Globally, climate change is forcing people to think differently and, as a result, priorities are changing for private citizens and corporate ones. Stakeholders increasingly demand more from organizations than a commitment to short-term profitability. This drumbeat of demand includes a call for increased corporate accountability, in particular for streamlined, formalized corporate sustainability disclosures.
By embracing and prioritizing sustainability initiatives, finance executives can supply what stakeholders want and create economic value for the organization. Leadership, decision support, and oversight, as well as setting the right “tone at the top,” will be critical.
Build your knowledge of environmental, social, and governance (ESG) trends and recent developments on reporting requirements. In March, the Securities and Exchange Commission released a draft of new climate disclosure rules for public comment. In the same month, the new International Sustainability Standards Board (ISSB) issued its first two sustainability standards for public exposure. To influence these sustainability disclosure requirements, especially if you are concerned your organization won’t be able to meet them, consider providing feedback to the SEC or ISSB.
Educate staff and cross-functional partners about sustainability-related trends that could impact the organization. Then provide recommendations on how they can proactively prepare for the changes. If your company is not currently providing sustainability information in its financial disclosures, start putting processes in place.
According to the Governance & Accountability Institute’s 2021 Sustainability Reporting in Focus, 92% of S&P 500 companies published a sustainability report in 2020, up from 90% in 2019 and only 20% in 2011. If your organization is already issuing a sustainability report or otherwise using such information, internally or externally, ensure appropriate controls are in place.
For example, maybe your company is claiming 50% of its electricity comes from renewable sources, is recycling 90% of solid waste, or has reduced water usage by 25%. To instill trust and confidence in those claims, they must be substantiated. Leverage rigorous controls and provide effective oversight, just as you do for financial reporting.
Beyond preparing to meet reporting requirements, sustainability initiatives can impact long-term planning and value creation. Seek sustainability initiatives with a positive return on investment (ROI) to benefit the organization’s bottom line.
When I was the finance executive for Campbell Soup Company’s premier supply chain operation, based in Northwest Ohio, our site was named Food Processing magazine’s 2014 Green Plant of the Year. The recognition underscored our success in implementing sustainable manufacturing practices. The goal was not sustainability at any cost. Rather, our overall mandate was to manufacture high-quality products at the lowest possible cost. As such, we scrutinized every investment proposal, sustainability-related or not, to ensure the underlying assumptions were reasonable and the anticipated ROI was acceptable.
Based on this experience, I recommend considering sustainability initiatives in two categories:
1. High-profile investments. Consider investing in a solar field, wind farm, or biogas facility. We partnered with a third party that built a 24,000-panel solar array on 60 acres adjacent to Campbell’s operations. Based on estimates at the time, over the 20-year agreement period, the solar array will reduce the site’s electricity costs by $4 million and eliminate 250,000 metric tons of greenhouse gases. Another potential area of investment involves identifying and addressing old, inefficient, environmentally unfriendly equipment. Campbell retired its coal- and oil-fired boilers, replacing them with natural gas boilers, after analyzing the likely investment required to upgrade and maintain the obsolete assets.
2. Small Investments that add up. High-profile investments will generate buzz, but smaller investments and process changes, collectively, may represent the greater opportunity. Some examples include:
Replacing fluorescent light fixtures with more efficient LED lighting products
Using motion-activated lighting
Converting to high-efficiency motors with variable-frequency drive technology
Investing in preventive maintenance programs to improve equipment reliability
Incentivizing solid waste recycling
Investing in water recycling technology
Leveraging SKU rationalization to reduce warehousing costs, packaging costs, and inventory obsolescence
Sourcing raw materials in bulk
As the drumbeat for change grows louder, CFOs can take the lead by adopting a mindset of sustainable business management.
Steve McNally, CMA, CPA, is chair of the Institute of Management Accountants and CFO of The PTI (Plastic Technologies Inc.) Group of companies.