As environmental, social, and governance (ESG) issues become more and more important to stakeholders, companies are evaluating ways to further dig in and commit to upping their performance. ESG offers a number of compelling intangibles but to fully buy-in CFOs, it needs to prove ROI with benefits shown in financial data.
CFOs are an essential part of scaling up the internal financing for ESG. But CFOs may be hesitant to approve ESG investments if they are thrown off by language and metrics used by sustainability colleagues or the company is not able to adequately track existing sustainability investments or carefully assess this on future ones, say, Tensie Whelan, professor and director of the NYU Stern Center for Sustainable Business, and Elyse Douglas, a senior research scholar at NYU Stern Center for Sustainable Business.
Technology Business Management (TBM) framework can be one way to align data with business priorities. For example, TBM directives help in the creation of taxonomy to find a common language for discussing the value and the business. In addition, TBM can track and report costs and payoffs through budget ownership and in the creation of a clear value proposition. See my National CIO Review article for more information.
In a Harvard Business Review leadership piece, “How to talk to your CFO about sustainability,” Whelan and Douglas identified nine drivers of corporate financial performance that can be bolstered by sustainability strategies (i.e., “mediating factors”): innovation, operational efficiency, sales and marketing, customer loyalty, risk management, employee relations, supplier relations, media coverage, and stakeholder engagement. Whelan and Douglas also developed a “ROSI Methodology” — deployed to retroactively evaluate value created by sustainability strategies or track sustainability-related financial performance in real-time and to assess potential ROI of future sustainability initiatives at both firm and division levels.
ROSI Methodology is a 5-step process:
- Identify current sustainability strategies. These should also include a “materiality matrix” – a map of sustainability issues detailed according to importance to the business and its stakeholders
- Identify the related changes in operational or management practices.
- Determine the resulting benefits.
- Quantify the benefits by comparing a new practice with an established benchmark.
- Calculate the overall monetary value, such as cost-savings and ROI for new practices.
Whether using a TBM framework or the ROSI Methodology, getting critical budget funding from CFOs is made possible by demonstrating how sustainability activities can and will meet project ROI standards. Improving ESG offers infinite possibilities around returns and stakeholder support and interest — now is the time to bring on all leadership to get the scale-up resources needed.
All opinions & expressions are solely those of the author and not those of any other individual, institution or business.