Is finance going green?

Transcription

1 > Is finance going green? CFO perspectives on climate change and environmental sustainability A report prepared by CFO Europe Research Services in collaboration with ABN Amro

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3 > Is finance going green? CFO perspectives on climate change and environmental sustainability A report prepared by CFO Europe Research Services in collaboration with ABN Amro

4 Is finance going green? CFO perspectives on climate change and environmental sustainability is published by CFO Europe Research Services, 26 Red Lion Square, London WC1R 4HQ. Please direct enquiries to Jason Sumner at +44 (0) or CFO Europe Research Services is part of CFO Publishing Corporation, which produces CFO Europe magazine, and CFO titles in the United States, Asia, China and India. CFO Publishing is part of The Economist Group. September 2007 Copyright 2007 CFO Publishing Corp., which is solely responsible for its content. All rights reserved. No part of this report may be reproduced, stored in a retrieval system, or transmitted in any form, by any means, without written permission. SEPTEMBER CFO PUBLISHING CORP.

5 Is finance going green? CFO perspectives on climate change and environmental sustainability 1 Contents Sponsor s foreword 2 Introduction 3 About this report 3 Part 1 The greening of finance: 4 Principles and priorities Part 2 The CFO s role: 6 Risk or opportunity? Conclusion CFO PUBLISHING CORP. SEPTEMBER 2007

6 2 Sponsor s foreword A NEW CLIMATE How CFOs can tackle climate change Whatever your views on climate change, it s becoming an unavoidable business issue. Politicians, regulators and the general public are now convinced that something needs to be done. This recognition of the urgency of the issue is inspiring action by governments around the world. In Europe, we have the EU Emissions Trading Scheme the most significant climate policy in the world and the main mechanism for meeting the EU s Kyoto commitments. With hundreds of other initiatives being rolled out across the world, your business is likely to be subject to policies designed to meet climate change targets if not now, certainly in the future. Given the growing financial implications of climate change, we commissioned this report by CFO Europe Research Services to find out how the issue is regarded by senior finance executives. The results make for illuminating reading. Although the majority of respondents say they personally care about climate change, most don t currently rate it as a major business issue. By contrast, a recent industry survey revealed that the issue is near the top of the CEO s agenda. Our research suggests that senior finance executives need to prioritise the issue if they are to align themselves closely with their CEO. Indeed, we think CFOs have a key role to play in helping companies tackle the challenges and seize the opportunities of climate change. For example, they can help their businesses analyse and disclose their carbon risks, amid growing investor pressure for public disclosure. And they can ensure carbon is accurately priced into investment decisions something only one in three CFOs currently does. At ABN AMRO, we re proud of our record on climate change. We ve been working with clients to assess their exposure to different carbon regimes and changes in regulation, while exploring the opportunities of a low-carbon future. We believe that combating climate change and managing a successful business can and must go hand in hand. That s the vision we re committed to achieving. Anne Boden Head of Transaction Banking Europe ABN AMRO SEPTEMBER CFO PUBLISHING CORP.

