Five Ways to Convince Your CFO that Sustainability Pays
CFOs haven't been at the center of the corporate sustainability movement. After all, people usually think of us as bean counters, not social activists. But in my job as CFO, sustainability is a strategic imperative. And it should be for your CFO, too. But it's up to you, as someone who cares about sustainability, to convince your chief financial leader that sustainability matters.
In the wake of the global recession, the CFO's role has shifted from fancy accountant to co-driver of corporate strategy. We can't just worry about quarterly results; we must focus on long-term growth strategies, which are inseparable from economic, social and environmental issues. A CFO's job is about using resources wisely and ensuring that an enterprise can thrive for decades to come. That makes sustainability part of a CFO's remit.
My own journey at UPS helped me to prioritize sustainability. Early in my 33-year career, I was an industrial engineer. I did time-and-motion studies to determine the best ways for our people to perform certain tasks. By cutting a step here and a movement there, we could save time and money. Today, those kinds of processes save gallons of fuel and reduce carbon emissions, too. So there's no question that lean is green, both in terms of the environment and in dollars.
To help your CFO see how sustainability matters to your business, you must use terms he or she appreciates, such as risk mitigation, cost savings, and productivity gains. To get the conversation going, here are five things you can say to your CFO about how sustainability pays off, and some success stories you can share from one CFO to another.
1. Being sustainable reduces costs and improves efficiency. Environmentalism is rooted in using resources wisely. In the logistics industry, there's no getting around it: It takes fossil fuels to transport goods. Fortunately, when we reduce fuel usage, we reduce costs, and in the process, we cut carbon emissions (which by the way helps any other company that ships goods via UPS).
We also reduce miles and fuel through more efficiency delivery routes. The routing is managed by our Package Flow Technology (PFT). PFT includes process enhancements like shortening delivery routes, minimizing engine idling times and combining multiple deliveries into a single stop. It also helps us minimize left turns. That's music to an engineer's ears. But here's where it translates into green – PFT has shaved 100 million miles from our delivery routes since 2003. It has also reduced fuel use by 10 million gallons and carbon emissions by more than 100,000 metric tonnes.
2. Focusing on sustainability mitigates risks. A big part of a CFO's job is to assess and reduce long-term risks. Looking through a sustainability lens presents a new way of looking at forecasts and risks.
At UPS, we identify potential risks and prepare strategies to deal with them. One of those scenarios involves oil reaching $200 a barrel, which would be a significant challenge for us. While our issue is fuel, your company's issue might be water scarcity, climate change or activist pressure. When your CFO understands that sustainability affects an organization's long-term viability, he or she can prepare for these risks.
Another area of risk involves shareholder preferences. Socially responsible investing is growing faster than overall investments: 18 percent between 2005 and 2007, compared to 3 percent for all investments, according to Ceres. Wise investors look for companies with responsible business practices, a promising future and a long-term perspective that reduces risks.
Finally, there are regulatory risks. With the emergence of climate-change legislation, smart companies are figuring out how to report and reduce their environmental impact. Those that don't will be at financial risk. For example, in London, companies are being taxed for their electricity bills, a tax that will be returned if you meet carbon reduction targets in the next five years. We had to fork over hundreds of thousands of dollars so far. How much is your bill going to be?
3. Being green creates new competitive and revenue opportunities. CFOs aren't only interested in the cost side of the business. To get their attention, talk about revenue creation.
At UPS, we share and sell what we know about sustainable operations. We developed a sophisticated carbon calculator for our own operations, which we share with customers to help them determine their transportation-related environmental impact. We have a Package Lab, which helps customers pick environmentally-responsible materials, and UPS Logistics Technology has software that helps companies optimize the routes of their own delivery fleets so they use less fuel.
These new revenue sources are not yet CFO-significant, but they meet customer needs. Joining with customers to figure out solutions helps us deliver value now and into the future.
Sustainability also has a powerful effect on our company's brand, one of our biggest assets. Consumers are looking for companies they can trust. When a customer is choosing between your products and services versus your competitors', your sustainability story can tip the balance. That's a competitive advantage that can translate into growth.
4. Sustainability fuels innovation. Sustainability can drive innovation in new products and services, business processes and energy-efficient facilities.
One caution: innovation, like R&D, is a long-term investment. At UPS, our fleet of 1,900 alternative-fuel vehicles, costs us more than it saves us. So why do I sign the checks? Because we have to hedge against high costs -- like a potential $200 barrel of oil -- and we want to be part of the solution that creates to a green vehicle that works for our industry.
5. Strong sustainability values enhance employee recruiting, development and retention. CFOs care about this because they can avoid the costs associated with finding and training new employees.
With upwards of 40 percent of today's workers retiring within 10 years, companies have to figure out how to keep the next generation of talent around. Community volunteerism is important to young employees. From a business perspective, volunteering teaches leadership skills, builds teamwork and makes valuable business connections. We think that volunteerism is so important that its one of the mandatory sessions required for new management training and orientation. Every year, UPSers volunteer 1.2 million hours of their time in the community.
UPSers say the "work" they do reinvigorates them. And the perspectives they gain in communities have led to new UPS solutions, ideas and insights into new markets. More important, they are an inspiration to their co-workers, which can ultimately lead to innovation, higher retention and company loyalty.
Most of you reading this would agree that businesses have a responsibility to be prosperous and to make the world a better place. CFOs have traditionally focused on the first part of that mandate. To get them interested in the second part, it's important to show them the link between prosperity and sustainability. When you speak their language, you can count on CFOs to become surprising champions of corporate sustainability.
Kurt Kuehn is the chief financial officer of United Parcel Service. He is responsible for all activities related to accounting, auditing, finance, financial planning, taxes and treasury. He also acts as a liaison to the finance, investor and analyst communities.
Image courtesy of UPS.