Corporate sustainability programs can impact the bottom line, so it’s no surprise that chief financial officers are taking note and getting involved.
According to a recent Ernst & Young/GreenBiz Group report, “Six Growing Trends in Corporate Sustainability,” CFOs have likely taken bigger roles because fiscal issues such as cost reduction and risk management topped the lists of most sustainability agendas.
In the report, 74% of responding companies said cost reduction was a “key driver” in their sustainability plans, while 61% said managing risks was a leading motivator.
In the past, many employees involved in sustainability came from health and safety wings, but that changed once companies realized its strategic importance, said Jeff Hollender, board chair for the American Sustainable Business Council (ASBC).
The council, based in Washington D.C., is an advocacy organization comprising of 46 trade associations that represent more than 100,000 businesses.
Hollender said sustainability is “critically related” to a company’s financial performance.
According to the report, 80% of respondents said “new revenue opportunities” are driving sustainability initiatives.
“Businesses from a strategic perspective need to start thinking about sustainability in a completely different way than they have in the past,” Hollender said. “Today, sustainability is becoming a strategic issue. The absence of a sustainability strategy could have huge affects on a company’s financial performance, just as a good strategy can have very positive effects.”
The study found six trends:
— Sustainability reporting is growing, but the tools are still developing.
— The CFO’s role in sustainability is on the rise.
— Employees emerged as a key stakeholder for sustainability programs and reporting.
— Despite regulatory uncertainty, greenhouse gas reporting remains strong and there is growing interest in water usage.
— Awareness is on the rise regarding the scarcity of business resources.
— Rankings and ratings matter to company executives.
According to data, 76% of those surveyed said natural resource shortages will “affect their core business objectives” in the next three to five years.
Hollender said it’s difficult to understand why only 75% would say that when virtually every business has been impacted in some way by commodity costs such as fuel prices.
“If anything, that’s understated. I would say that natural resources issues are already affecting every company,” he said. “[When] you look at the fluctuation of oil and gas prices, almost every business is going to be impacted by the huge fluctuation. Most companies have something that is shipped from one place to another, whether it’s an executive on an airplane or products on a truck.”
Publicly disclosing water usage is also growing in popularity, particularly in water-intensive fields like mining, agriculture, chemicals and power. In the report, 62% of respondents say their companies report water usage.
When it comes to dealing with water resources, the Chinese are at the forefront.
Hollender said the country is investing billions into water purification and desalination processes. China also invests 12 times more than the U.S. in alternative energy.
“A bottle of water costs more than gasoline,” Hollender said “We’ve entered an area where water scarcity is an increasingly significant driver for business.”
Despite continued economic uncertainty, 53% of companies surveyed said they will increase sustainability funding in the coming years. Hollender said companies that earn strong sustainability ratings can promote itself as green.
“It’s smart business strategy,” he said. “I would say that the companies that aren’t doing that will pay the price. From my perspective, you can’t afford not to have a sustainability strategy. It’s bad business.”