7 3 Introduction Say the word green to CFOs and they re more likely to think about the colour of money than protecting the environment. Mention sustainability and they ll tell you about their plans for long-term growth, not cutting carbon emissions. That, at least, is the conventional wisdom. The research for this report shows otherwise. According to our survey, not only do Europe s CFOs believe climate change is one of the most important issues facing the world, they think their companies should be doing more to address the challenge. For some finance executives, these findings aren t surprising. Those working in highly scrutinised and heavily regulated sectors such as oil, chemicals, mining or manufacturing bought into the importance of environmental awareness long ago. What s more, the CFOs in these sectors, by carrying out traditional duties such as risk assessment, cost control and ROI analysis, have found ways to ensure that attention to the environment is profitable at the same time. Are CFOs in other industries now doing the same? Our survey suggests that they are concern for the environment and climate change cuts across industries. However, although a majority of finance executives in our survey believe more action is required, only a few are > About this report In July 2007, CFO Europe Research Services, a unit of CFO Publishing and part of the Economist Group, launched a sponsored research project with ABN Amro asking senior finance executives about their views on environmental sustainability and climate change. The report is based on the results of a survey of 150 senior finance executives across Europe, from a variety of sectors. CFO Europe Research Services and ABN Amro developed the hypothesis for this research jointly. ABN Amro funded the research and publication of our findings, and we would like to acknowledge the ABN Amro team for their input and support. Jason Sumner, research editor of CFO Europe Research Services, managed the project and wrote the report. We would also like to thank the finance executives who took the time to share their views with us. converting those thoughts into action inside their organisations. Moreover, while they believe the public attention on climate change and the environment presents commercial opportunities, they are unsure how to help identify them. This report will explore the gaps between beliefs and action, and examine some possible reasons behind them. It is divided into two parts. Part 1 looks at finance executives attitudes towards environmental sustainability and climate change, and the key drivers for environmental action. Part 2 examines the CFO s role. Do they want to be more involved in decisions about environmental sustainability and where can they contribute the most? 2007 CFO PUBLISHING CORP. SEPTEMBER 2007

8 4 Is finance going green? CFO perspectives on climate change and environmental sustainability PART 1 The greening of finance: Principles and priorities Overview: CFOs think climate change is an important issue facing the world. Fewer believe climate change is important to their sector, but a majority want their companies to take more action to address the issue. When it comes to paying more attention to the environment, respondent company boards are split. About half have paid more attention and the other half continued to pay the same amount of attention. Public reputation, customers and employees are the biggest drivers for environmental sustainability. There is an element of not in my backyard in the way our survey respondents think about climate change. While more than three quarters say climate change is an important issue facing the world, only a third believe it is one of the most important issues in their sector. (See Chart 1.) But either way, more than half of the respondents want their companies to take more action on climate change. A quarter of respondents have no opinion, while a fifth do not feel their companies need to take action. < Chart 1 - To what extent you agree or disagree with the following statements. to environmental sustainability and climate change. (See Chart 2.) The issues were separated to see if there were any differences between how much attention was being focused on environmental sustainability as a whole, and climate change in particular. The results are nearly identical for each category, suggesting that most respondents see the issues as very closely related. > Chart 2 - Compared with a year ago, how much attention does your company's board of directors pay to the company's impact on environmental sustainability and climate change? Significantly more attention More attention The same amount of attention Less attention Significantly less attention 1% 1% 1% 1% 11% 14% Impact on climate change Impact on environmental sustainability 39% 40% 48% 44% A majority of companies boards are paying more attention to the environment, but only a few are paying significantly more attention. Almost half report no change, Climate change is one of the most important issues facing my sector 7% 24% 35% 27% 7% < Chart 3: Who (or what) are the most influential drivers behind your company s approach to environmental sustainability? Climate change is one of the most important issues facing the world My company should do more to address climate change 1 Strongly disagree 2 Disagree 4% 5% 12% 38% 41% 4% 17% 26% 41% 12% Neither disagree nor agree 4 Agree 5 Strongly agree What about the companies they work for? We asked whether boards of directors have paid more attention Shareholders 11% 15% 11% Customers 24% 24% 16% Employees 13% 15% 16% Reputation with the wider public 26% 16% 19% Ethical investors 1% 2% 2% Corporate banking policies 1% 0% 2% Board of directors 15% 10% 10% Corporate communication/pr department 1% 3% 9% Environmental activists 1% 4% 6% Industry peer pressure 7% 11% 9% SEPTEMBER CFO PUBLISHING CORP.

