Chief financial officers are responsible for a company's financial performance and reporting, but that doesn’t adequately capture the role they play in corporate strategy.
Along with projecting the costs and revenue associated with proposed investments, CFOs must organize the resources for execution — giving them immense power over the direction and speed at which a company moves. That’s why in order for a company to transition to a net-zero business model, the CFO must not only be on board but have a hand in guiding the ship. Here are three ways CFOs can navigate that journey.
Adopt impact-driven banking practices
CFOs can help their organizations make significant progress towards decarbonization and diversity, equity and inclusion goals by adjusting corporate treasury practices to support them.
That could mean leveraging impact cash platforms, such as CNote and Impact Deposits Corp., to distribute a company’s deposits across credit unions, community development financial institutions (CDFIs) and low-income designated (LID) financial institutions. These sorts of lending institutions often tout strategies that align with corporate sustainability goals and values such as climate justice or financial inclusion.
By moving corporate deposits to banks where all lending activities are aligned to keeping global temperature increases to less than 1.5 degrees Celsius, a CFO could reduce the carbon footprint associated with the company’s deposits by more than 60 percent, according to a report by BankFWD, Climate Safe Lending Network and The Outdoor Policy Outfit.
Shifting a company’s cash holding to hundreds or thousands of CDFIs could make more operational and growth capital available to women- and minority-owned companies, because CDFIs are required to designate at least 60 percent of their funding activities for low- and moderate income populations or underserved communities. Access to capital is the top barrier to the creation, expansion and growth of women- and minority-owned businesses, according to The Black Business Alliance.
Offer greener retirement plan options
U.S. employer-sponsored retirement plans accounted for more than $11.8 trillion in assets at the beginning of 2023.
Employees — especially Gen Z employees who make up 6.1 percent of the workforce but are expected to account for 30 percent by 2030 — are more often considering companies’ ESG practices and performance when choosing where to work. A KPMG survey published in January found a third of 18- to 24-year-olds have turned down a job offer because of the organization’s ESG performance. Separately, a 2021 Morgan Stanley report found 99 percent of millennials are interested in sustainable investing.
Younger generations will be disproportionately harmed by the effects of climate change as it worsens over time, and some investors are asking that companies analyze whether defaulting to carbon-intensive investments in corporate retirement options puts younger beneficiaries’ savings at greater risk than participants closer to retirement age. The oldest members of Gen Z will reach retirement age in 2055. At that point, the global economy will need to have been operating with net-zero greenhouse gas emissions for five years to meet the goals of the Paris Agreement. That calls into question the logic of including fossil fuels investments within the retirement plans of Gen Z investors.
Corporate financial teams can opt for retirement plan providers that actively engage with the management of companies included in their portfolios to encourage them to adopt sustainable business practices. A ShareAction report published in February ranks the 77 largest retirement plan providers across responsible investment themes.
Establish an internal carbon price
CFOs can help integrate sustainability considerations into corporate decision-making processes by applying an internal carbon price to business activities. Charging business units for the emissions associated with their operations or new investments can encourage managers across the company to align decarbonization efforts with the financial performance of their business units.
This internal "tax" on emissions can also be used to fund decarbonization efforts; financial services firm Société Générale, for example, does this by allocating funds raised by the internal carbon tax to the business units with the most impactful environmental efficiency efforts. This provides the firm’s business units with dual incentives, a carrot and a stick. By investing in carbon reduction initiatives, they can both avoid the costs of the internal carbon tax and receive incentives to cover the cost of future decarbonization efforts.