Traditionally, sustainability issues have fallen outside the jurisdiction of the Chief Financial Officer. CFOs ran the numbers, letting others handle soft issues such as social responsibility and corporate citizenship.
But those job silos are crumbling. Investors, business customers and other stakeholders have shown a growing desire to connect a company’s financial performance to its social and environmental impact. To make that connection, they have begun evaluating the company’s performance in the Environmental, Social and Governance (ESG) arena, sometimes referred
to as the organization’s “triple bottom line.”
As a result, sustainability issues and financial performance have begun to intertwine. CFOs are getting involved in the management, measurement and reporting of the companies’ sustainability activities. This involvement has expanded the CFO’s role in ways that would have been hard to imagine even a few years ago.
The changes stem partly from a realization by institutional investors that climate change and sustainability issues often bear directly on companies’ risk profiles, their reputations and their financial performance. Equity analysts, for example, have begun to look at the sustainability practices of the companies they cover. More than 300,000 Bloomberg terminals around the world provide corporate sustainability information such as emissions data, figures on energy consumption, corporate policies and board composition. That information, until recently kept hidden or shared quite sparingly, is now available at the touch of a button.
As ESG factors are incorporated into investment analysis, companies have started to view environmental and social initiatives as contributing directly to their economic performance. CFOs and other market-facing executives will need to become more familiar with their companies’ most vital ESG issues. They’ll also need to prepare for hard questions from stakeholders, and to demonstrate a heightened commitment to ESG performance.
Credit-rating agencies, such as Moody’s and Standard & Poor’s, have long provided shareholders with a source of company information. In a departure from their traditional focus, they now want to know about companies’ sustainability practices. So do the more specialized providers of sustainability ratings. The Dow Jones Sustainability Indexes (DJSI), for example, give stakeholders information about companies’ social, ethical and environmental impact.
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