How Finance Departments Do Sustainability

When your company makes sustainability a part of its strategy, it looks for ways to embed sustainability thinking through the organization. In some departments, it’s pretty clear what that entails.

  • Product development may seek sustainably sourced materials or designs that are energy efficient to operator or easier to recycle
  • Supply chain may set sustainability standards for suppliers
  • Manufacturing may focus on improving the energy and water efficiency of processes and the management of waste
  • Facilities and IT have a lot of low hanging fruit in energy efficiency
  • Transportation and fleet management groups may look at alternative fuel and hybrid vehicles and route optimization
  • Human resources may take on employee engagement programs
  • Marketing and public affairs groups will take on responsibility for engaging with external stakeholders and communicating about your company’s sustainability efforts

Where does your finance department fit in all of this? Finance can, of course, work to improve the efficiency of its own operations. The finance department at Yale University, for example, recently announced that it switched from paper to digitial distribution of its financial report to save paper and money. Some banks offer “green treasury” services to eliminate the paper involved through the treasury function.

But your finance department can play a much larger role in supporting your sustainability strategy than just improving its own operations. Finance creates leverage. And sustainability-minded finance can be a key ally to sustainability leaders.

We recently interviewed senior sustainability leaders at more than 30 major companies in North America and Europe. In that research we heard a few things about how finance departments are behaving at sustainability minded companies. (Our latest research report, based on those interviews, is available for purchase at an introductory price here.)

A few finance practices emerged that sustainability leaders should be aware of:

Allocate a pool of capital project money to the sustainability department. At most companies, central sustainability budgets are small. Capital projects, even those intended to to deliver sustainability benefits, are funded out of other departmental budgets. And sometimes sustainability projects get pushed aside by a department’s other priorities. To ensure that some worthy projects get done each year, one company we spoke with allocates a pool of money to be used for capital projects directly to the sustainability group. The sustainability department is able to use those funds to support a couple of capital projects of its choosing. And it also works  with other departments to influence their budgets to take on other worthwhile projects. You might want to see if your department can obtain a mini capital budget of its own in the next budget cycle.

Calculate risk-adjusted returns realistically. At some companies, sustainability projects have a hard time getting funded because they don’t appear to pass the company’s rate-of-return hurdle. The thinking goes like this: Why invest scarce capital in a lighting retrofit when a new product launch could deliver a rate of return many times greater? But the reality is that many sustainability projects–especially those centered on improving efficiency–have highly predictable rates of return and present almost no risk at all. Other projects they might compete with, such as new product launches or marketing campaigns, may be inherently riskier. Thus sustainaiblity initiatives can have a superior risk-adjusted rate of return. Make sure your finance department calculates risk-adjusted returns appropriately..

Sustainable 401K. Some companies tell us that their sustainability program is motivated in large part by a commitment to their own employees, who value a socially and environmentally responsible workplace. At such companies, it makes sense to look at financial benefits, such as 401K programs, through a sustainability lens. A growing number of 401K plans offer socially or environmentally responsible investment options. You finance department can help choose appropriate options for your company.

How is the finance department supporting sustainability at your company? Please leave a comment to discuss it with us.

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Filed under efficiency, illumination, Supply chain, sustainability, transportation, water

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