When Helen Slinger joined Accounting for Sustainability (A4S) she saw it as an opportunity to do something worthwhile with her knowledge of sustainability to transform the accounting profession. She soon discovered the passion of finance and accounting professionals working with A4S, which was set up by HM King Charles III in 2004 to inspire finance leaders to adopt sustainable business models.

 

During her time at A4S, Slinger (left) has engaged with organisations to inspire, support and guide them through the process of developing more resilient business models. This can be started by assessing the risks and opportunities of the effects of climate change on the economy and business.

“The businesses who get this and do this will be the ones that survive and the businesses that don’t will be the ones that disappear,” she said.

Slinger advocates that the finance community urgently pushes for a more sustainable economy, with investors and corporates that take into account the expected increase in global temperatures, the pressure put onto the natural ecosystems, and the communities all organisations operate within. When I recently caught up with Slinger, I was keen to learn how A4S sees the role that CFOs and finance leaders can play in embedding sustainability in their strategy and operations. 

Catalyst for change

Why is it important? According to Slinger the biggest catalyst for change is understanding the imperative for sustainability. It is about the organisation delivering long-term value, despite the volatile and uncertain world we live in. In order to navigate the turbulence effectively and create value from the opportunities it brings, the board and executives must be in possession of the right information and data.

“That information needs to be sufficiently robust, and decision-makers need to have confidence in it, to be able to make appropriate decisions. That is where the CFO and senior finance team come in because they are in a position to understand and oversee controls, prepare robust data, and ensure decision-useful information for the executive and board,” said Slinger.

But it’s not just about data and reporting – the need to transition into a sustainable business is the fiduciary duty of the board.

“There’s a risk that if boards don’t have individuals who appreciate the different social and environmental factors that the business is responsible for, and they’re not considering them in their decisions, they may well be in breach of their fiduciary duty,” said Slinger.

It is the responsibility of the board to not only understand the data but to see value in the insights it brings to enable them to have appropriate oversight – so it’s not data for data’s sake. After all, as Slinger pointed out, sustainability is not just about the environment but about sustaining – continuing, lasting, persisting – which requires businesses to operate in balance with society and the environment.

“A sustainable business is one that is planning for the long term, so investors can expect a return in both the short and longer-term future. The organisation is sustained, it has sustained returns, it is a sustained business and it sustains relationships with its customers,” said Slinger.

Slinger illustrates this through a workshop exercise A4S does with finance leaders who are participating in the A4S Academy programme, where everyone is asked to line up in order of the age of the organisations they work for. The exercise teases out the challenges the longest-lasting businesses have dealt with and how they have been able to come out the other side as successful, profitable businesses.

Slinger said the answer to longevity is usually due to a mix of their financial investment strategy, their environmental responsibility, their social relationships and their investment in their employees. At the other end of the scale, when organisations fail, it can be due to poor governance over these areas.

Assess the gaps

To transform into a sustainable business that’s contributing to society and the environment and delivering net-zero climate impact, finance teams need to assess how sustainable their business currently is and where there are opportunities to improve. This is why A4S has developed a series of maturity maps to help organisations with this process. 

Slinger said businesses need to understand their impact and dependencies on the natural world, their human capital, and their social capital in order to become more resilient and help drive a sustainable economy.

If businesses take action and make better-informed decisions to become more sustainable, it will help to reduce their business risks. But what does this desired state look like in practice and how can an organisation see where its sustainability gaps are?

A qualitative approach to assessing the gaps could be a “high, medium and low” traffic-light system that measures your impact and your dependency without necessarily having to put any sort of numerical or financial value on it and then finding a way to incorporate these in your business decisions, explained Slinger. More sophisticated approaches are also available, but starting simple can still deliver meaningful change.

An example of what this vision could look like would be considering sustainability when looking at capital expenditure, with decision-makers looking at both financial and non-financial factors when making capital investment decisions. A4S has produced a guide to capex (capital expenditures) as part of its Essential Guide series, which was developed to give finance teams practical tips and tools on integrating sustainability into business decision-making. 

“If you do your net present value calculation, or cost-benefit analysis, specifically just in financial terms, then you are potentially going to miss a whole load of value that’s up for grabs for the business – for you internally as a business, but also in terms of how you are engaging with the society outside in relation to those assets,” she said.

For example, their winning entry in A4S’s International Case Competition for business students, Team Greenify proposed a business model to make green walls – a way of insulating properties using plants – economically viable for both investors and owners of real estate. It should open the eyes of anyone investing in or building a property, showing that there are ways to develop net-zero buildings that generate value for society and the environment while also offering a positive financial impact.

“There are all sorts of value that you could completely miss if you’re purely looking at the financial returns on the building,” said Slinger.

If decision-makers are instead presented with several net present values with different sustainability options for a capex project, that helps them consider areas like net zero or whether materials are sustainable in their decision-making process.

Next 90 days

If this is a new area for them, Slinger would advise CFOs to do three things within the first 90 days.

1. Understand where their board is on considering sustainability in the business. One way to approach this is to use A4S’s Board Characteristics Review Tool, which will help them understand how mature the board are in this space and therefore consider how, as CFOs, they should approach the subject. Considerations for the board include:

Do they have the right competencies?
Do they exhibit openness to change?
Do they have the right skill set to be able to assess risks and opportunities around sustainability?
Do they seek input from wider stakeholder groups?

2. Analyse the organisation’s impacts and dependencies. This is important because understanding the impacts and dependencies of the business will help generate the right data so that organisations can make decisions with confidence. Slinger suggested one way CFOs can think about this is with a multi-capital lens, especially considering natural, social and human capital.

3. Consider strategy. Now that the CFO has more clarity on the board’s position on sustainability, and on the impacts and dependencies of the business, the third point to consider is how well the organisation and its strategy are set up for a sustainable economy. This is not about having a sustainability strategy, it’s about having a corporate strategy to be a sustainable business. 

Measure and manage transformation

So far Slinger had talked about identifying the gaps in an organisation’s transformation. In addressing those gaps, organisations also need to build the right key performance indicators (KPIs) to monitor their progress.

Slinger suggested that CFOs link those transformation KPIs into incentives at the executive level and make sure that KPIs and incentives capture holistic progress. “This is because a business could, for example, do really well on saving water, but be really weak on climate, so the incentives need to focus on holistic improvements rather than creating a culture of chasing individual metric incentives.”

Evaluate and improve

To embed sustainability into the culture of the business successfully, Slinger advises finance leaders to capitalise on anyone in their team who has enthusiasm in this space. It’s passion that usually drives this forward. “That’s where the energy comes from,” said Slinger.

Then the next step is education. “It’s about making sure that your finance team understands they have a role to play and what that role is, then equipping them with the skills to be able to deliver on that.” The same goes for the board and their understanding of the role they have to play.

“You’re actually making sure that people truly understand, not only the implications of not taking action but have a sense of what the new business as usual looks like. And then by giving them the skills and the know-how, they’re empowered to go forth and achieve that new vision. So that allows you to build momentum.”

Read more:
https://www.accountingweb.co.uk/business/finance-strategy/sustainability-can-be-businesses-crowning-glory

Neil Cutting

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