Sustainability. Inclusivity. Social responsibility.
These aren’t just buzzwords. Not anymore. In today’s business environment, they’re more and more of a priority.
Customers, partners and employees are more likely than ever to seek out good corporate citizenship from their organizations. Organizations that don’t embrace it can often find themselves lagging behind.
As strategic partners to the rest of the business, finance leaders are in a position to prioritize good corporate citizenship—pushing an agenda that supports it through the rest of their organization. But are they ready?
In our 2022 benchmark report, Vena wanted to find out.
Based on a survey of 132 business leaders and finance and operations professionals coming from organizations across a range of industries, our third annual benchmark report, The State of Strategic Finance: Vena Industry Benchmark Report 2022 is now available for download.
This blog post will explore what it reveals on how finance is standing up for the world at large. Do today’s finance leaders see the importance of good corporate citizenship? And if so, are they doing everything they can to ensure their business is an agent of good?
- The finance leaders we surveyed clearly have the best of intentions, with a majority naming environmental, social and governance (ESG) criteria as important in some way to their business strategy. They’re prioritizing diversity, equity and inclusion (DEI) as well. Where they seem to be falling short, though, is in actually taking action.
- By reporting on ESG-related metrics, finance leaders can start making better data-driven decisions to fuel their ESG efforts. Sustainable investing is also a way finance teams can make an impact and show what matters to them.
- To make DEI more of a priority, finance leaders should make diversity, equity and inclusion a part of all of their hiring decisions—with a clear set of guidelines in place. But they shouldn’t stop there. By prioritizing DEI through the top echelons of your organization, you start to make it part of the overall business culture.
The Path of Good Intentions
The good news? Our respondents clearly have the best of intentions.
With 75% of respondents in our 2022 benchmark report calling environmental, social and governance (ESG) criteria “somewhat important,” “important” or “very important” to their business strategy, it’s clear they see the need for good corporate citizenship. Only a scant, (5%) said they don’t consider ESG at all—a good sign that most leaders care.
And the same is true for diversity, equity and inclusion (DEI). A large majority of the business professionals we surveyed saw diversity, equity and inclusion as “somewhat important” (17.5%), “important” (28%) or “very important” (45.5%) to their business strategy. That’s a full 91% that show support for DEI efforts—meaning diversity, equity and inclusion are on their minds.
The problem is that good intentions only go so far. And where respondents fall short is in taking action:
- Only 35% said “yes” when asked if DEI informs their hiring strategy.
- Another 37% said DEI informs their hiring strategy “sometimes.”
- Just 21% said their finance team was reporting on ESG-related metrics.
- Less than a third (28%) were applying an ESG lens to guide their investment decisions.
So what can finance teams do to put their good intentions into action and lead their organizations to good corporate citizenship through company-wide ESG and DEI?
Leading ESG: What Can Finance Do?
Through sustainable finance efforts and a prioritization of environmental, social and governance criteria, finance teams can begin to lead the way on ESG. Here are two ways to get started:
1. Report on ESG-Related Metrics
If only 21% of finance and operations teams are reporting on ESG-related metrics, that leaves almost 80% that aren’t. And as all finance professionals know, when you’re not measuring something, it’s harder to make informed decisions around it.
If you want to put better ESG efforts into place, start by introducing metrics that will help you better understand where you’re falling short. Some areas to consider might include:
- Consumption of energy
- Supply chain miles
- Recycling and waste management
- Diversity and inclusion
- Data protection and privacy
- Corporate social responsibility
- Management diversity
- Accounting transparency
- Executive and board compensation
By understanding how you stand in areas like these, you can begin to get a full picture of your overall ESG competency—and use that data to encourage business-wide change. In fact, some businesses even include ESG disclosures in their annual report or have a separate sustainability report to show where their business stands—putting their efforts front and center.
2. Apply an ESG Lens to Your Investments
Again, 28% of respondents applying an ESG lens to guide their investment decisions means more than 70% aren’t. And if you want finance to be a leader in ESG at your organization, that isn’t going to fly.
By applying ESG principles to your investment decisions, you put a strong signal out there that you’re ready to put your money where your mouth is. You’re not just telling everyone what they want to hear when it comes to environmental, social and governance issues—you’re putting the work in. And that can go a long way in letting potential employees, partners and customers know it matters to your business—helping to drive their decision to work alongside you.
But ESG investing isn’t just a positive move when it comes to good corporate citizenship. ESG funds are often associated with higher returns and other rewards—meaning they’re also good for your bottom line.
Building DEI: Where To Start
Of course, some of those same tips apply to your DEI efforts too. You can invest in businesses that prioritize DEI. And if some of those ESG metrics you start following are DEI-related, you’ll be able to apply the same data-driven decision making to your diversity programs as well.
But why stop there? If you really want to put your words into action when it comes to DEI, here are two more ideas you can put into action:
1. Apply DEI to ALL of Your Hiring Decisions
As our benchmark survey results show, most of the finance and operations professionals we surveyed tried to apply DEI to their hiring decisions. But it wasn’t necessarily codified into their hiring strategy.
Almost three-quarters—72%—said they either “always” or “sometimes” apply DEI to those decisions. Not bad, right? Except, it’s the “sometimes” that worries us.
That “sometimes” means that for 37% of respondents, DEI was optional—not formally integrated into their culture or hiring practices. But to truly be effective, DEI can’t be a “sometimes” kind of thing—it has to be coded into your culture as a whole.
And like ESG investing, DEI-based hiring policies aren’t just “the right thing to do,” either. They also make good business sense. “For diverse companies, the likelihood of outperforming industry peers on profitability has increased over time, while the penalties are getting steeper for those lacking diversity,” McKinsey & Company reported in 2020. Diversity and inclusion introduces a wider spectrum of ideas and perspectives to your business environment—and that’s a win all round.
If you’re a finance leader, you can start by introducing a stronger DEI hiring strategy to your own department first. But you can go even further and use your seat at the table to encourage the application of DEI to hiring strategies companywide.
2. Bring DEI Straight to the Top
Our 2022 benchmark survey results show us that 40% of finance leaders have a seat at the table where key decisions are being made—and another 28% are sitting at the head of that table. As a strategic partner to the entire business, finance is in a unique position to offer guidance to top executives and board members on all issues—including DEI.
By educating your executives and board members, you can begin to align them around key DEI criteria and start to build a company that supports those criteria from the top down. This can help drive everything from hiring choices to compensation decisions. A program that starts at the top will also be more likely to incorporate measurement and accountability measures that are applied throughout the entire business—building an overall culture around DEI.
Also keep in mind that a serious DEI culture shouldn’t just permeate through the lower levels of the organization. To see true change, your board and executive team need to be diverse as well. And for that to happen, everybody needs to be on board.
So it’s time to put those business partnering skills to work.
Putting Words Into Action
“Obviously, more work needs to be done to put action to those beliefs—and finance is in the right position to guide those efforts,” we wrote in The State of Strategic Finance: Vena Industry Benchmark Report 2022. And those are words we’re firmly invested in.
After all, finance leaders are business leaders. That means you have the power to “be the change you want to see in the world,” as Mahatma Gandhi is often credited as saying. So don’t just stop at good intentions. Start putting those intentions into action.
The good news is that in today’s business environment, being a good corporate citizen is great for business too.