Dumb Question: If Sustainability's So Great, Why Don’t Financial Types Mention It?

This week’s Dumb Question went to Christoph Huetten, senior vice president and chief accounting officer for SAP, which is based in Walldorf, Germany. Huetten last week helped the software maker roll out its first annual report that integrates financial results into one document (or "integrated report ") with non-financial performance metrics , such as carbon pollution, women in management or employee retention.

DQ: Can I ask you a dumb question? If sustainability is so important to business, and not just p.r., then why is it so rare for financial executives to tout sustainability goals and sustainability executives to tout financial goals? 

Christoph Huetten: I don't think that every communication with Wall Street is always about the entire enchilada of financial and non-financial [performance]. There will be times when people are more focused on the financial side, and times when people are more focused on the non-financial side. 

Even in five or 10 years, most of what people will talk about in an earnings call with Wall Street will be revenue and profit. If it is about a full-year performance, that's where you will see more and more on non-financial factors. It's not that we will see equality: ‘Here's my earnings... Revenue grew by this much, and carbon footprint was reduced by this much.’

'It takes time to make people understand it's not about environmental accounting,' Huetten said.

Guys from the investment side visit companies, and companies say, ‘Well, I think I've got a very sustainable business. I try to reduce my carbon footprint, and I try to do this and that.’ Then they ask them, ‘Now tell me, why are you doing it? Where will we see the benefit of you doing that -- or is it only a marketing gag?’ 

That will put pressure on talking not only about the carbon footprint, but on the benefit. What is the benefit in your financial KPIs [key performance indicators] at some point in the future? 

Most companies that do sustainability reporting may not yet focus on KPIs that are truly, really important. Frankly, at the moment it is partly still a marketing game -- ‘What a wonderful company I am,’ and ‘I respect the environment’ and stuff. 

A lot of people still believe that sustainability reporting is all about environmental reporting. It takes time to make people understand it's not about environmental accounting: It is about reporting your non-financial KPIs. Most companies, when they talk about their sustainability effort, the first thing they talk about is environmental. That's simply because that is what they think people want to hear at the moment. It may be what people want to hear at the moment. But the more it develops, the more you'll see people wanting to hear about your two most important non-financial KPIs -- and why you think they're the most important. People need to think about more than counting carbon footprints. 

All in all, I think you will see CFOs involved more going forward. We have a working group in Germany, one that was founded in 1972, which is all about financial reporting, the Schmalenbach Society for Business Economics. We have all stakeholders in the room, and that's why this forum is highly respected. When we talked about this in that working group last year, that's what everyone said: Now that we're looking more into this, we see that the quality of the [sustainability] numbers is far below the quality of our financial numbers. Often they are currently produced by people who are less experienced in producing numbers.

You can't expect these people to do that if they don't have a more than 500-year history, like financial accounting has. That's where accountants can help to improve the quality of the data and get the quality of non-financial reporting data up to the level of financial reporting data.

Transcript edited for length. Analyses and commentary on The Grid are the views of the author and do not necessarily reflect the views of Bloomberg News.

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