Feeling the heat? CFOs take the lead on climate risk and value creation

Globally companies are feeling increasing pressure to act on climate change. However, CFOs report that to date, companies’ climate responses focus primarily on short-term, cost-saving measures. Leading CFOs understand the risks that climate change presents to their company and industry, and the significant opportunities that lie in becoming part of the solution. 

Late last year, Deloitte and the Sustainable Business Council brought together a range of Aotearoa New Zealand’s leading CFOs in the Deloitte Greenhouse for our first ‘Climate Risk & Value Creation’ workshop. By combining subject matter experts, global best-practice and local insights through a collaborative co-design process, we explored how CFOs can take the lead in managing climate risk and creating value. Below is a selection of the key takeaways:

There is no avoiding it, but the opportunities are there

Jonathan Mason (Director - Air New Zealand, Vector, Westpac, Zespri) opened the workshop by driving home the message that the pressure for action is real, necessary, and not up for debate. Whether through…

• physical risks (water shortages, wildfires, floods etc),
• transition risks (changing consumer preferences, loss of social licence, carbon price changes etc), or
• liability risks (climate litigation, regulatory enforcement etc),

…no company or organisation will be immune to the impacts of climate change. Jonathan highlighted the recent legal opinion on directors’ duties in relation to climate change and emphasised that Boards are increasingly expecting CFOs to know about climate change, understand how it relates to their specific industry and have a long term view for creating value for stakeholders.

These value creation opportunities range from the existing focus on resource efficiencies and supply chain resilience, to brand, reputation and talent attraction. They also extend to the creation of innovative new products, services, business models, markets and ecosystems. 

The CFO plays a critical role in this space – and expectations are increasing

While some CFOs continue to believe the issue of climate change is outside of their mandate, evidence suggests the opposite is true. As Robert Perry (Manager - Sustainable Leadership, SBC) explains ‘sustainability is firmly at the heart of the evolving role of the modern CFO as custodians of strategy, risk management, performance and value creation.’

We heard from Mike Roan (CFO, Meridian Energy) and Wayne Thompson (CFO and Deputy CEO, Ports of Auckland Ltd) about their experiences in tackling climate change and how CFOs are uniquely positioned to lead climate action for their organisations. The discussion that followed supported their view and agreed that the role of the CFO is:

• Objective, independent and trusted by the board, the executive and across the business
• Diverse and challenging – having to fulfil the traditional roles as the organisation’s chief steward and operator (focusing on controls and efficiency) while increasingly focusing on the roles of catalyst and strategist (to drive execution and performance)
• Inherently focussed on value creation and risk management for both the short and long term

Where to start? Reflections from those on the journey

1. Understand the fundamentals

Understand the science, the risks to your organisation and the impact that your organisation has on the climate. Recognise which risks and impacts are material and understand how they link to your organisation’s value drivers and purpose. 

1. Integrate your people and processes

Your organisation’s response to climate change cannot be tackled by a single function. It must be woven through your organisation’s strategies, functions and processes. Addressing material risks requires breaking down silos and engaging in integrated thinking. This is key to driving a shift in your organisation’s culture – one of the biggest challenges identified in the workshop.

1. Tell your story

Globally, the disclosure of climate-related risks and opportunities are increasingly being demanded by investors and regulators. This is reflected in the New Zealand Government’s recent consultation on introducing a mandatory climate-related financial disclosure system. These disclosures cut across governance, strategy, risk management, and metrics and targets, and for many organisations, they will require investments in data, systems and talent. But they are investments worth making - improved climate disclosure capabilities (such as scenario analysis) can enhance strategic decision-making and the communication of the long-term sustainability of your business to your stakeholders. We understand that taking the lead on climate risk and value creation is not easy and at times quite confronting. However, what is clear is that the return on effort is worth it.

Need help? Get in touch

There are no shortages of resources available – from overarching guidelines (e.g. Taskforce on Climate-Related Financial Disclosures) to purpose-built scenario analysis tools (e.g. Deloitte’s Decarbonisation Solutions). You can also check out a range of tools and resources made available by SBC as well as the Climate Leaders Coalition. The key challenge is selecting the right resource and utilising it to address climate risks and create value. If you need support, we have the expertise and experience – we would love to help.

Please contact Robert Perry if you would like to participate in future CFO workshops on sustainability, which we will be rolling out in partnership with SBC by June 2020.