Treasury & Finance Executives Need to Incorporate Sustainability Into Their Roles. Here’s Why.

Nov 30, 2016

Craig Martin, Director, Executive Programs and Treasury Practice Lead, AFP

Corporate sustainability and social responsibility are no longer just something that sound good. Rather, they’re now front and center in corporate strategy—and even in risk management as well. So what does this have to do with corporate treasury and finance? Based on a new study by MMC Global Risk Center, Greenbiz and AFP—everything. The research culminated in a whitepaper that helps companies actually unlock growth by integrating sustainability.

The Risks

The forces of a changing physical environment present businesses with a wide array of strategic and operational risks:

  • Supply-chain disruptions caused by decreased availability of key resources
  • The loss of customers or vendors
  • Changing policy and regulatory regimes aimed at reducing the risk of climate change.

The Trends

Corporate risk profiles are changing under these environmentally-driven pressures and three associated trends:

  • The growth of responsible investing has led investors and credit rating agencies to focus on companies’ exposure to climate change impacts.
  • Growing requirements for disclosure on sustainable practices
  • Shifting customer preferences cascading through B2B and B2C supply chains.

Despite the significant implications and measureable financial, sustainability often has weak links to the corporate financial, risk and strategy agendas. Companies must identify, assess and respond to the strategic and operational risks and opportunities presented by this changing business environment. Those that do not may find themselves losing ground in an increasingly competitive global marketplace.

Three Key Actions

The study revealed there are key actions for both sustainability leaders and risk and finance leaders to help companies make progress:

  • Integrate sustainability into strategic planning and enterprise risk management (ERM) planning processes
  • Embed sustainability into financial modeling and risk assessment processes
  • Create a common set of terminology.

It is clear that sustainability issues will continue to affect businesses as extreme weather events, resource depletion and other related impacts present financial risks. Shareholders, investors, regulators and customers are demanding greater disclosure on the risks to a corporations’ long-term sustainability.

Finance and enterprise risk leaders must help their corporations financially assess and integrate sustainability-related initiatives to enable enterprise risk mitigation and capture competitive advantages. For their part, sustainability leaders must look to better integrate their efforts into corporate strategic and operational planning, financial modeling and enterprise risk management to help the corporation respond to evolving risks.