It's time for CFOs to become climate heroes


As the world faces the growing pressures of climate change, focusing on a company's sustainability can no longer just be a concern of corporate social responsibility (CSR); it must be an imperative across the organisation.

Chief financial officers (CFOs) have a responsibility to show leadership in ensuring that their companies are exhibiting stakeholder capitalism, in which private corporations act as trustees of society to respond to the world's pressing social and environmental issues.

It's time for CFOs to become climate heroes.

The financial community is already making significant shifts to incorporate environmental, social and governance (ESG) into financial decision-making and investment.

Accounting for Sustainability (A4S) recently released its "CFO Net Zero Statement of Support," which recognises the role of CFOs in supporting efforts for their organisations to respond to the challenges of climate change and support a smooth transition to a net-zero economy.

Thirty-six signatories, of which I am one, committed to addressing climate change in our organisations through actions, including raising and allocating funds to support energy transition efforts, incorporating greenhouse gas reductions in decision-making processes, and tracking and reporting our company's performance against targets over time.

At the World Economic Forum, for example, we have committed to ensuring our annual meeting in Davos-Klosters, Switzerland, will be carbon-neutral by calculating and offsetting all emissions.

The business case for climate action is growing - in fact, the train has already left the station.

The investors' community is massively allocating capital to sustainable businesses. For example, BlackRock, which has US$7 trillion (S$9.45 trillion) in assets, announced on Tuesday (Jan 21) that it will focus on sustainable investing, doubling the number of sustainability-focused exchanged-traded funds it offers to 150.

In Japan, the Government Pension Investment Fund (GPIF), which has US$1.5 trillion in assets, has helped cause a 307 per cent increase in sustainable assets in Japan from 2016 to 2018.

Here are four ways CFOs can take the lead in encouraging sustainability in their businesses and the world.

Prioritise sustainability

CFOs should courageously place sustainability initiatives side by side with profitability or growth initiatives.

This requires them to prioritise the sustainability topic over others. To do so, the office of the CFO need to be trained on how to incorporate sustainability into its practice, from the details of accounting to the more general demands of a business partner.

Accept higher costs and demonstrate returns

CFOs should push their organisations to accept higher costs in return for sustainability "points", the same way we accept higher costs in return for revenue or market growth.

One way that CFOs can do this is to implement ROS (return on sustainability) frameworks and metrics. ROS would be similar to ROI (return on investment) by demonstrating value creation that comes from sustainable efforts.

Empower employees

While CFOs of large organisations often rely on full-fledged CSR teams to drive changes, CFOs of small organisations need to rely on operational teams to enact changes.

Acting as a sponsor for climate-related actions is key for all CFOs to empower their organisation to change behaviours or processes. Their example can inspire employees to pursue innovations that can further improve the overall sustainability of the company.

Collaborate and build partnerships

CFOs can not only address climate change in their own companies; they can also work with other CFOs to provide examples and support for other companies dealing with similar issues, and seek partnerships with public leaders on larger sustainability issues. For example, the Prince of Wales, with the support of the World Economic Forum, recently established the Sustainable Markets Council to bring together private, public and philanthropic leaders to showcase and support global best practices.

Management today is facing an increasing number of business priorities, and therefore it requires courage to maintain climate change on the top of that list.

CFOs have the power to set their businesses on the path to creating a more sustainable world. They cannot afford not to act.

The writer is the World Economic Forum's managing director and chief financial officer.

The article is related to the forum's annual meeting in Davos-Klosters, Switzerland, from Jan 21-24, 2020.

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