Sustainability and CSR (Corporate Social Responsibility), if practiced properly, can have profound P&L and balance sheet benefits. Which is why Finance Directors everywhere should positively encourage it.
When it comes to sustainability and CSR, there’s a tendency to overlook the bottom-line benefits that businesses can accrue.
However, implemented properly, environmentally sustainable and socially responsible business practices can lower costs in many areas, help grow sales, and boost profits along the way.
Firstly, by adopting and embedding sustainability principles, you’ll get more out of less. Conserving natural resources and consuming less energy, whilst minimising waste and maximising recycling, all provide environmental benefits at the same time as shrinking direct and indirect costs. It can also make you more resilient to commodity price spikes.
Secondly, research shows that businesses with a strong sustainability and CSR commitment are able to recruit and retain better motivated and more productive people, keeping staff turnover down and suppressing HR costs.
And, thirdly, it can help differentiate you from your rivals in a world where customers (B2C and B2B) are increasingly demanding high environment, social and governance standards from their suppliers – helping you to win more sales.
The role of the Finance Director in sustainability and CSR
Finance Directors have a strong role to play in putting sustainability and CSR at the heart of organisational strategy.
Charged with ensuring that company finances remain in good health, they have wide ranging powers of oversight across all aspects of their business. This means they are uniquely positioned to influence the extent to which sustainability and CSR is embraced and embedded.
Selling it to the Board shouldn’t be difficult either: Finance Directors should be better able than most to clearly articulate the business case and potential ROI of sustainability and CSR strategies.
And make no mistake, the ROI can be substantial. A recent project in the US found that companies with a strong commitment to responsible business can achieve equally strong financial results. Drawing its conclusions from an analysis of over 300 studies, Project ROI found the potential financial benefits include: being able to raise revenues by as much as 20%; being able to charge a price premium of up to 20%; being able to avoid revenue losses of up to 7% of a firms market share; being able to reduce staff turnover by up to 50%; being able to increase staff productivity by up to 13%; and being able to increase employee engagement by up to 7.5%
Case Study – Tesco plc
According to its 2014 annual sustainability report, energy efficiency measures implemented progressively since 2006 mean that Tesco is now saving £280 million a year in energy costs.
That sounds impressive enough as it is, and a result any Finance Director would be pleased to see.
But think about it this way too:
According to its 2014 published accounts, Tesco booked operating profits of £2.25 billion on sales of £63.5 billion, giving an operating margin of 3.38%
In order to have the same bottom-line impact as a £280m a year energy saving, Tesco would need to find additional sales of £8.28 billion. Given the intensity of competition in the retail grocery market, especially as Aldi and Lidl continue to gain market share, it’s highly questionable whether such a significant double-digit boost to sales could ever be achieved – making that multi-million £ saving even more impressive.
The Tesco experience clearly illustrates how environmental and sustainability goals (saving carbon emissions through energy efficiency measures) can translate directly into tangible growth in profits – even without growth in sales.
What Finance Directors should be doing to promote sustainability and CSR
There is a whole raft of things that Finance Directors can do to ensure that sustainability and CSR moves from the margins to the mainstream in the boardroom. Doing so can help avoid the problems of disconnect discussed by Lord Browne recently.
Here are our top tips to getting started:
1. Put it on the agenda. Make sure sustainability and CSR performance features in discussions alongside sales, operations and finance.
2. Review your current performance and use that to identify areas for improvement.
See also: Measure It with our unique maturity model
3. Report on progress. Produce an annual report that highlights your sustainability and CSR progress, but be sure to include financial performance measures too – to begin with, this could even just be an addition to your annual accounts.
Finance Directors have a crucial role to play in ensuring the long-term financial viability of the companies in which they work. Sustainability and CSR increasingly have a part to play in securing that, which is why Finance Directors should come to love it.
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