The role of Chief Financial Officer (CFO) is evolving in areas of investor relations, external reporting and financial risk management, as corporate sustainability issues become more important, according to an Ernst & Young report.
In the past, CFOs simply ran the numbers, letting other executives handle soft issues such as social responsibility and corporate citizenship.
But as investors, customers and stakeholders exhibit an increasing desire to connect financial performance to social and environmental impact, CFOs are having to expand the scope of their responsibilities, says the report.
Institutional investors and equity analysts are pressuring CFOs to understand and engage in measuring and managing environmental and social performance – particularly as that information becomes more accessible.
300,000 Bloomberg terminals around the world now provide corporate sustainability information such as emissions data, figures on energy consumption, corporate policies and board composition.
A separate Ernst & Young study reveals that social and environmental resolutions comprised 40% of all shareholder proposals in 2011, up from 30% in 2010. Average votes supporting these proposals has doubled from 10%-21% since 2005.
"Companies that conduct financial and sustainability practices in silos could miss out on business opportunities and proactive risk management. Increasingly, a company’s sustainability story is being heard and read by the same stakeholders who read its annual report. Furthermore, the line between accounting records and sustainability records has begun to blur. These factors are creating a need for CFOs to incorporate sustainability thinking into their regular activities," says Steve Starbuck, Americas Leader of Climate Change and Sustainability Services at Ernst & Young LLP.
The paper outlines five actions CFOs can take to enhance corporate value through sustainability:
- Actively pursue a sustainability and reporting program.
- Ensure those responsible for sustainability matters don’t operate in isolation from the rest of the enterprise – especially the finance function.
- Enhance dialogue with shareholders and improve disclosure in key areas, particularly those related to social and environmental issues.
- Ensure that directors’ skills are relevant to the chief areas of stakeholder concern, including risk management tied to social and environmental matters.
- Consider using nontraditional performance metrics, including those related to environmental/sustainability issues (e.g. energy efficiency, water usage, carbon emissions). Doing so could help align compensation with risk.
Read the report:
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