The CFO increasingly plays a role in aligning stakeholder interests around sustainable business.
With greater investor focus and regulatory scrutiny of sustainable business practices, CFOs must now consider how they are creating value for stakeholders that include customers, employees, communities, and society. CFOs must translate this multi-stakeholder approach into actionable strategies and business plans for the long-term. I recently spoke with Devina Rankin, the CFO of a company, Waste Management (WM), that is deeply immersed in an industry where sustainability is crucial. Devina discussed how stakeholder alignment and value creation guides what WM does, as well as how sustainability reporting and disclosure, coupled with cross-functional business partnerships allow for a holistic approach to environmental, social and governance (ESG) goals as WM forges a sustainable path ahead.
Jeff Thomson: Many companies around the world have embraced sustainability and ESG as a strategic priority, yet the underlying goals often “clash” in a multi-stakeholder environment. As Waste Management’s CFO, how do you balance these goals such as disclosures that support investor decisions, implementing supply chains that are “greener and cleaner” as part of corporate social responsibility, and increasing profitability by lowering print costs and using alternative uses of energy?
Devina Rankin, CFO of Waste Management
Devina Rankin: It is certainly optimal when initiatives benefit multiple stakeholders. At WM, we execute upon investments that benefit our team members, our customers, the communities we serve, the environment and shareholders. A great example has been our investment in the largest heavy duty natural gas fleet in North America. These trucks are quieter, which both our drivers and our customers appreciate, they are more cost efficient and they produce meaningfully less emissions, improving air quality.
However, many decisions require that we consider tradeoffs. Those tradeoffs can relate to whose objectives are prioritized – team members, customers, communities, government bodies, shareholders or the environment – and the period of time over which success should be measured – quarterly or annual targets versus long-term priorities.
As CFO, people often expect that my top priority will be maximizing profits in service to shareholder returns. While I certainly am responsible for driving shareholder value, I see that responsibility as inextricably connected with our commitment to be an employer of choice, a differentiated service provider leading the way for our customers, a leading innovator in resource recovery and a purpose-driven investor in environmentally responsible products, services and technologies.
By prioritizing purpose, we don’t sacrifice profit, but rather adapt the formula for driving profitable growth and strong returns over the long-term. An example has been our leadership in using our buying power to increase demand for recycled plastics. We now buy carts for our customers and uniforms for our employees made out of recycled plastic. While these products cost more than other alternatives, the use of recycled content unlocked opportunities for us to accept different material types at our facilities, creating broader business opportunities. Most importantly, this is a strong demonstration of our commitment to recovering resources from the waste stream to help conserve our planet’s natural resources.
Thomson: Voluntary external reporting on ESG is moving to more formal standard-setting and regulations, as demonstrated by the SEC with their proposed climate regulations, the proposed standards issued by the IFRS / ISSB and the voluminous proposed standards by the EU / EFRAG. From a corporate inside-out perspective, how would you describe the potential challenges as external reporting moves from voluntary to mandatory?
Rankin: I would like to start by commenting on the benefits of standard setting and a more rigorous regulatory framework for climate and sustainability reporting. Transparency, consistency, accountability and relevance will all increase as these efforts move forward. It is often said that “knowledge is power” and there is tremendous value – so much of which is currently untapped – that can be realized when we have more comprehensive and consistent information about companies’ environmental, social and governance (ESG) priorities and impacts.
At WM, we have a long history of climate and sustainability reporting. Those efforts are grounded in our commitment to environmental leadership, which includes managing our customers’ waste responsibly and investing in technologies and processes that maximize waste as a resource. As sustainability standards emerge and become universally applied, we expect our investments in sustainability solutions will be even better understood by stakeholders.
With all of that said, there are certainly challenges to both the pace and breadth of the regulatory frameworks being developed. The most significant challenge is that companies are all at different points in their journeys and some of the proposed regulatory frameworks create disincentives for those that are earlier in their journeys, creating a challenge in effectively measuring progress.
A close second is time and resource constraints. Many of the proposed regulatory developments have short implementation timelines and they raise the bar significantly on the level of assurance required for ESG disclosures. Companies have good intentions in providing voluntary sustainability disclosures, but the framework for those processes has been different from the rigor that exists in financial reporting, as an example. To comply with this step change, companies must make investments in tools, technologies and talent. At WM, we are progressing with purpose but to get this right, we too will need time to evolve.
Thomson: Waste Management has a long history of delving into potential environmental risks and turning them into innovative profitable initiatives that utilize its unique business model. Would you share some of your success stories on how your company did this? Did it take cross-disciplinary cooperation that included the expertise of your management accounting teams? Do you view the CFO team as being the natural enterprise leader of ESG reporting, forecasting and strategy leveraging your team’s competencies in data governance, internal controls, enterprise risk management and enterprise optimization?
Rankin: The best example is our focus on collecting and processing the gas naturally generated at our landfills and converting that gas into a renewable energy – either electricity or pipeline-quality natural gas. WM has been the leader in landfill gas-to-energy for decades and, today, we see an opportunity to extend that leadership by building additional facilities across our landfill networks focused on the generation of renewable natural gas. Successful evaluation of this next generation of investment has been dependent upon collaboration across multiple functions – operations, engineering, finance, accounting, legal, marketing, government affairs and communications. The operating and engineering expertise is central to strategic direction but the other functions are necessary to bring that strategy to life.
The finance office at WM is certainly where many of the important competencies are held – enterprise risk management, internal controls and data governance chief among them. Our approach to delivering that expertise to all of our strategic priorities is what we call “business partnership.” The CFO and the rest of the finance team are directly aligned with sustainability and business leaders driving ESG strategy, investment decisions and measuring performance relative to targets. For us, that alignment creates the right balance between ownership of top priorities and healthy, fair and objective challenging of investment decisions and measurement of outcomes relative to plans.
