Financial executives’ respect for sustainability strategies

You’d think that for-profit corporations’ chief financial officers might be the last ones to endorse company-wide strategies for reducing environment impact. Wrong.

When the CFO at furnishings company Herman Miller became the CEO, the director of Environment, Health, and Safety Paul Murray felt nervous. Murray had convinced the CFO to allocate $40,000/month to invest in resource efficiencies for the company. When Brian Walker moved from CFO to CEO, he asked to meet with Murray. At that point, Murray feared that a CFO-turned-CEO would nix the investment altogether. To Murray’s surprise and relief, Walker suggested increasing the monthly investment to $50,000! Walker explained that while he was CFO he witnessed that the return on investment (ROI) from the environmental investments was simply excellent. In fact, Herman Miller ($2 billion in revenues) not only makes smart investments to reduce its own environmental footprint, but also the company is a design-for-environment leader for office chairs (I’m sitting on one) and other furnishings, and – through subsidiary Convia, Inc. — helps to reduce energy consumption of customers’ buildings with energy-management tools. CEO Walker says, “Sustainability is becoming as prevalent in customer requirements as quality was 10 or 15 years ago, and we’re at the tipping point of this movement where our customers, at least, are no longer saying it’s nice to know you do it. It’s a requirement” (Industry Week, Sep. 2009, p. 24). By the way, 20% of Walker’s compensation is based on the company’s environmental performance.

Last month, a CFO-turned-CEO at a TFI electronics-company client reviewed the High-ROI Environmental Roadmap we had prepared in concert with a multifunctional green team. The roadmap listed a half-dozen Lean and Green initiatives along with their financial and environmental benefits (cost reductions, new revenue, carbon emission reductions, and less use of paper, water, and energy). From reviewing both the environmental and financial ROI, the CEO’s response was immediate: he said he’s one-hundred percent behind one-hundred percent of the projects as outlined.

Another high-tech company CFO (not yet a CEO!) uses his sharp focus on ROI to support his company’s environmental program, with this advice: Determine priorities for the environmental initiatives according to greatest reduction of environment impact and the highest monetary ROI. For example, if you had $500,000 to spend, what projects would you choose to most efficiently maximize the environmental and monetary savings? “It’s important to prioritize in this way,” he said, “because the environmental program could be one of 50 initiatives all fighting with each other for resources. List the overhead, capital, and expense investments separately. Get on the executive agenda and carve out the initiative — just like any other business function.” The CFO added that environmental programs – like training – need to be elevated to the executive level for planned investments, because they span all company departments; the executive staff needs to dedicate funding to be appropriated to the departmental budgets in a way in which the funds cannot be “cannibalized.”

So, if you are running (or starting) your company’s strategic environmental initiatives, don’t tippy-toe around your CFO. Enlist him or her in sharpening the ROI and advocating in the executive suites for these surprisingly large-return programs.

All CFOs (and other financially-minded) readers are welcome to weigh in. (Leave a reply at the bottom of the blog.)

Posted by Pamela J. Gordon, December 4th, 2009