Now more than ever, corporate America is recognizing its responsibility not just to customers and stakeholders but to the planet itself. This blog post will explore how sustainability is transforming the world of finance and provide tips for “green” initiatives that can also improve your bottom line.
How Sustainability Is Changing Finance
The drive toward sustainability is changing the operation of many sectors, including the world of finance. Here are three trends that are reshaping the way companies operate.
The Adoption of ESG Criteria
Recent years have seen the rise of Environmental Social Governance (ESG) criteria that place a greater priority on workplace culture, corporate ethics, and environmental initiatives.
This shift has pushed financial leaders to pursue greater transparency in how they manage their assets. It has also encouraged them to invest in projects and programs that reduce the company’s carbon footprint.
The Impact of Stakeholder Activism
In 2021 alone, the amount of money invested in ESG-related funds rose by 51%. Stakeholders are eager to invest in companies that share their values.
Adopting ESG criteria and other environmentally sustainable measures can be a way for companies to showcase their ethical commitments and even give themselves an edge over their competition.
The Rise of Sustainable Finance Educational Programs
Sustainable finance has become a field unto itself, and major institutions like Columbia University are introducing programs focused on sustainability management.
It’s likely that companies will continue to look for finance professionals with a background in sustainable finance or experience in ESG criteria. This will also create demand for those familiar with regulatory issues surrounding ESG reporting, tax credits, and other requirements.
How to Pursue Sustainability in Finance
Finance executives can play an important role in bringing the corporate vision and values into greater alignment. Here are some proven ways that companies can pursue sustainability through finance and build a greener bottom line.
Invest in New Technology
New technologies have made it easier for businesses to reduce their environmental impact. Alternative fuel delivery trucks will soon become the norm in last-mile delivery, which lowers a company’s carbon footprint.
Other businesses pursue green energy solutions, such as using LED lighting in the workplace or even designing their workspaces to accommodate more natural light. And others are investing in things like wind farms or solar technology to satisfy their energy needs while reducing their reliance on fossil fuels.
Cut Costs and Boost Efficiency
CFOs and controllers can also play a role in adapting business processes that cut costs while boosting efficiency.
Going digital, for example, can reduce the amount of paper a company goes through, though this is only a start. Automated tools can make your core processes faster, smoother, and less wasteful — all of which can reduce your impact on the planet.
Additionally, AI-powered logistics tools can ensure that your shipping and distribution routes are optimized for maximum speed and fuel economy.
Finance executives can promote these measures by demonstrating the ROI of each initiative, helping other senior leaders become early adopters of environmentally friendly, cost-saving technologies.
Pursue Sustainable Investments
Sustainability isn’t just about what a company does within its own walls — it’s also about the ways it invests its money in other companies and around the world.
For example, many companies are pursuing sustainable investments that include Sustainable Foreign Direct Investments (SFDIs), where the company devotes a portion of its fund to a developing nation. This allows American businesses to contribute to the U.N.’s 2030 Sustainable Development Agenda (SDG).
The SDG contains a total of 17 goals, and companies can support these goals by investing in vehicles such as SDG bonds. Again, finance executives have a direct role in the way company resources are allocated, which means that CFOs and controllers can have tremendous influence over the ways businesses contribute to global climate initiatives.
And because these are investments, financial professionals can also monitor the ROI to demonstrate the practical value of these investments to company stakeholders.
Create a Culture of Transparency
The push toward ESG criteria has been a positive one, but accusations of “greenwashing” abound. The SEC is even placing companies under greater scrutiny, cracking down on businesses that make misleading claims about their sustainable initiatives — usually to sway public opinion or boost revenue.
Controllers and CFOs can work to build a culture of transparency, giving stakeholders and regulatory agencies access to their financial activities, especially regarding ESG initiatives.
This level of transparency is already a goal of ESG, and by building a more ethical corporate culture, finance executives can nurture shareholder trust and loyalty.
What Is the Future of Sustainable Finance?
The future will likely see an expansion of ESG criteria as well as a reconfiguring of finance departments to address these priorities. Existing financial professionals will see an increased emphasis on ESG concerns baked into their continuing education requirements.
But this also shows a shift in corporate thinking. Increasingly, company leaders are not only concerned about their bottom line but are also committed to creating solutions for a better world.
Additional Resources
Bringing Data into ESG Reporting Initiatives
How Corporate Finance Can Plan for Increased and Continued ESG Pressure
