Companies are realising there are big financial gains, as well as environmental imperatives, in saving the Earth
Driving forward sustainability initiatives is a win-win for an ambitious chief financial officer (CFO). Just complying with environment regulations is no longer enough, especially as improving efficiencies has the power to both benefit the environment and reduce operating costs.
From major manufacturers looking to minimise waste and material usage, to technology firms working on keeping down energy consumption through consolidating data centres, CFOs are on track to be increasingly involved in corporate sustainability programmes.
Medallia, a provider of software-as-a-service or SaaS-based customer experience management software, has been championing the importance of sustainability since being founded in 2001 by the husband-and-wife team of Borge Hald and Amy Pressman. Now a tech unicorn valued at more than $1 billion, Medallia’s customers include Airbnb, Hilton and Lexus, and the company has offices in Buenos Aires, London, Melbourne, New York City and Sydney.
Mike Kourey, CFO of Medallia, is heavily involved in sustainability initiatives in his role. “Sustainability is just simply the right thing to do. I think most people would agree on that,” says Mr Kourey. “We sell to some of the largest companies in the world and these firms have robust sustainability programmes and, frankly, they expect nothing less from their key providers, like Medallia.
“Customers demand it and clearly that alone would drive us to do it, but at the end of the day sustainability initiatives have an impact on revenue and we’ve actually taken it a step further to make it a real competitive advantage.”
In a heavily competitive industry, Medallia can detail their sustainability activities with customers and differentiate themselves from competitors. “So as a direct result, sustainability does contribute to customer retention and therefore our top line, which is the most powerful way to get to the bottom line,” he adds. “On the cost side of things, clearly power is expensive and cutting our usage saves money. So reducing the power needed in data centres by definition has a huge impact on the bottom line.”
More and more CFOs are embracing sustainability with a Deloitte report finding 73 per cent of CFOs believe there is a strong link between sustainability and financial performance. Also 61 per cent of CFOs ranked energy efficiency as a key area where they plan to make investments.
Less obvious financial benefits
Comprehensive sustainability strategies are not just all about lowering power usage or appearing as a socially responsible business, but addressing some of the less obvious ways sustainability can have a financial benefit to companies, such as successfully securing talent, is of major importance.
“Companies are just about the people we hire and how we work together. When you have strong sustainability programmes, in most parts of the world, that’s a big advantage when you’re recruiting talent. In a world where getting the best engineers, sales, finance and marketing people is very contested, we want to recruit those people and keep them. Sustainability is a big part of the citizenship that makes these people relate to the company, and better cost-savings and less staff turnover result,” says Mr Kourey.
Medallia have worked to ensure their data centres are environmentally friendly and keep energy consumption to a minimum. “We look for LEED [Leadership in Energy and Environmental Design] platinum-level certification or facilities that have a proven sustainability programme. That’s important on every level for us, especially as it results in less power consumption. Even our offices are selected with sustainability in mind,” he says.
Recently Medallia moved headquarters in the Bay Area of San Francisco and the new building has received LEED platinum certification, with the company choosing this space, in part, as it’s close to public transport options.
Although SaaS-based companies have a relatively low environmental impact, Mr Kourey still believes putting sustainability issues front and centre of business strategy will pay dividends. “I really think at the end of the day it comes back to customers because customers want to see sustainability taken seriously. SaaS-based companies may not be relatively high energy consumers, but if you look at profit and loss, energy consumption is a major item, so there is actually a tangible cost driver,” he says.
Medallia is far from the only company forging ahead with wide-ranging sustainability programmes. The FTSE 250 construction and support services firm Interserve launched the ambitious SustainAbilities plan in 2013, comprehensively detailing sustainability targets, with annual reports showing that it is possible to increase revenues at the same time as reducing carbon emissions.
Sustainability does contribute to customer retention and therefore our top line, which is the most powerful way to get to the bottom line
The latest report highlights construction waste fell by 25 per cent, and carbon and water intensity were down by 18 per cent and 14 per cent, respectively. As Interserve’s group finance director Tim Haywood is also head of sustainability, he is best positioned to make the business case for sustainability and alleviate concerns that green initiatives are being implemented for purely superficial reasons.
Interserve have been able to outperform competitors that lack the sustainability edge, especially when it comes to winning hotly contested bids. In terms of risk management and securing supply chains, sustainability is an increasingly discussed factor which can help to establish viable growth plans.
Leading CFOs across Europe joined forces in 2013 to push for environmental and sustainability matters to be made a key part of corporate financial decision-making. The Prince of Wales’ Accounting for Sustainability (A4S) CFO Leadership Network counts Unilever, Marks & Spencer and BUPA among its members, indicating that prominent businesses are becoming more and more interested in the positive commercial impact of increased sustainability.
“What used to be seen as ‘greenwash’ needs to become as natural to company finance teams as it is to corporate responsibility departments or even NGOs,” said John Rogers, then co-chairman of the A4S CFO Leadership Network and Sainsbury’s CFO, when the initiative was launched.