What CFOs Should Think About This Earth Day

We celebrate Earth Day 2022 against a backdrop of growing concern over climate issues. For CFOs, a renewed focus on decarbonizing operations and minimizing environmental impact is at the core of sustainable business management. Accountability now falls within the scope of CFOs including measuring an organization’s impact on climate and contributing to strategies to reduce carbon emissions to net zero. But how?

In a recent Q&A with Claus Aagaard, CFO of the iconic food production company Mars, I discussed how his company is integrating its carbon footprint reduction goals into its business strategy and how CFOs play an important role.

Jeff Thompson: For some organizations, funding environmental, social and governance (ESG) initiatives is seen as an expense rather than an investment, but that changes when the true costs of climate problems are realized. How can CFOs change organizational thinking to embrace ESG – specifically carbon emission reductions – as a vital long-term investment? How can you help shape executive leadership’s understanding of ESG through your role as Co-Chair of The Prince’s Accounting for Sustainability Project (A4S)’s CFO Leadership Council?

Claus Aagaard: For a company to achieve a material impact on climate issues, it must be an integral part of the company’s strategy and strategic resource allocation. I believe the CFO has a unique and important role to play in making connections between strategy, resource allocation, decision making, and tracking progress.

I am fortunate to work in a family-owned company that ensures long-term goals are at the core of our strategy and decision-making, but there are opportunities for all CFOs and organizations.

First, it is imperative to create an environment to facilitate cross-functional collaboration. In the past on Mars, climate and sustainability issues were not always seen as a core part of the role of the finance function – it was a sustainability team-led effort. Now, this is a top priority for us, and we are building a strong partnership with our sustainability specialists. In fact, we quickly realized that renewable and efficient projects could drive cost savings in addition to carbon reductions. We are now starting to see the impact as we work to reduce emissions and eliminate deforestation in our supply chain with our efforts to simplify our palm oil supply chain.

Second, decisions across all parts of the business must be informed by the wider climate and environmental impacts. At Mars, the remuneration of managers is directly linked to reducing our greenhouse gas emissions. Carbon impact is a criterion in all of our M&A and Capital Expenditure decisions across our supply chain. It’s become business as usual, and part of our culture.

Third, no business can solve the climate challenge alone. Through A4S, CFOs can gather inspiration and share good practices, work across industries to solve problems and inspire action. A particular focus for this group is reporting and accounting for climate impacts. This should be a priority as it gives us a better insight [and] better decisions and will highlight any gaps that require action. If done properly, in a transparent and constituency manner, it will also provide better information to the relevant stakeholders.

Thomson: Companies across industries are grappling with ways to reduce greenhouse gas emissions or achieve net zero, but the paths differ depending on the industry in question. Many companies are direct emitters, but others contribute more to climate problems through their supply chains. How can you as CFO help engage suppliers to ensure that Mars (itself a sprawling conglomerate with multiple supply chains) strives towards net zero emissions?

Aagaard: We know that achieving effective net zero will require a deep transformation of global supply chains to put climate action at the core.

I am proud to work with our team to put us in a position to announce that Mars aims to achieve net zero greenhouse gas (GHG) emissions across our value chain by 2050. This is a huge challenge and with more than three quarters of our emissions being embedded in the materials we buy, we recognize that supporting our suppliers on a low-carbon transition will be critical to reducing our impact on the planet.

We know many of our suppliers are still grappling with this issue and that is why we challenge our 20,000+ suppliers to step up and set their own commitments but also partner with others in our industry.

It’s the only way to really try and build a movement and that’s why we helped launch the Supplier Leadership in Climate Transition initiative last April with the sustainability consultancy Guidehouse, alongside industry partners at PepsiCo and McCormick.

We asked our top 200 suppliers, “Do you have science-based targets and plans to drive reductions in your carbon footprint?” The answer is quite serious – only about twenty of the top 200 said yes.

In response, we are mobilizing and collaborating with our partners in industry-wide movements to provide suppliers with the knowledge, resources and tools to develop their own climate plans to reduce their impact on the planet.

So far we have focused on helping suppliers understand the basics of GHG reduction in their own business. This includes things like building core knowledge of how to calculate their own carbon footprint and setting their own science-based targets. This is still in the early stages, but if we succeed, we hope to create a multiplier effect that can have a transformational impact.

Thomson: Mars has always been known for its emphasis on innovation. Recently, Your Global Innovation Director discussed Mars’ focus on solving real-life consumer problems. How does finance contribute to a culture of innovation on Mars? Does innovation require different ideas about resource allocation or financial forecasting?

Aagaard: Finance at Mars has a long and storied history of partnering directly with businesses to ensure new ideas are developed across the organization – and financed in a way that is mindful of the long-term health of our brand and value creation.

First, and most simply, growth is the basis for sustainable value creation and innovation is the basis for achieving growth. Finance supports our business segments’ understanding of how they will deliver growth and create long-term value as a result.

Second, finance directs our thinking about how we view financial models to innovate with new products, brands and business models. Innovation is, first and foremost, a resource allocation exercise. Resources, both human and capital, are not limited or flexible indefinitely. We want to put our resources on innovations that best align with our overall strategy to generate the greatest value for Mars over the long term.

As a private company, we are able to take a long-term perspective around innovation; the diversity of our portfolio allows us to be patient in certain areas while achieving very high quick wins in others. We don’t expect every innovation to appear identical, nor do we want it. We want a balanced approach that allows different types of innovations to evolve and contribute in different ways to our overall portfolio strategy, whether through achieving growth, margins, cash, time horizons and so on.

Innovation is an important cornerstone of our mid-term financial and strategic planning process – innovation is woven into the way we view business performance in our planning cycle to ensure key investments are funded, and trade-offs are made accordingly. Finance drives this process within the organization to provide visibility of our medium term financial forecasts within the company.

This article has been edited and abridged.


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