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CFOs reach enlightenment


Are finance chiefs finally becoming wise to the benefits of a robust enviromental policy?

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Environmentally friendly policies have never had to be at the forefront of finance chiefs’ minds, but that may be changing. New research finds that chief financial officers are increasingly conscious of sustainability concerns.

A new study by Deloitte which polled 250 chief financial officers of companies with an average revenue of $12 billion (£7.4 billion) spread across 14 jurisdictions reveals a changing mood towards the significance of the environment over the past 12 months.

Some 53 percent of CFOs polled say they were more involved in sustainability issues during the course of 2011. An even greater majority of respondents say the trend is likely to continue over the next two years.

Their motivation is clear, says Deloitte, as 49 percent of respondents saw a strong link between the environment and a company’s financial performance. One CFO’s comment cited in the study is testament is the changing mood, saying: “Sustainability provides virtual savings at an early stage and can only be made real when well integrated with finance.”

New technologies aimed at lowering companies’ carbon footprint is also having a clear impact on CFOs’ attitudes to embedding environmental policies into financial strategy.

A majority say they are planning to use energy efficient equipment while 52 perfect say they plan to invest in data centre efficiency equipment. Early adopters of these kinds of new technologies such as Toyota, Johnson & Johnson, Coca Cola and IBM, says Deloitte, has helped in converting sceptics.

Some CFOs go even further in embracing the importance of an embedded environmental policy in a business’s wider strategy, arguing that such sustainability initiatives were crucial in order to keep up with the current competition. “It is important to keep on investing in sustainability and eventually it can help us gain a competitive advantage,” the CFO tells Deloitte.

Fluctuating energy and commodity prices

Many CFOs also argue that robust sustainability platforms if wisely implemented can serve as a valuable hedge against volatile energy and commodities markets. Some 22 percent highlight energy prices as the most significant risk to financial performance while another 20 percent list commodity prices as their primary concern.

While a sustainability strategy will not eliminate risk, the Deloitte report suggests that CFOs see further savings in taking a holistic view and are no longer ignoring the issue.

One point noted in the Deloitte study was that regulators of countries belonging to the Organisation for Economic Co-operation and Development are turning decidedly pro-environmental. For instance, EU regulators will soon make certain types of non-financial reporting, including environmental reporting, mandatory.

Away from regulatory demands, incentives also come into play. For instance, certain Canadian provinces – most notably British Columbia – actively incentivise sustainability initiatives and sustainability merit badges are commonplace. In Vancouver, motion sensor lighting in commercial spaces is the norm rather than the exception for both crown corporations and the private sector.

A regulatory change

Besides regulatory impediments to non-adoption, ratings agencies have of late started demanding additional information regarding companies’ sustainability practices. Sustainability indices including FTSE4GOOD and Dow Jones Sustainability Index reinforce the importance of responsible corporate citizens as well as offer an alternative route to benchmark indices other than market valuation.

Last but certainly not the least certain sovereign wealth funds, particularly coveted as investors in an uncertain climate, have increasingly begun to examine corporate sustainability. A penchant of sovereign wealth funds of Norway and Singapore for ethical companies is well documented.

Admittedly, the pace of change in the attitudes of CFOs towards sustainability is however variable depending on the jurisdiction. Australia, Canada, the UK and the US lead the way, Deloitte finds.

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CFOs reach enlightenment
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