By Jennifer Black
Why finance professionals have a responsibility to help their organisations create resilient businesses and a more sustainable world.
Finance professionals have a big role to play in developing sustainable, resilient business models, says the Germany-based former CFO of sportswear manufacturer Adidas. But Robin Stalker, the New Zealander who headed the company’s finance team for 16 years, says the responsibility is not limited to those working in finance.
“It’s a challenge for all of us in our communities to take a much longerterm view on investment decisions, on choices that we make, and to put everybody in the position to really make the best choices.”
He says a holistic view is needed and finance leaders are in a position to help decision makers take a broader view.
“The focus just on short-term financial gains, or even to a certain extent on long-term financial performance, is no longer appropriate.”
While shareholders do need to get a good return over time, businesses must recognise that their long-term financial success is dependent on how stakeholders – including customers and employees – view success. Social and environmental issues also matter, and the finance function is in a unique position to drive understanding of this, Stalker says.
Stalker is a member of the CFO Leadership Network, part of The Prince’s Accounting for Sustainability Project (A4S). A4S was established by HRH The Prince of Wales to encourage finance leaders to drive a fundamental shift towards resilient business models and a sustainable economy. Network members – CFOs from large businesses – meet to look at ways of embedding environmental and social issues into business processes and strategy.
Stalker became involved after attending an A4S summit where he was inspired by the Prince’s suggestion it fell to the finance profession to value the cost of using and polluting water.
“So I was basically sold on the concept that ‘yes, there is something for finance here’,” he says.
It was also timely, occurring when Stalker was “getting Adidas’s finance department to look at things more holistically”.
“The interest in measuring our environmental footprint fitted nicely into the standards of engagement for manufacturing.”
Step change for marine pollution
Stalker says sustainability has long been embedded in Adidas’s business, something he credits to the company’s founder and its culture. And it doesn’t hurt that it helps keep the customer satisfied. While the basis of Adidas’s business is to serve athletes, Stalker says a significant number of its consumers are young and have a high awareness of sustainability matters. One practical measure the company has undertaken to show its commitment to sustainability is a collaboration with environmental group Parley for the Oceans, which raises awareness of marine pollution. Together they are producing trainers made from recycled plastic taken from the waters around the Maldives.
Each pair contains 11 plastic bottles and they plan to make one million pairs. Stalker admits the recycled plastic shoes are not commercially viable, but rather, one of many “trade-off decisions”. He says companies need to recognise that doing certain things that are good for the long term might mean compromising some of the short-term financial gains.
“But those are the trade-offs that we need to make visible and hopefully encourage our people to take for the right long-term reasons for the company.”
Holistic decision making
So how can CFOs embed resilience and sustainability into their organisations?
“This is part of our job,” Stalker says. “CFOs need to help management make decisions that secure the future of the organisation.”
He says this approach is not just about sustainability, it’s also about caring for the consumer, caring about employee engagement and ensuring decision-makers consider things holistically, beyond the short-term financials.
Therefore CFOs, who are in a position to take a holistic approach to decision-making, need to be aware of the implications and costs of using certain resources.
But this is not something the finance function can do alone, Stalker cautions.
“It really needs buy-in from the top of the organisation because you have to live this. If it’s just a matter of finance teams presenting some data that is not really used in decision-making, then it’s a bit of an academic exercise.”
Then comes the task of measuring or valuing these social and environmental factors, such as the cost of water, pollution and deforestation. Stalker says the accounting profession is charged with finding ways to value these factors and he believes an international standard is needed.
“There’ve been attempts by various organisations over the years to do this but we don’t really have anything like an international standard such as we would have with IFRS, and we should do.”
While he thinks this is an opportunity for finance professionals, it is also an obligation.
“Especially if you think of it from the position of a CFO or a leader of finance, we have to be leading this area. It’s as much a part of our strategic responsibilities as anything else we do because it’s all about securing the future and making sure we do have a good pricing mechanism for people to make the right sort of decisions, also in terms of environmental footprint.”
He says there are already a number of initiatives in place, including the Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD), founded and chaired by entrepreneur, philanthropist, and three-term mayor of New York City Michael Bloomberg.
The Task Force has developed voluntary, consistent, climate-related financial risk disclosures companies can use to provide information to stakeholders. Stalker says while disclosures are voluntary, the finance profession shouldn’t ever wait for regulation to do what is right.
“We need, as a finance profession, or as CFOs or leaders of the finance community, to basically start adopting it – or something similar to that – even if it’s not perfect at the moment, to get people used to reporting these nonfinancial KPIs.”
He says in order to be of value, KPIs need to be put in relationship to something so there’s a comparability over time and a consistency of approach. But people reading the reports might also find it useful to compare this information with benchmarks or with other organisations.
“And you can’t do that if we’re not all using the same standards.”
He says at its most basic, sustainability reporting creates awareness. The real power comes when people are all using the same sort of methodology and can show over time what is really happening, such as whether a company is really improving its performance and how it compares to its competitors.
He says it also helps decision makers “… because they know then that the consequences of their actions will also be more transparent to people beyond just their own individual organisation”.
CFO Leadership Network down under
Chartered Accountants ANZ (CA ANZ) has been a member of A4S’s Accounting Bodies Network (ABN) since 2008. The ABN has a joint membership of almost two million accountants from 176 countries.
CA ANZ is supporting A4S as it works to establish a trans-Tasman CFO Leadership Network. CA ANZ Ethics and Sustainability Leader Karen McWilliams FCA says the establishment of a chapter down under with members based in New Zealand and Australia would help increase understanding of the interdependencies between financial, social and environmental factors in the local finance communities.
“A4S is working with finance communities around the world to actively expanding its networks globally,” McWilliams says. “Its global focus ensures increased and more diverse knowledge-sharing and greater influence in shaping and embedding best practice.
“A trans-Tasman group will enable our local community to share and promote the work from other networks as well as add local perspectives to existing guidance.”
The invitation-only group of up to 20 participants will all be strong leaders both within their organisation, and in a personal capacity.
This article was originally published in the August/September 2017 issue of acuity.