Throughout the world, the notion of performance is evolving and integrating extra-financial parameters.
In early December, Janus Henderson Investors announced six appointments to its ESG (environmental, social and governance) investment team. A few weeks earlier, the Milan Stock Exchange launched the MIB ESG, the first Italian index focused on environmental and societal performance.
Throughout the world, the notion of performance is evolving and integrating extra-financial parameters. Of course, the legal requirements on this subject are not new, but the crisis we are going through has clearly highlighted the climate and social emergency, in fact forcing companies to greatly accelerate the implementation of models virtuous, ethical and sustainable. In this context, the notion of performance is no longer solely financial. Forced retraining for the financial director, who is associated, in the popular imagination, with a drastic and ruthless objective of cost reduction? Not so sure. By the very nature of his expertise, he is indeed in the best position to collect and analyze data, communicate reliable and transparent information, and make the link between the various stakeholders of his company. So many essential skills to understand the financial and extra-financial performance of today and tomorrow.
Widespread pressure for more virtuous growth
This has been a strong trend for several years: shareholders and investment companies are increasingly attentive to CSR (corporate social responsibility) commitments. Make no mistake about it: beyond good feelings, no one is willing to pay out funds at a loss. Thus, BNP Paribas proclaims that it no longer finances companies developing coal-fired power stations, because “these are compromised activities, where we are beginning to see bankruptcies appear”.
This pressure is generalized to all of the company’s stakeholders. Consumers no longer hesitate to challenge brands and sometimes even benefit from the support of public authorities. We saw it last year in the United Kingdom, when a parliamentary committee investigating the forced labor of the Uyghurs demanded explanations from Amazon, Nike and Ikea. The stakes are such that the company’s business partners are also demanding accountability, even questioning established business relationships in the event of non-compliance with CSR requirements. The Boohoo site, emblematic of ultrafast fashion, has seen its historical auditor resign for fear that the company’s supposed modern slavery practices will tarnish its reputation.
Finally, the same is true for employees who increasingly choose their employer based on the values they embody. Isn’t it revealing that world leaders like Total, which yesterday represented a Holy Grail for graduates of Grandes Ecoles, are now struggling to recruit?
Rethinking and measuring performance
To support the company in this transition to a more sustainable model, the financial director is certainly at the center of the question. Contrary to the image attributed to him, his job is not so much the manipulation of figures as the structuring and communication of information. In a context where transparency is no longer a simple marketing argument, but an absolute requirement, this skill is vital! Audit committee, board of directors, investors: so many stakeholders who need clear, reliable and structured information, including on non-financial indicators.
But its role goes beyond that. ESG indicators are much less old than accounting standards. The creation of a standardized repository is therefore necessary to measure changes over time and compare companies with each other. It is not enough to proclaim oneself virtuous, it is still necessary to prove it. The body of rules applicable to extra-financial performance has not yet been finalized and will no doubt evolve rapidly, but it already requires key skills in data analysis, consolidation and reporting.
Integrating CSR into the heart of its activity
However, building this benchmark will not be enough to anticipate an increasingly uncertain future. One of the main missions of the financial director will therefore be to co-create the business model(s) that will allow his company to align, more than reconcile, CSR and financial performance.
Indeed, greenwashing often masks fundamental underperformance. It is not enough to plant trees or “compensate”, often very indirectly, for a negative impact. Setting up a foundation has never prevented pollution, and moreover, no one is fooled anymore. It is therefore the economic model itself that must bear the virtuous characteristics that the company will have to develop.
To last, it is therefore necessary to build a positive-sum growth model, that is to say one that benefits all the stakeholders in an ecosystem. The fashion industry, to name but one, is becoming aware of this. Karl-Johan Persson, then CEO of H&M, explained that fashion had to move from a linear model to a circular model on a large scale. This word begins to carry. More and more industries are rewarding their customers for bringing back end-of-life products, or even offering rental models that integrate recycling into the value chain. While adopting better practices, brands thus retain their customers and increase their average basket.
The financial director is, here again, a strategic player in carrying out this reflection through his knowledge of the company, its market, and his overall understanding of the value chain. The title of Chief Financial Officer seems to limit the function to purely monetary notions. One thing is certain, however, to manage performance, whatever its form, you need a reliable benchmark and an overall vision. Two fundamental pillars of the job of Chief Financial Officer.