For the past 15 years of my 40-year career in the hospitality sector, I have been advocating for hotel companies, and the tourism industry at large, to not only include the triple bottom line of economic prosperity, social responsibility, and environmental protection in their strategy, but to actually base their entire strategy around that equation and build a strategy of differentiation to compete in this expanding industry. This is, as a matter of fact, a suggestion for all industries.
In a world where business decisions are mostly based on financial consideration, financial managers must reverse the perception that sustainability is a cost rather than a profit driver. Companies have improved their recognition of sustainability as part of a global strategy, but there is still a long way to go. Companies where there is no sustainability expert on the board of directors, or where the vice president of sustainability does not report directly to the CEO but to a senior vice president of marketing or a general counsel and is not part of the executive committee of the company, are still getting it wrong. Sustainability has still not reached a point where it is taken as seriously as it should be; rather, it is considered nice to have for image purposes.
That being said, one must be cognizant of the giant step that sustainability has taken in the last 15 years, the first of a long journey. Reporting through the Global Reporting Initiative (GRI) or other frameworks that include externalities and inputs/outputs has truly helped raise the bar. The United Nations’ 17 Sustainable Development Goals have finally aligned the world on the same platform, from nations to cities, from nongovernmental organizations to for-profit companies. While I commend the Sustainability Accounting Standards Board (SASB) for all its great work, there is still one step to achieve: include sustainability on the profit and loss (P&L) statement and the balance sheet.
It is frustrating that decisions founded on sustainability considerations, such as energy consumption, achieve great return on investment but are not acknowledged in the financial reporting after the first year of being implemented. The most manifest example is changing the light bulbs in a building from incandescent and compact fluorescent light bulbs (CFL) to light-emitting diode (LED) bulbs; this may cost $60,000, but it saves roughly $120,000 within a year (based on an actual example). The cost of the bulbs appears in repairs and maintenance expenses, but where are the savings accounted for, apart from a reduced charge in utilities? More unsatisfying is the fact that the same or increased savings (due to rising electricity costs) will not be accounted for in the following nine years, which represent the balance of the life expectancy of these bulbs and an incredible return on investment. What about the savings in engineers’ payroll costs and the dramatic reduction in bulb purchases? These cost analyses appear in side reports or are highlighted in an annual report, but are nowhere to be recognized by the analysts who determine the financial value of the building or the business established on a P&L and the balance sheet.
The social responsibility pillar of a triple–bottom-line strategy usually represents an actual expense for a company. Sending employees to help out at a soup kitchen does have a cost if it is done during working hours. This should be accounted for separately on a P&L and the number of community man-hours taken as a proof of the enterprise’s commitment to being a good corporate citizen. One of the consequences would be to improve the work efficiency ratios of the team as well; otherwise, companies will never be incentivized to encourage their workforce to help charitable causes.
The other problem with not getting enough recognition for a genuine sustainability strategy on a P&L is that revenues due to companies’ decisions to buy goods or services from a sustainable company because they share the same culture of sustainability are not highlighted. The only acknowledgement comes from the sales team, and that only if they are convinced that promoting the positive effect the company has on its local environment and community is a competitive advantage. Hilton published a recent client study (http://bit.ly/2MuLZa2) showing that, out of 72,000 clients surveyed, 33% actively investigate the sustainability strategy of hotels before booking, particularly younger generations, leisure clients, and female travelers.
Rather than criticizing the accounting profession for having not yet found a simple way of recording the financial impact of sustainability-related activities, I am challenging CFOs to recognize this opportunity. I am also suggesting that they embrace the work of the sustainability team and encourage them to become better at proving the financial relevance of their work. It would be ideal if CFOs became the most vocal advocates of sustainability and supported CEOs in their quest to improve the financial prosperity of the company while focusing on its environmental and societal impacts in order to offer a better, more responsible world to future generations.