Strategic Corporate Sustainability Management
We held a mini-interview with Prof. Dr. Mike Schulze, Vice Dean and Professor of Controlling, Accounting and Financial Management at CBS International Business School in Mainz, Germany, who will give a lecture on "Strategic Corporate Sustainability Management" at:
1. What is the key reason why companies should define a sustainability strategy?
Sustainability has become increasingly critical for organizations to remain relevant and competitive in today’s world. Giving importance to sustainability is essential to meet investor pressure, consumer demand, regulatory requirements, talent acquisition and ensure increased productivity. Consequently, sustainability should be an integral part of developing corporate strategy. A sustainability strategy is a prioritised set of targets and subsequent actions which especially covers three important areas, described by so called environmental, social, and governance (ESG) issues. It provides an agreed framework to focus investments and drive future corporate performance.
2. What are important steps to implement performance management for sustainability in a company?
Sustainability performance management deals with the measurement, management, and internal as well as external reporting of organizational performance towards the targets outlined in the corporate sustainability strategy. In my view there are the following key steps: Define and use the right key performance indicators by identifying value drivers within your business and ensure that the focus on the right set of metrics is maintained. Develop robust systems and processes for non-financial data management. And finally, integrate sustainability performance management within business planning, management reporting and incentive systems.
3. How do you rate the importance of non-financial KPIs in sustainability reporting?
It is vitally important for companies to build trust with their stakeholders. Trust is built through actions, and also through communication about those actions. Market participants expect full transparency and want to be kept in the loop at all times. Reliable information is absolutely essential in order to create the necessary level of trust. It is only possible for a company to make proper decisions and communicate effectively with stakeholders if it has a holistic understanding of its performance and the way it creates value. This requires an effective steering and reporting system that focuses on the relevant factors that influence the company's value creation process which makes non-financial information and non-financial KPIs an integral part of such a system.
4. How do you see the necessity to integrate ESG-related performance metrics into corporate incentive systems?
Financial incentives have long been a practiced part of annual executive as well as long-term incentive performance plans. Executive pay is usually tied to meeting key financial metrics, such as profitability ratios or shareholder value-oriented metrics. With increased expectations on an organisation’s sustainability progress, stakeholders are also demanding accountability from management for ESG performance. Given this increased focus on ESG risks and material concerns, boards are now more likely to additionally hold executives accountable for result-oriented performance across ESG parameters. I think in general this is the right step. However, it is important that the ESG-related objectives are measurable and can be directly influenced by the executives.
5. What role do finance and accounting managers and professionals have in corporate sustainability management?
As sustainability and ESG issues become more important for business management, the role of finance and accounting will become increasingly critical. The CFO, and the finance team are the organization’s “reporting gatekeepers” and their roles are expanding to more than reporting financials. Finance has the experience compiling and reporting on metrics to stakeholders and shareholders. CFOs also have deep experience in other forms of regulatory and compliance filings. Additionally, finance is ideally positioned in the organization to track the information needed for ESG strategies and reporting. Finance also works across functions and business units, and is in a position to lead an organization’s data management and ESG reporting. The financial planning and analysis organization can connect ESG information, drive insights, and report on progress.
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