The CFO as Challenger and Driving Force

The CFO as Challenger and Driving Force
How do you include sustainability in the financial management of an organization? How do you deal with the tensions between short-term results and long-term goals, and how quickly can you become more sustainable? These are questions that every CFO needs to deal with. The experts at our roundtable shed light on financial management for a sustainable future. Determining the pace at which to proceed is where the CFO should lead the way.

Asked about the most important ‘sustainability’ achievement on her resume Claire Dumas, CFO of NIBC Bank, does not need long to consider. 'I once made sure that meat croquettes disappeared from the restaurant of ABN AMRO Hypotheken in Amersfoort,' she says with a laugh. Partly thanks to her - 'and with the help of RTL weatherman Reinier van den Berg, who has impressive information on the state of the climate and what the individual’s contribution can be ' - the company restaurant became vegetarian. The other roundtable participants also adopted the sustainability theme. Hans Janssen of dairy cooperative FrieslandCampina, in whose office the conversation is taking place: 'Many new themes that were not around when I was studying, emerged during my career. Sustainability is one that is compelling. It simply makes me extra enthusiastic.'
Walter Bien of network company Alliander: 'I strongly believe in a statement I once read: we are the first generation to notice the effects of climate change and the last generation that can really do something about it. For me, that is a personal motivation.' To all three, sustainability is part of the job. Janssen: 'Sustainability is an integral part of our business operations, it acts as driver in all business decisions we take.' Bien: 'Sustainability is at the heart of our primary process. Through the energy transition, we in effect deliver sustainability.' Dumas: 'We finance our clients and they all are in the process of dealing with sustainability, for example by making their homes or their offices more sustainable.'  In a discussion under the chair of Alexander Tamminga, partner at strategic consulting firm Kearney, the CFOs further explore this theme.

To what extent do you experience tension between longer-term sustainable investments and short-term targets?
‘There most definitely are tensions. At the end, they all present dilemmas. The energy label of a home is a good example of that. Many mortgage lenders offer a discount on the mortgage for an A-label home. But the question is whether this is the best long-term contribution to the energy transition. It could perhaps be far more effective to encourage G-label homes to be upgraded to C-label sustainability, through a form of discount. That would ultimately have far greater impact but may be less attractive financially.'
Janssen: ‘Our members/dairy farmers all want to become more sustainable. All of them are aware too that this is a necessity, but it will have to be achieved through a sustainable revenue model. They need to be able to survive. We as a company can support this, for example by offering extra compensation for sustainable investments. Fortunately, our major industrial customers, such as Danone, Nestlé and Mars, are all also engaged with the issue. They are also, by and large, willing to bear the costs for that sustainability effort.’
Bien: ‘The sustainability agenda triggers discussions that were not taking place in the past. A current example is the supply of electricity to the Wadden Islands. They experience a huge energy demand and, viewed in a traditional way, an extra power cable should be laid. We started discussions with the various Wadden Sea municipalities and the province of Friesland about the impact on livability, accessibility and ecology. At the moment we are jointly carrying out a number of studies to see what possibilities there are for continuing to meet the energy demand while also keeping an eye on the above three themes.'

But this process presumably demands more time, effort and difficult conversations...
‘That is true. The stakes are high, with many different stakeholders, different perspectives and different opinions. It starts with making the issue or challenge clear to everyone, that you remain fully transparent about it and include all stakeholders in the conversation. Ultimately, that way you also get a better assessment.'
‘That is where I see an important role for the CFO: to get insight into what the dilemmas are. To make it transparent. We constantly encounter these double propositions. For example, our cans of condensed milk, which we sell in enormous quantities, especially in Asia and Africa, are perfectly recyclable. That is great. But they score very badly in terms of CO2 emissions, as, to make them, aluminum is needed. The CO2 footprint can be diminished by changing the packaging, but immediately the score on recyclability worsens. A CFO needs to make these kinds of trade-offs intelligible.’

Is it not difficult to keep all stakeholders happy?
Keeping all stakeholders happy is also a bit much to ask. In our case, for example, provinces and municipalities are important customers. And they are resolute about sustainability. Our shareholders are also critical to the implementation of our strategy. I see broad support there. It is different with consumers, sometimes. For consumers, an appropriate financial incentive remains important.'
'There are also major differences in the regions of the world. Nitrogen, for example, seems to be a typically Dutch problem. It does not, or hardly, plays a role in Asia. Even CO2 emissions are less of a problem there. In Asia and Africa, on the other hand, recyclability of packaging is an important issue. Just as is food security. All Asian and African countries want to produce more milk themselves to not in future be dependent on other countries. But the milk produced there usually has a much higher footprint than milk from, say, the Netherlands. That too is a dilemma for us.'

To what extent do you work together with your chain?
'For us, the chain is very important. It helps that, partly due to European regulations, the entire chain is becoming transparent. Everyone in our chain has made commitments. We can assist and accommodate each other. When we buy cocoa or sugar, we are co-responsible for the emissions of those companies. Fortunately, those companies themselves are also working on these issues. So, the chain does help each other.’
Dumas: 'We as sector work together extensively, with our competitors. In the field of mortgage lending standards, for example, to be able to give some leverage to customers who want to make their homes more sustainable. We as a sector want to collaborate to make the transition possible. It would be ridiculous that when a street converts away from gas, for instance, the customer would be able to secure a mortgage with one lender but not with another.
But the fact remains that if we really want to make progress, we need the government. For example, in the Netherlands there will be a government rental ban on homes with energy labels E, F and G from 2030. Those kinds of measures have a noticeable impact on accelerating sustainability.’
Bien: 'This can only be done by working with the chain. We are enormously dependent on it and through doing so immensely much can be achieved. Energy poverty is an important issue to us. We saw customers getting into trouble because of the rising energy prices. We started a project with the municipality of Amsterdam to identify payment problems at an early stage, thereby preventing consumers from ending up in debt restructuring.'

