the $6.2tn invested in the green economy – important not so much for the amount invested but the likely multiplier effect on the green marketplace as a whole.
In the “sustainability community,” we’re often rather naïve when it comes to engaging with CFOs. While it is rare to find a CFO who gets sustainability, it’s probably even rarer to find a sustainability professional that fully understands discounted cash flow, ROCE and collateralisation. We simply haven’t been speaking the same language. Generally, we work much better with CEOs because it is their job to imagine the future, create visions and narratives. CFOs don’t often think like that. We don’t just need translators with CFOs, we need interpreters! When we can find that common language we will surely make rapid progress.
Third, the “rules of engagement” are bound to change. Given all that we know, it’s impossible to imagine that the way we value an enterprise today will be the same in 2030. The game afoot is how will we change valuation and what will we value. There are so many brilliant minds at work on it: the Prince’s Accounting for Sustainability initiative, the Natural Capital Coalition, the Capital Institute’s work on how to create the “regenerative economy”, the UNEP Inquiry, the World Bank’s WAVES partnership, the drive for integrated reporting from IIRC, and SASB. The list goes on and on. In the meantime, codes and reporting requirements are changing with countries across the EU and beyond. For example, South Africa and Brazil now require large companies to report on sustainability impacts. Eventually, this explosive cocktail of experimentation will result in new policies and regulations that will stimulate still more change.
CFOs have a key role to influence both the ‘when’ and the ‘how’ of the transition to a sustainable economy. We urgently need them on board, showing leadership. It will require CFOs to embrace the qualitative as well as the quantitative, and place a greater focus on intangibles. We also need to adapt our sustainability language to be more relevant to the CFO. There will be new ways of informing and interpreting the “numbers game” in keeping with the demands of the “great acceleration.” With the wave of change already underway, it is a game worth playing.