9 5 which could indicate inaction, or perhaps the fact that some industries have been addressing these issues for several years already. Who s spurring them on? Our respondents reckon it s customers, employees and the wider public. (See Chart 3.) More than half of respondents chose either customers or the public as their number one driver for environmental action. Almost half say employees are either first, second or third most important factor in environmental decisions. The board of directors and shareholders follow close behind, but overall the results show that the strongest drivers in environmental strategy are external. stretches so far, however most respondents either don t have an opinion or disagree that they have any influence. These percentages were confirmed when we asked whether respondents companies consider the repercussions on their carbon footprint when assessing new investments. (See Chart 5.) A third said they consider it, a third do not and a third weren t sure. < Chart 5 - To what extent you agree or disagree with the following statements. When evaluating investments, my company considers the project s potential carbon footprint 10% 24% 33% 30% 3% < Chart 4 - To what extent you agree or disagree with the following statements. The financial markets reward companies that limit their carbon footprint The financial markets reward companies that take environmental sustainability seriously 2% 1% 28% 39% 30% 2% 5% 26% 32% 35% Strongly disagree 2 Disagree 3 Neither disagree nor agree 4 Agree 5 Strongly agree We asked which activities are in place to reduce respondent companies carbon footprint. Recycling, reducing paper and energy conservation are the most popular. Far fewer have policies in place to reduce air travel or audit suppliers for environmental friendliness. Fewer still have taken a carbon neutral pledge. 1 Strongly disagree 2 Disagree 3 Neither disagree nor agree 4 Agree 5 Strongly agree > Chart 6 - Does your company have any of the following policies in place to reduce its carbon footprint? Air travel reduction 20% One respondent saw a chance to gain a competitive edge on rivals. We need to be doing as much, if not more than our competitors to show we are an active, forward-thinking company. Of course regulation has an impact too. Said one respondent: Unfortunately we would not be paying too much attention if industry regulators were not making changes compulsory. Recycling Energy conservation Supply chain audits to source from environmentally friendly suppliers Paper use reduction 19% 52% 55% 73% Do the financial markets have any influence? It would seem so, with 40% of respondents agreeing that their companies are rewarded for taking environmental sustainability seriously. (See Chart 4.) Fewer agree that rewards await those companies that lower their carbon footprint. That influence with the financial markets only Carbon neutral pledge Other (please specify) 9% 9% (% answering yes percentages do not add up to 100%) 2007 CFO PUBLISHING CORP. SEPTEMBER 2007

10 6 Is finance going green? CFO perspectives on climate change and environmental sustainability PART 2 The CFOs role: Risk or opportunity? Overview: CFOs said globalisation, compliance and a predicted skills shortage are more important long-term issues than the environment. For a third of respondents, climate change will have a positive effect on their companies financial performance, and a further third see no effect. Most CFOs think they are adequately involved in environmental decisions, yet a third want to be more involved. Respondents feel they can contribute best in the areas of risk assessment, linking environmental strategy to metrics, identifying cost-cutting measures and calculating ROI. About a third of respondents own or audit their companies environmental reporting. Despite believing in the importance of environmental sustainability, finance executives say four issues will affect the company s long-term financial performance more managing globalisation, addressing the skills shortage due to an aging workforce, risk management, and compliance and regulation. (See Chart 7.) Only 5% of respondents say it is the number one long-term issue affecting future financial performance. About 10% rank it second and about a fifth rank it third. < Chart 7 - Of the following list, what are the three most important long-term issues affecting the future financial performance of your company? Skills shortage due to an aging workforce 22% 16% 18% Managing pension deficits 4% 1% 4% Managing globalisation 31% 19% 10% Compliance and regulation 16% 29% 23% Managing the company s impact on 5% 11% 18% environmental sustainability Risk management 22% 24% 27% This reflects respondents mixed views about the actual effects of climate change on future financial performance. (See Chart 8.) Three-quarters of respondents believe climate change currently has no effect on financial performance. Asked to look five, 10 and 20 years in the future, a third of respondents believe climate change will have a positive effect. In the next 10 and 20 years, a third believe it will have no effect, and a third think it will have a negative effect against fewer than 10% now. < Chart 8 - What effect do you think climate change has and will have on your company s financial performance. (Select one.) 1 Negative effect 2 No effect 3 Positive effect Currently 9% 75% 16% Next 5 years 20% 49% 31% Next 10 years 31% 35% 34% Next 20 years 36% 30% 34% Indeed more than half of respondents believe there are new commercial opportunities opening up as a result of the public interest in sustainability and climate change. (See Chart 9.) < Chart 9 - To what extent you agree or disagree with the following statements. There are new commercial opportunities for my company as a result of climate change There are new commercial opportunities as a result of the public interest in sustainability 6% 5% 17% 1 Strongly disagree 2 Disagree 3 Neither disagree nor agree 25% 38% 16% 20% 39% Agree 5 Strongly agree 14% 20% Where does finance fit in? A third of finance executives want to be more involved in decisions about sustainability policies. (See Chart 10.), although most believe they are already adequately involved, and only a handful said they are too involved in these decisions. Where can finance contribute the most to environmental sustainability policies? Half believe they are best SEPTEMBER CFO PUBLISHING CORP.

