The indispensable role of finance in sustainability
How do companies integrate sustainability into their business models? Simply put: through their heart, head and hands. Some companies integrate sustainability from the heart; others from the head. The hands of the Finance department, which specializes in measuring and reporting what goes on within the company, can use its expertise to make a significant contribution towards measuring sustainability performance. Moreover, initial case studies show that the hands – the Finance department – can play a role in the transition from head to heart.
Integrating sustainability from the heart
Some companies integrate sustainability into their business models because it is intrinsically important to them. That means they integrate sustainability from the heart. ‘Heart’ companies are often founded in order to generate financial value based on a business model that effectively and efficiently addresses a social need. They are the minority.
Integrating sustainability from the head
Most companies integrate sustainability into their business models because they are forced to do so by government authorities, investors, clients, the supply chain or stakeholders. That means they integrate sustainability from the head.
The difference between heart and head companies
Little scientific research has been carried out into the differences between heart and head companies in terms of sustainability performance. It is logical to assume that sustainability is better integrated into business models at heart companies than at head companies – but this is just an assumption. Neither has it been proven that head companies can evolve towards heart companies and even become heart companies in the long run. However, that assumption is based on more than just wishful thinking.
Measuring as a motivating factor
It is thought that companies may start integrating sustainability into their business models because they are forced to do so, but gradually discover that integrating sustainability can also be intrinsically important. Scientific knowledge about the evolution from a heart company to a head company is limited. However, the case studies available show that measuring and reporting on sustainability performance facilitates this evolution.
Getting down to work
Companies that want to successfully integrate sustainability into their business models need to get down to work and develop KPIs that can measure sustainability performance within their own business context. This journey of discovery mainly involves experimentation. After all, it is completely new. It may therefore be useful to gain inspiration from tools that have already proven their worth. Consider using resources such as the free Materiality Map provided by the Sustainability Accounting Standards Board.
Developing KPIs for sustainability
Smart companies will invite their Finance department to play a leading role in the development process and in experimenting with new KPIs that emerge after integrating sustainability into their business model. After all, the Finance department specializes in measuring and reporting on what goes on within the company. In fact, some Finance departments are already working hard on their transition towards sustainability ‘from the heart’.
The indispensable role of the Finance department in sustainability
Increasing pressure from governments to accelerate companies’ transitions towards sustainability is set to rapidly increase the number of Finance departments that need to start operating 'from the head'. In short, the hearts, heads and hands of companies’ Finance departments play an indispensable role in making business models more sustainable and developing into a more sustainable society.
This article originally appeared as a column by Prof. Dr Bart Dierynck in CFO Magazine Belgium, December 2021.
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