As companies seek to align their business practices with sustainability goals, chief financial officers are uniquely positioned to facilitate that transformation.
CFOs are accustomed to integrating data across their organizations to analyze and report on business activities and risks for myriad stakeholders. Their team will play a larger role in ESG reporting, particularly in order to implement regulations such as the European Union's Corporate Sustainability Reporting Directive. The Directive requires companies to disclose their sustainability risks and what they are doing, or the reasons why they choose not to do, to address them. So.
Finance teams are also essential in developing climate change plans that outline how companies plan to transition to net-zero business models, and in particular how they plan to fund those changes. . For example, banks such as Barclays and HSBC have stopped funding certain fossil fuel projects and are asking energy sector customers for more information about their transition plans.
Here are three other ways CFOs can significantly impact sustainability performance at little or no additional cost to their organizations.
Utilize Treasury funds to finance the net-zero transition
Non-financial companies had about $6.9 trillion in cash and liquid securities on their balance sheets as of November, according to Barclays. Every dollar a company holds in the bank impacts the climate, whether positive or negative. When companies put cash in banks, banks use that cash to lend to other companies, including fossil fuel companies.
As an example, Meta had approximately $48 billion in cash and investments on its balance sheet as of 2021. Using what they say are conservative measures, the three environmental groups estimated Meta's “financial emissions” (emissions generated from investment and financing activities) at 4,543 kilotonnes. Equivalent to carbon dioxide. This was 12 percent higher than the 2020 emissions reported by Meta.
Deposits do not have to be the cause of negative sustainability impacts. Unilever and L'Oréal are both working with BNP Paribas to ensure that their deposits are only used to finance energy transition activities and projects that support the United Nations Sustainable Development Goals.
HSBC, Citi and BMO have also launched services that allow business customers to use their surplus funds to finance projects such as renewable energy and affordable housing. Customers can receive their deposits on more favorable terms if they meet predetermined sustainability goals.
Update your retirement plan
Funded emissions associated with employer-run retirement programs are not typically measured in corporate carbon footprint reporting. Future updates to the Greenhouse Gas Protocol, a widely used accounting and reporting standard, could dramatically impact what is reported. As of August 2022, Mercer found that emissions from funds from a company's 401(k) plan averaged 33 times more than direct emissions.
Employer-based “defined contribution” retirement programs, including 401(k)s, held $9.9 trillion as of September. Of that, $6.9 trillion is invested in mutual funds, and these plans are an important source of funding for many companies. This means that companies that offer retirement plans to their employees can wield significant influence and push their funds toward sustainable financial practices.
One way employers can do this is by selecting sustainable funds that employees can choose from within their 401(k)s. Examples include the Green Century Equity Fund, which uses negative screens to block investments in producers of weapons, tobacco, oil, coal, etc. and the Sphere 500 Climate Fund, which avoids investing in fossil fuel companies and votes in favor of climate action with its holdings.
Invest your premiums sustainably
Insurance companies are big players in capital markets because they receive premiums upfront when they sell insurance policies and invest that money until they need to pay out claims.
In 2019, insurance companies held more than $5 trillion in fossil fuel investments. Premiums for the Planet is a membership organization looking to change that calculus.
When a company joins Premiums for the Planet, their existing insurance coverage will be transferred to a “climate-friendly” broker. That is, we do not provide services to projects that expand fossil fuel activities.
Existing members include bag and accessories maker Peak Designs, sunglasses maker Sunsky, and snowboard equipment maker Burton. As more companies join Premium for the Planet, their collective bargaining power will increase. The goal is to further increase the influence of Premiums for the Planet on the group's insurance companies, require them to invest their premiums in climate change projects, and increase the ability to finance and insure the expansion of the fossil fuel industry. The purpose is to prevent the provision of
David Anhalt, chief financial officer of Peak Design, said in his testimony that the decision to enroll in Planet Premium was “a natural one,” adding that even if the company chose this path, it would not be insured. It justified the group's claim that there would be no additional cost to businesses.