11 7 > Chart 10 - At your company, how involved is the finance function in decisions about environmental sustainability policies? Too involved Adequately involved Not involved enough 1% 37% 62% Many are influencing their companies environmental reports. (See Chart 12.) Although 40% of respondent companies don t report on their environmental performance, a third of respondents say they are involved in their companies report in some way, either as owner or auditor placed to contribute core finance skills, such as risk assessment or linking the environmental strategy to financial impacts. (See Chart 11.) Nearly one in five say identifying cost-cutting measures is the biggest contribution they can make. Few say they are best placed to identify new, green products. < Chart 11 Select the three areas of your company s environmental sustainability policy can the finance function contribute the most? > Chart 12 - Which statement best describes the finance function s involvement in environmental reporting? Finance owns responsibility for the report Finance audits the report The company does not report on its environmental performance Don t know Other (please specify) 13% 13% 15% 20% Risk assessment 27% 10% 12% Supply chain auditing 8% 10% 8% Environmental report auditing 6% 6% 10% Linking environmental strategy to impact 25% 16% 12% on financial returns through metrics Identifying environmentally friendly 18% 21% 13% cost-cutting measures (electricity usage, paper, petrol, etc) Assessing the potential profitability 6% 13% 19% of new, green products Calculating return on investment for 10% 24% 26% environmental policies 39% Conclusion We ve seen from the research in this report that CFOs take the environment and climate change seriously. They feel their companies must do more to address the issue, and they know it s one that resonates with customers, their employees and wider public. This is a far cry from conventional wisdom that says finance is the naysayer when it comes to environmental and other corporate social responsibility initiatives always demanding strict business cases for what are notoriously intangible returns. Our survey shows that even if those stereotypes had currency in the past, they aren t justified today. Finance executives can be and want to be partners in setting environmental strategies, lending their expertise and gravitas to areas once thought restricted to the soft arts of marketing and communication. There is still work to do though. Yes, CFOs are remarkably upbeat about the effects of climate change, many believing it will have a positive effect on the future of their company 20 years hence. And they also foresee the potential for new products and services to satisfy the public s concern. But this research shows they perhaps aren t as confident about their ability to help identify those new opportunities. As the environment gets ever more attention at board level, CEOs will be looking to the management team for innovation. Environmentally-aware CFOs, with their view across the entire organisation, are well placed to provide it, and in turn boost their department s sphere of influence and provide a springboard to leadership positions beyond finance CFO PUBLISHING CORP. SEPTEMBER 2007

12 CFO Europe Research Services: CFO Europe Research Services is a sponsored research group within CFO Publishing Corporation, which produces CFO Europe magazine, and CFO titles in the United States, Asia, China and India. CFO Publishing is part of The Economist Group. ABN AMRO ABN AMRO Transaction Banking delivers cash, trade and supply chain, and card products and services to corporations and businesses, financial institutions, retail customers and private clients globally. These services are available in some 3,000 locations in more than 50 countries. Underpinning this extensive global network is integrated technology supporting billions of payment, trade and card transactions every year. Global scale, a commitment to continuing product and service innovation and an in-depth understanding of local and global markets are key components of our offer. For more information, contact: Anne Boden Head of Transaction Banking Europe ABN AMRO Tel: +44 (0) transaction.banking@nl.abnamro.com