Why sustainability and finance?
The transformation of finance is essential to achieving a sustainable future
Finance teams are an asset to their organization and a vital element in building a sustainable world. To live up to this potential, they need to recognize the risks and opportunities associated with sustainability and be able to act on them. Without this, the finance function can be a barrier to change.
Finance teams are powerful in an organization because they:
- Control the flows of money and finance that are critical in enabling or blocking what the organization does
- Provide the information that is vital to decision making
- Influence others to take action
Sustainable businesses deliver financial returns in the short and long term while generating positive value for society and operating within environmental constraints. Organizations that fail to address environmental and social risks will be less resilient to these challenges, and so put their own existence at risk.
“It is not necessarily a choice between making money on the one hand and ‘doing the right thing’ on the other. On the contrary, once it is recognized that ‘business as usual’ is unsustainable it follows naturally that those organizations which start to develop resilient business models will be the ones that succeed.”
HM King Charles III
“A healthy society and environment must underpin our economies. The future of business, and our planet, depends on our ability to rethink and evolve our business models. Simply put, investing in sustainability makes good business sense.”
Mark Hawkins, Former President & CFO Emeritus, Salesforce; Chair, A4S Advisory Council
How sustainability benefits finance
Our research shows that there are many financial benefits to considering sustainability in your decision making.
Cost cutting and efficiency
Creating a sustainable business can deliver significant cost savings and efficiencies. For example, using fewer resources (such as carbon or water) will have a direct impact on costs.
Risk mitigation
Environmental and social risks can also be material financial risks. In an ever more complicated and interconnected world, an integrated approach to risk management is essential.
This is clear from the growing insurance claims because of damage caused by extreme weather. There were US$56 billion of insured losses from natural catastrophes and man-made disasters in 2019 according to Swiss Re, making this the most expensive year on record. This is a trend set to get worse as the consequences of climate change intensify.
New competitive and revenue opportunities
By applying an integrated approach to strategy, from business planning to creating new sources of revenue, members of the A4S Chief Financial Officer (CFO) Leadership Network have found that sustainability and profit are interconnected.
The global shift toward a sustainable economy also creates opportunities. Morgan Stanley’s recent research looked at data from nearly 11,000 mutual and exchange-traded funds between 2004 and 2018. It found that investing sustainably did not decrease financial returns compared to traditional funds but did have lower risk.[1] There is also increasing evidence of the link between sustainable business models and improved commercial returns.
[1] https://www.morganstanley.com/pub/content/dam/msdotcom/ideas/sustainable-investing-offers-financial-performance-lowered-risk/Sustainable_Reality_Analyzing_Risk_and_Returns_of_Sustainable_Funds.pdf
Innovation
Long-term integrated thinking helps finance teams to foster innovation by updating their business models, technology and processes.
Members of our networks have found that sustainability drives both organizational and technological innovations. For example, Royal DSM’s Eco+ products, created to meet sustainability challenges, outperform other areas of their business.
Improved employee development and retention
Valuing social and human capital and investing in people enhances business resilience and increases competitive advantage. Benefits include:
- Stronger stakeholder relationships
- Improved efficiency and Cost savings across the business as a whole
- Improved reputation
- Better access to, and retention of, staff
CFO Leadership Network members in Canada have recently published worked examples on integrating social and human capital accounting. Brookfield Asset Management found that 60% of their market capitalization was in their human capital, their staff being worth twice the value of the cost of replacing them.
Why A4S?
A4S combines technical expertise with broad reach within the finance sector. This means that we can provide guidance and convene senior leadership to inspire action, transform decision making and scale up.
A4S’s work is led by A4S network members – finance leaders who promote practical action for sustainability in their organizations.
A4S has a truly global network where our members can share best practice, get support from their peers and collaborate. We work with:
- CFOs and finance teams
- The global accounting community
- Investors, capital markets and the wider finance community
- Governments, regulators and policymakers
- Business schools and academia
Our CFO Leadership Network members operate in 190 countries, and our Accounting Bodies Network (ABN) represents two thirds of the world’s accountants.
