Nedbank CFO Mike Davis says the increasing role sustainability plays in good business practices.
Over the past few decades, business has experienced various trends and drivers that have led to large-scale organisational transformation. In the 1980s, the focus was on total quality management, in the 1990s it was on business process design, in the 2000s it was on managing for value, and in the 2010s it was on digital transformation.
During his keynote address at the CFO Summit on 31 August, Mike Davis unpacked some of these trends. He explained that ESG and sustainability is becoming the biggest driver of transformation this decade.
“While growth is key, the type of growth we aspire to is so important. The bottom line is, it needs to be more inclusive, equitable and regenerative,” Mike said.
He emphasised that:
“We live in an interconnected world that demands that we live within its environmental boundaries, and so we need to increase our focus on the conservation of the natural world.”
Mike explained that this new driver urges leaders to give more consideration to the wellbeing of people and relationships, and to set the highest standards for the way they run their businesses using ESG principles.
“The environmental aspects of consider how a company performs as the steward of nature. For a bank, this is through the direct use of natural capital in our operations, and most importantly, the direct impact of our financing activities.”
Other companies may have a more direct impact on the environment through their supply chains or operations related to, for example, manufacturing and mining.
“With this transition being imperative for the wellbeing of the economy and the retention of our people, that leads us to the social aspect, which examines how companies manage relationships with their employees, their suppliers, their customers, and the communities in which they operate,” Mike said.
He explained that leaders should be looking to understand how they can use their core business activities, regardless of the sector that they operate in, to grow jobs, and reduce poverty and inequality.
“The governance aspect primarily considers the responsibilities of leadership and management of an organisation, including structured skills, succession, remuneration, audit, and internal controls, as well as relationships with regulators and ethics,” Mike added.
While ESG focuses on business practices and outcomes, sustainability, on the other hand, is about remaining a viable business that delivers intentional social and environmental impacts, Mike explained.
“By focusing on ESG, we can build sustainable businesses that are future-fit, deliver on our purpose and embed good business practice, as well as be a source of commercial advantage and differentiation.”
He used an example of Nedbank, which focuses on fulfilling its purpose of using the bank’s financial expertise to do good, and as a result to lead in sustainability and environmental matters – particularly as it relates to leading in financing renewable energy in South Africa.
“We’re also seeing increasing demands from all stakeholders who want to be part of a company that makes a positive difference and helps them to contribute to social causes,” Mike said.
He explained that clients increasingly want to support responsible companies and work with partners that share the same values. Investors are increasingly incorporating ESG in their investment decisions and seeking sustainable returns. Regulators are increasingly expecting companies to comply with various new rules, regulations and frameworks.
“Society is increasingly demanding that companies make a positive impact, especially in a country like ours, with significant levels of inequality, poverty, unemployment, crime and corruption, and poor education outcomes, to name a few.”
As regulatory commitments intensify, new technologies are developed to enable the transition to net zero within other sectors, and the role of the financial sector in the transition was evident in Mike’s keynote.
“There are a number of different frameworks that can be used to help guide the strategy of an organisation, importantly giving comparable insights to stakeholders for them to measure your activity on a line-for-line basis,” he said.
At Nedbank, ESG and sustainability is a deliberate strategic focus area around what it calls ‘creating positive impacts’. As a result, Mike explained, it is embedded in the way the business is run and how targets are set.
“We use nine sustainable development goals (SDGs) to help us elevate doing the good that we aspire to in our purpose – to create a just, equal and prosperous society for the future. They provide a lens to innovations that can help us meet the needs of our clients by identifying commercial opportunities, new products and services, and growth areas.”
This, he added, sees the bank deliberately use its core business to better social and environmental outcomes. “We’ve committed to supporting new sustainable development financing with R150 billion by 2025.”
Mike explained that there is also a growing need for activities to support agriculture, water and sanitation, quality education, as well as sustainable, residential and commercial property portfolios, to name a few.
“In support of this, through our energy policy, which was designed to redirect investment funds towards cleaner alternatives, we’ve aligned our business strategy, policies and incentives with the Paris Agreement.”
In addition, Nedbank is also helping to ensure South Africa’s energy security. “At our interim results in June, our total renewable energy financing across the government REIT programme, together with private power generation across our frontline businesses was around R28 billion. Subsequent to that, the number of retail solar PV solutions financed has increased by more than 300 percent,” Mike said.
Nedbank’s pipeline and commercial private generation also increased to 1.9GW, up from 1GW in December. “ We anticipate clients to start drawing down on these facilities in the second half of this year and into 2024.”
Lessons for CFOs on this journey
After sharing some of Nedbank’s ESG and sustainability achievements and highlights, Mike provided some advice to other CFOs who are still new to their journey.
“The role of the CFO is changing, moving from purely focusing on financial accounting and reporting to more value accounting and reporting, with the core to this being sustainability,” he said.
“This means the CFO will be intricately involved in setting sustainability-related targets, measuring and tracking progress, as well as reporting on it while at the same time ensuring its credibility and integrity.”
In closing, he encouraged attendees to be comfortable with uncertainty and change. “Much of this work is due and the expectations of us as financial professionals will be growing daily.”