Metrics
The P&L and Impact

Pin it on the P&L: Engaging commercial managers, IROs & investors in sustainability

Burgess COMMENTARY

Peter Burgess

Pin it on the P&L: Engaging commercial managers, IROs & investors in sustainability

Sustainability and SRI are a waste of time; investors are just not interested.”

I have heard this on numerous occasions in recent years. It’s an easy argument to make, but it is not true. Whilst there have been many examples of businesses destroying shareholder value by failing to do the right thing, others believe that being a sustainable business, in the broadest sense, is fundamental to long term business growth. Price earnings ratios certainly reflect the discount of non-sustainable business practices – even if they do not yet reflect a premium for good business.

It is easy to see why Finance Directors and IROs think that investors don’t care, as in my experience CFOs and CEO’s are rarely asked about sustainability in investor meetings. Companies have to take the lead here however, if they are unable to quantify the financial benefit of ‘good business’ how can they expect the analysts who cover their stock to put a value on it for them. To enable businesses to articulate the case for sustainability activities to investors, CSR & Sustainability managers within those companies must illustrate the rationale in more financially-credible terms for their commercial colleagues.

Articulating sustainable value

Sustainability professionals often fail to get a place at the table where business strategy is discussed, unless it is a session on risk management, because they speak a different language. I am a finance professional, so my instinct is to use the P&L as the basis for my communications with business leaders. It may be over simplified to put everything in terms of long term financial performance, but it does stimulate the dialogue between sustainability champions and their sales and marketing colleagues on the front line.

Sustainable business activities can impact each line of the P&L, positively or negatively:

• market access impacts volume

• price premiums afforded by sustainable innovation have the potential to ameliorate revenue, I am optimistic that one day consumers will pay for better, more sustainable goods and services

• energy and water efficiencies, an easier concept for many business leaders to comprehend, benefit cost of goods

• employee wellbeing enhances productivity, reduces staff turnover and subsequently improves overhead efficiencies

• Etc.

It is not rocket science! It is simply a question of using a common language.

Business leaders understand money and, rightly or wrongly, they are incentivised to deliver financial performance. A business case consisting exclusively of words does not cut it with them. To get airtime, sustainability champions must talk in the language of commerce; they must put their programmes in the context of the P&L, the balance sheet or the cashflow statement.

Even if a general manager disputes the level of revenue upside from sustainability-derived premium pricing, or the volume impact of an advertising ban, they will at least be able to engage in a debate on this basis. By making the sustainability case financially-tangible, a dialogue becomes possible.

Subsequently, companies can carry the sustainability message out to their investors and potential investors, which in turn enables a discussion about the impact of these activities on valuation.

Some businesses are far more advanced than others in this field and I am a massive admirer of those that have adopted a ‘triple bottom line’ approach to management and reporting and of those CEOs who can speak eloquently about planetary boundaries. However, let’s face it, these companies are still in the minority.

For those that are still looking to communicate how sustainability can be a commercial opportunity (as well as a risk mitigation exercise), I can recommend the P&L as a translation tool to help sustainability managers engage their management colleagues and to help IROs communicate value to investors.