CFOs' Roles Expand as Social and Environmental Pressures Mount

NEW YORK, Aug. 24, 2011 /PRNewswire/ -- Chief Financial Officers (CFOs) have greater reason to be directly involved in their companies' sustainability efforts as investors, customers and other stakeholders draw a stronger connection between sustainability and financial performance, according to a new report from Ernst & Young LLP, How sustainability has expanded the CFO's role. Given the stronger risks and opportunities around environmental, social and governance (ESG) issues, the report discusses how the CFO's role is evolving in three areas including: investor relations, external reporting and assurance, as well as operational controllership and financial risk management.

Most recently, increased pressure for CFOs to understand and engage in the measurement and management of environmental and social performance has come from institutional investors and equity analysts – particularly as ESG information becomes more accessible. Currently, more than 300,000 Bloomberg terminals around the world provide corporate sustainability information such as emissions data, figures on energy consumption, corporate policies and board composition. Additionally, a recent Ernst & Young study reveals that social and environmental resolutions comprised 40% of all shareholder proposals in 2011 up from 30% in 2010. Average voting support for these proposals more than doubled since 2005 from 10% to 21% in 2011.

"Companies that conduct financial and sustainability practices in silos could miss out on business opportunities and proactive risk management. Increasingly, a company's sustainability story is being heard and read by the same stakeholders who read its annual report. Furthermore, the line between accounting records and sustainability records has begun to blur. These factors are creating a need for CFOs to incorporate sustainability thinking into their regular activities," commented Steve Starbuck, Americas Leader of Climate Change and Sustainability Services, Ernst & Young LLP.

The paper outlines five actions CFOs can take to enhance corporate value through sustainability. They include:

1. Actively pursue sustainability and reporting program. Increasingly, companies recognize that implementing procedures to measure, monitor and report on sustainability issues helps them create value, reduce uncertainty about future cash flows and profitability, and enhance their reputations.

2. Ensure those responsible for sustainability matters do not operate in isolation from the rest of the enterprise — especially the finance function. The financial organization, through its accounting system, must provide the sustainability function with timely, accurate and complete information.

3. Enhance dialogue with shareholders and improve disclosure in key areas, particularly those related to social and environmental issues. Robust sustainability reporting can help with this.

4. Ensure that directors' skills are relevant to the chief areas of stakeholder concern, including risk management tied to social and environmental matters. In particular, companies must communicate about these issues with shareholders.

5. Consider using nontraditional performance metrics, including those related to environmental/sustainability issues. Doing so could help align compensation with risk. In addition to financial metrics, performance goals should align with an environmental strategy, including clearly defined metrics for energy efficiency, water usage and carbon emissions.

To read the full report and learn more about Ernst & Young's Climate Change and Sustainability Services, visit www.ey.com/climatechange.

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SOURCE Ernst & Young