Climate change is also an issue for CFOs

CFO survey shows Switzerland needs to catch up

Climate change is an issue on the agenda for the executive boards of Swiss companies, but it does not seem to be a cause of major concern at present. According to the Deloitte CFO survey, almost all companies have already taken action, however, a systematic approach and a clear objective are still lacking. In addition, climate change brings opportunities. Compared to its European neighbours, Switzerland has some catching up to do.

CFOs are currently focused on more pressing and short-term challenges than climate change: the significant increase in currency risks, once again, ongoing geopolitical tensions or the shortage of skilled workers. Nonetheless, as many as 94 percent of all companies have adopted concrete approaches to climate change. Almost three-quarters of CFOs (72%) say their company is taking measures to increase energy efficiency and more than half (52%) are consciously focusing on energy-efficient equipment.

Only a quarter have performed a risk assessment

Only a quarter of companies (26%), however, have assessed the risks that climate change poses for them. “Hopefully this number will increase rapidly because climate change will not only greatly affect our lives, but also have a major impact on products and services, supply chains, assets and business models”, says Alessandro Miolo, Head of Audit & Assurance at Deloitte Switzerland.

According to government climate scenarios, Switzerland is disproportionately susceptible to climate change; conditions will become drier, hotter and less snowy and rainfall will become heavier. In any case, local companies need to create greater transparency about the risks and opportunities of climate change for their business, document more climate-related information and publish this information in their annual reports. According to Miolo, this is a necessary precondition for further measures and will enable investors, customers, regulators and other stakeholders to make objective comparisons.

The impact on companies is increasing

The forest fires in California in 2018 have not only destroyed several hundred thousand hectares of forest, they have also caused severe damage to businesses. As a result, the state’s largest privately-owned utility company had to file for bankruptcy, while two other utilities had their credit rating downgraded. Climate change, with its profound implications, could make insurance against natural hazards unaffordable for many people. Foreseeable water shortages are also becoming a major challenge for both companies and individuals, so the need for innovative technological solutions is growing.

“It is vitally important that companies utilise their strengths when helping to find answers to the climate crisis because this task requires many of the qualities that characterise successful companies: the ability to identify unconventional solutions, drive change forward, realistically assess risks and develop sustainable business models.

A different climate calls for new products

Climate change not only poses a threat to people and economies, but also offers opportunities to develop and market new products and services. On the one hand, there are direct opportunities such as new areas for cultivating crops or new ways to extend the summer tourism season, but also an increased need for water storage, the development of clothing adapted to the heat or the greater use of insulation in buildings.

On the other hand, indirect opportunities also arise through the development and application of climate-neutral technologies or the need to satisfy changes in consumer needs. “If companies want to stay in business long-term and be successful, they should not only focus on climate change and opportunities, but, above all, play an active role in slowing global warming”, says Miolo, who is also responsible for the Deloitte CFO network.

Climate-friendly positioning promises success

Companies are primarily challenged by customers and staff members to take action against climate change. The most intense pressure comes from customers, and exactly a quarter of CFOs say that their customers are exerting significant pressure. But it is obviously also important to employees that their employer should play its part.

“Companies must clearly realise their influence on the climate and define for themselves where they can and should exert influence and thus make a real difference. At present, this is also a good way for companies to successfully position themselves among consumers and in the job market. Millennials, in particular, base many of their buying decisions on whether a company’s products and services have a positive or negative impact on the environment and society”, Miolo goes on to say.

Civil society players are also putting pressure on CFOs: non-governmental organisations, social movements and the media often go public when they have evidence of possible environmentally harmful behaviours and then denounce companies as climate offenders. “It is important for companies to identify the relevant stakeholders, to be aware of their ideas and expectations and to seek dialogue. The increasing criticism of business practices in the public sphere does not make it easier for companies to avoid damage to their reputation”, explains Miolo.

Anticipating regulation brings many benefits

It remains vital for CFOs to follow regulatory developments and political debates at a national and international level. “Companies encounter risks and opportunities associated with the politically-driven transition to a carbon-neutral economy. They can gain financial or operational advantages by anticipating changing regulatory conditions or by responding rapidly to new policy incentives”, adds Miolo.

Switzerland is lagging behind in setting greenhouse gas reduction targets. 57 percent of the companies surveyed have not yet set any targets, six percentage points higher than the European average. On the other hand, 34 percent have adopted reduction targets, but most of these are not based on the targets set by the Paris Climate Agreement. “It is a positive sign that more than one third of companies in Switzerland have already set concrete targets for reducing their carbon footprint. Specifically, this requires a company’s CO2 emissions to be recorded and tracked. This task should not be underestimated and requires expertise and resources”, states Miolo.

Between the end of August and the end of September 2019, Deloitte Switzerland asked 103 CFOs in medium-sized and large Swiss companies about climate change. The CFOs outlined the measures taken by their companies, identified the stakeholders they felt had pressured them into taking these steps and indicated whether they understood the impact of their business on climate.

Visit the website of Deloitte UK and the Institute of Chartered Accountants (ICAEW) on climate change for a wealth of informative and thought-provoking videos and interviews.

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