Sustainability rises on the CFO's 'to-do' list.

• Author: LeBlanc, Brendan
• Position: Corporate Social Responsibility - Chief financial officers

Chief financial officers are becoming increasingly familiar with sustain-ability, due to a heightened understanding of the impact of social and environmental policies on a company's financial performance. Traditionally, the CFO's job centered on revenue generation, cost reduction and risk mitigation. Sustain-ability issues such as stakeholder engagement, resource use and greenhouse gas emissions were not on the finance chief's radar.

The tide is changing, though, and shareholders' expectations are increasing regarding the company's social and environmental practices and policies. Indeed, 40 percent of all shareholder proposals were social and environmental in nature, according to the Ernst & Young LLP 2011 Proxy Season Update.

New Numbers to Understand

As any CFO knows, numbers tell the story. Increasingly, banks, insurance companies, private equity funds and other institutional investors look at sustainability data and associated rankings before they invest in a company. And sustainability rankings--which can rate companies on issues as varied as clean technology to having diversity among board members--are more important than ever for the CFO.

For decades, socially responsible investment funds have been interested in an organization's environmental, social and governance (ESG) indicators. With signatories such as Black-Rock and TIAA-CREF, initiatives such as the United Nations' Principles for Responsible Investment (UN PRI) demonstrate the mainstream demand for such "triple bottom line" data. (See sidebar on the following page.)

Accordingly, the finance chief must pay attention to the content and credibility of the information contained in sustainability reports that often feed these rankings and analysis. Savvy CFOs will advocate responsible behavior and transparent reporting, and will anticipate growing pressure to become more involved in sustain-ability issues that affect the organization's finances, particularly in the mid-to longer-term.

Shareholders Leading The Way

The 2011 proxy season was a clear indicator of where things are going--with votes on the largest category of all shareholder resolutions focusing on social/environmental issues.

That's only half the story, though. Resolutions have limited impact without supporting votes. The real game changer in the sustainability story is the support these resolutions have received. In 2005, less than 3 percent of all shareholders' resolutions on social and environmental issues reached the critical support threshold of more than 30 percent.

By 2010, 26.8 percent hit that level., and in the 2011 proxy season, the...