In the end, someone needs to foot the bill for all these investments...
‘Moving toward greater sustainability, will, in the medium term, lead to higher prices. We need to be honest about that. And transparent. We are all familiar with the concept of true pricing. We need to get there. It will cost money, but in return we will have a healthier planet.'
Dumas: ‘The business case can support this. When the energy price went up, we did a survey among our customers which showed that a large proportion of the customers took measures in reaction to the higher energy prices. For example, by insulating their homes better. Very few people acted out of pure ideological considerations. So, making products that are harmful to the climate more expensive, can help to change customer behavior.'

As a CFO, what do you need from the government?
‘Clarity, above all. Clarity and a consistent policy. We make business cases for the longer term. If the principles change along the way, it becomes a huge problem. Lack of clarity also leads to a wait-and-see attitude among those involved, because will the rules of today be the rules of a few years from now? It causes everyone to wait and see. And wait and see is the last thing we need right now.’
‘In my opinion government should not underestimate the role of taxes and subsidies. These have major consequences on behavior and on the market. If the subsidy on electric cars comes to an end, demand drops. The same applies for solar panels. When subsidy schemes constantly change, everyone waits and sees.’
‘Yes, we need consistent government policy. Preferably also in a European context. It is important to be able to have the assurance that when making a sustainability investment, it will remain classified as sustainable. So far that has not always been the case.’

No matter how you look at it, all sustainable decisions affect the organization's profit and loss statement. How should you manage that as a CFO?
'The CFO plays an important role in determining the pace of sustainability. If you move too fast, it becomes unaffordable as you may get stuck with technology that is not yet fully developed. If you are too slow, you miss the boat. Determining the pace at which to take the steps is where the CFO needs to give direction.’
‘The CFO as Chief of Pace - that is a nice one. We have an enormous task to achieve sustainability as fast as possible, to provide our customers with the energy solutions they need. There are, of course, also proposals to slow things down. The difficult task for the CFO is precisely to identify initiatives which can move us forward, in line with the strategy. A CFO needs to take the lead there. We have recently been spending a vast amount of energy on making the sustainability impact intelligible. Much effort went into reporting. I see more of a trend now for the CFO to really take the lead on this.’
Dumas: ‘I firstly see my role as CFO to present the facts. But secondly, I also definitely see the role of the CFO as challenger and as a driver of sustainability. It is not my role at this time to slow things down.'
Janssen: 'Boosting on the one hand, slowing down on the other. That is the role of the CFO anyway. A CFO needs to oversee the entire chain. At FrieslandCampina we look from grass to glass. If you can create an extra earnings model on the glass side, that might give you room to force a change at the back, on the grass side.'

You presumably already had quite a full agenda, considering all the new laws and regulations. Does the whole sustainability dossier still fit within your job responsibilities?
'I do not think this is an option. We simply cannot afford to say that that component is not part of the job description. It has been a trend for years now. Where shareholder value used to be number one, for several years now stakeholder value took precedence.'
Janssen: 'Nor is it the case that the CFO is the only one in an organization preaching sustainability. You work together. At FrieslandCampina we have a Chief Sustainability Officer as a member of the board. Together you set the course. And you should not forget that sustainability is a stimulus within the financial discipline: my people are enormously enthusiastic about it. Finance people, in particular, are eager to participate. It is a new field.’
Dumas: ‘Yes, there is abundant enthusiasm. Especially with young talent. There are a lot of challenges, especially regarding reporting. As a financial person you are of course used to being audited. But there are now all kinds of themes and non-financial KPIs which we are not used to. These all need to be described properly in process terms. A very relevant and interesting task.'

Is Chief Finance Officer still the right name for the job you do?
'Well, perhaps Chief Value Officer is a more logical title. But anyway, whether called CFO or CVO - it is irrelevant. What matters is the content. The function is broader than finance. That is something irreversible.’
Dumas: 'Ultimately, it's about sustainable financial performance. And that is not so new. There have been non-financial KPIs which CFOs had to deal with for a long time, such as customer satisfaction, employee satisfaction and absenteeism. Now, there are just many more.'
Janssen: 'You can no longer be ‘un-sustainable’ and still deliver good financial performance. It flows into each other and that is not going to revert. The question is not in the title of the job.’

Do you have any advice for your fellow CFOs?
'My advice is to always keep explaining the why well. The risk in all the laws and regulations is that you only do technocratic reporting. We need to keep explaining why we are doing things, because that is what can motivate people.'
Bien: 'Do not make it too complex and just make a start. I think that is my most important advice. Some things are small but still have an impact. We have a large acreage of plots for our power stations. In the past, we had that mowed down four times a year, as standard. Now we do intermittent mowing: every time we cut down only a portion. This results in an enormous improvement in biodiversity and it saves a heap of money. A small example with a relatively large impact.’

Interview by Alexander Tamminga, partner at strategic consulting firm Kearney. Published in Management Scope 06 2024.

This article was last changed on 25-06-2024