Once considered a bonus feature for companies, sustainability is now a business imperative for many and is altering the way they conduct business.
From marketing campaigns that rely on the value proposition of sustainable products, as we’ve seen Adidas execute, to HR leveraging sustainability as the new employee engagement tool, to finance departments (yes, finance, you too) committing to sustainable financial practices, sustainable business operations may affect every aspect of a company.
This transformation is not contained to just corporate finance departments. The financial industry as a whole is rapidly learning that adaptation and acceleration are necessary to operate in this new world that’s centered on the sustainability transformation.
Since the first green bond was released in 2008, the World Bank has raised more than $13 billion through almost 150 green bonds in 20 currencies. In response to this growth, lenders, credit agencies, regulators, shareholders, and investors have also increased their participation in and reliance on green finance practices.
This shift in the financial industry as a whole presents a massive opportunity for corporate finance departments to trail-blaze new sustainable strategies and capitalize on the multi-level benefits that green finance practices offer.
Let’s break down how green finance and sustainability affects every position in corporate finance departments.
Chief Financial Officer: The Trendsetter. While CFOs were traditionally siloed in stewardship roles, their input is necessary to the success of green finance initiatives. As the main financial adviser to the CEO, investors, and shareholders, CFOs can create and present strategies that will positively affect their companies’ bottom lines, while also making a positive impact on the environment.
FP&A leader: The Guide. Because this role is in charge of forecasting profit, loss, and operating performance, it not only has a unique influence over the company’s strategic plans and investments. The person in this role also constantly has to reconcile the strategic objectives with the planning and performance management processes.
For example, moving from key financial indicators (KFIs) to key performance indicators (KPIs) in the company’s dashboards and transforming the management dialogue about performance are essential to walk the talk.
Controller: The Discloser. Each year, the expectation for companies to disclose environmental, social, and governance (ESG) results grows. To prepare, controllers should integrate climate change risks into their financial reports, as it will help simplify the ESG reporting process.
Controllers also should ensure that they’re already disclosing material risks in their financial reports, as the SEC is requiring corporations to include sustainability-related material risks in their financial filings.
Treasurer: The Pacesetter. Responsible for managing a company’s cash flow and investments, the treasurer sets the expectations for leveraging green finance in its funding strategy. Integrating ESG criteria into investment portfolio strategies or employees’ pension funds is moving toward becoming mainstream.
Risk Manager: The Researcher. Risk managers must understand the implications of sustainability across the organization, from reputational risks to physical risks posed by extreme weather, to strategic risk as companies evaluate their business models or product designs.
The person in this role can initiate an environmental scenario analysis to better understand how the business can be affected by emissions reductions, energy efficiency, subsidies, or other incentives implemented to facilitate a low-carbon economy. But such analyses also must evolve past environmental risks to highlight the implications of sustainability that extend far beyond the company’s facilities.
Each department must take advantage of existing assets to turn the strategy into results. Data from accounts payable hold a wealth of information about energy and resource waste. If finance departments analyze the data properly, they can identify operational inefficiencies that can be adjusted to both increase savings and facility efficiency.
Caesars Entertainment, an exceptionally progressive gaming and hospitality company in the hospitality and gaming space, has successfully capitalized on an environmental financial strategy. The company’s CodeGreen program aggregates and analyzes utility data to identify areas of misuse in water, energy, and waste consumption. That helps company leadership develop a strategy to reduce financial bills and increase facility sustainability.
As a result, Caesars reduced water consumption by 11% and energy usage by 15%. The CodeGreen program, in coordination with the company’s participation in carbon disclosure, is a prime example of how financial and sustainability goals work in tandem.
To truly gain an understanding of facility resource usage, finance departments must have a set strategy for how to pull insight and act upon the information available from accounts payable. Whether this is an internal process or one done through a third party, departments must have the resources to identify wasteful and costly practices through data analysis.
As the financial ecosystem continues to evolve, it’s inevitable: Investors and internal management will soon expect finance departments to integrate certain sustainable practices into their larger strategies. While the finance team’s role may not be as public as other departments, it is crucial to the continued success and growth of the business.
Forward-thinking finance teams are the ones thriving in this modern environment, and those who wait for government sustainability standards will potentially see a decline in brand reputation and financial investment.
With this in mind, it is time that we, as finance professionals, re-invent ourselves to take a leading role in this sustainability transformation. Let’s stop only reporting on energy costs and start reporting on carbon impact. Let’s divert from only implementing efficiency improvements related to automation and paper reduction and start looking at our facility portfolio with a holistic mindset.
By leading the charge and developing sustainable finance strategies, we will inspire our entire companies to prioritize operations that will minimize our impact on the environment.
Vincent Manier is the CFO of ENGIE Impact, a global consulting and services company that helps companies set accurate climate targets and meet their sustainability goals.