Deloitte: CFOs increasingly involved in sustainability

02 April 2015 Consultancy.uk

Chief Financial Officers (CFOs) are increasingly involved in their company’s sustainability strategy, research by Deloitte shows. The survey highlights a strong perceived link between an organisation’s financial and sustainability performance, with an increased impact of sustainability on financial management decisions. According to the firm, CFOs need to embrace the development as it is no longer about ‘if’ but rather about ‘how’ they want to fulfil their role.

Professional services firm Deloitte recently released a new report into the role of CFOs in sustainability* efforts of their firm, titled ‘CFOs and Sustainability: Shaping their roles in an evolving environment’. For the research, analyst firm Verdantix interviewed the CFOs and Finance Directors of 250 companies across 15 different industries in 15 countries. Each of the surveyed companies had annual revenue greater than $1 billion, with total revenue of all companies exceeding $2.9 trillion.

Deloitte - CFOs and Sustainability

The research found that CFOs are becoming increasingly involved in sustainability, with 83% of respondents saying they are always or frequently involved in setting their company’s sustainability strategy – up from 65% in 2012. Especially the number of CFOs that cite to always are involved almost doubled from 27% to 43%. The number of CFOs involved in the execution of their firm’s sustainability strategy also increased significantly; with 80% saying they are involved (always or frequently) compared to 68% in 2012. The percentages stating that they are occasionally or rarely involved in sustainability strategy both decreased substantially.

CFO involvement in setting sustainability strategy at firm

According to the research, the increasingly important role for CFOs in sustainability is reflected by their awareness of the impacts of sustainability on financial decisions, with almost three-quarters (73%) of the CFOs surveyed seeing a strong link between sustainability performance and financial performance. The research states that “both the broad range of financial management decisions impacted and the extent to which they are impacted clearly reflect the integration of sustainability issues in organisational functions and activities.”

involved in driving organisational execution of sustainability strategyThe impact of sustainability on key financial decisions increased the most in M&A, up from 33% in 2012 to 48%. According to the researchers, this relatively sharp increase appears to be due to increasing M&A activity, which results in an increase in sustainability-related issues, such as “the need to review sustainability considerations when screening and selecting M&A candidates.” Capital allocation has also been increasingly impacted by sustainability issues, with an increase of 12% to 60%, as well as capital raising, which increased to 55% – up from 44%.

Aspects of financial management impacted by sustainability issues

Looking forward, almost half of respondents (44%) say they plan to implement an organisational transformation related to energy, environment, and sustainability in the coming years, a number that doubled since 2012, and another 10% plan such an effort in the next five years. The number of organisations stating not to have any plans for such transformation decreased from 31% to 7%, which can also partly be explained by the increase of organisations currently executing a transformation from 34% to 37%.

Organisational transformation related to energy, environment and sustainability

Deloitte states that CFOs have a role to play in sustainability efforts of their firm and lists five actions CFOs should consider taking when taking on this responsibility:

  • Grasp the key issues, and define your role,
  • Help align sustainability initiatives and business strategy,
  • Understand the risks,
  • Monitor investor sentiment,
  • Provide guidance on reporting practices and disclosures.

The report concludes: “Granted, CFOs already have full schedules. Yet sustainability is here to stay and is presenting opportunities and decisions, posing costs and risks, and influencing regulators and investors. The question therefore is not whether CFOs have a role to play in sustainability but rather what that role will be. Now is the time for CFOs to consider, define, and fulfil that role.”

* Sustainability is defined as the environmental, health, safety, and social impacts of the enterprise.

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