July 23, 2013
Read More »
It's a pleasure to join you here at the International Corporate Citizenship Conference.
Some of you might have looked at the conference agenda and seen the words "CFO" and "sustainability" appearing in the same sentence.
I promise you, it's not a misprint or a typo.
Let's admit it: CFOs haven't exactly been at the center of the corporate sustainability movement.
After all, people think of us as bean counters.
And there's not anything very green about bean counters, except maybe our eye shades.
But a funny thing has happened to the role of the CFO in recent years.
As issues like global recession, company bankruptcies and credit crises have take center stage...
CFOs have gone from being fancy accountants to co-drivers of corporate strategy.
We no longer worry only about quarterly results. We also focus on strategies for long-term growth.
As you know, long-term growth can't be separated from issues of economic, social and environmental policies.
In other words, a CFO's job really is about using resources wisely and ensuring that an enterprise is strong enough to thrive for decades to come.
Sustainable, if you want to call it that.
So the words "CFO" and "sustainability" really do belong together.
In a strange way, my own eclectic career journey at UPS has prepared me to consider the issues of sustainability.
Early in my 33-year career with UPS, I was an industrial engineer.
And I spent a lot of our time doing time-and-motion studies to determine the best ways for our people to perform certain tasks.
By cutting a step here and a movement there, we could save a surprising amount of time and money.
We were measuring the efficiency of our operations.
We thought of it as "running the tightest ship in the shipping business."
Today, in addition to measuring time and money, we are measuring gallons of fuel and carbon, too.
There's no question that lean IS green, both in terms of the environment and dollars.
So it's easier for an old industrial engineer to see the connection to sustainability.
From a financial perspective, I really became involved in sustainability in 1999...
when I was head of investor relations and UPS became a public company for the first time.
After the IPO, we had a whole new set of stakeholders to deal with.
Instead of having to interact only with retirees and UPS employees...
we had to learn to accept and embrace external perspectives.
The social and environmental components of corporate responsibility demanded more of our attention.
In the general business environment, other changes were unfolding.
In the immediate years following our IPO, transparency emerged as a critical business issue.
Many companies were wrestling with how transparent they should be and how they should best tell their sustainability story to the public.
Trust became as much a part of the message as dollars and cents.
Guidelines like the Carbon Disclosure Project, Global Reporting Initiative, GHG Reporting Protocols and even Sarbanes-Oxley soon emerged.
Investors began to scrutinize more than just an annual report, printed months after year-end.
UPS already was measuring every thing about our operations. But now, we saw the value of sharing that data externally.
Stats we had collected about things like operational efficiency, safety and environmental protection were exactly the same information that sustainability supporters were asking for.
In 2002, we were the first in our industry to publish an annual Sustainability Report.
In it, we were able to connect our operations to sustainability.
For example, initiatives that reduced the number of miles driven by our fleet also reduced fossil-fuel usage and carbon emissions.
Technology to automate tasks and elevate our employees' jobs to higher skill levels resulted in higher salaries and better economic benefits.
Safety records traced how we were working with our union members to make a better workplace.
It became obvious that sustainability to us wasn't just a reputational effort...
but went to the core of the very way we operate as a business.
Today, I can stand before you and say that sustainability is a strategic imperative in my job as CFO. It should be the same for your CFO.
And it's your job to help him get into your circle.
Let me ask you this:
How many of you in the audience are in finance?
How many of you have spoken to your CFO in the last month about sustainability issues?
Well, to successfully bring them to the table, you need to communicate with them in terms they can appreciate.
Risk mitigation. Cost savings. Opportunity Creation. Productivity gains. Employee retention.
That's how to speak the language of the CFO when you're talking about sustainability.
In fact, I'd like to lay out five reasons that CFOs should care about sustainability.
They are:
Let's take them one by one, starting with cutting costs.
Environmentalism is rooted in doing more with fewer resources. Wasting less and making responsible decisions about how to operate.
In the logistics industry, there's no getting around it: It takes fossil fuels to transport goods.
At UPS, fuel represents about 5 to 6 percent of our costs.
Anytime we reduce fuel usage, we reduce costs.
Anytime we make our global supply chain more efficient, we reduce costs.
And, in the process, we reduce carbon emissions.
This is relevant to anyone in the audience whose company ships goods.
How many of you have shipped something in the last month? (Pause) I rest my case.
An efficient supply chain is a more sustainable supply chain, especially in these days when goods are as likely to come from across the world as across the street.
I'll give you a couple of examples of how efficiency in operations is intrinsically tied to our sustainability efforts.
UPS recently completed a massive overhaul of our routing, loading and sorting processes as part of a multi-year initiative called Package Flow Technology:
PFT for short.
PFT included process enhancements like shortening delivery routes...
minimizing engine idling times...
loading packages in the precise order they're to be delivered...
and combining multiple deliveries into a single stop.
And yes, it's the technology behind our minimizing left hand turns.
That's music to my engineer mind. But here's where it translates into green - both in terms of dollars and carbon:
In all, PFT has shaved 100 million miles from our delivery routes since 2003.
It's also reduced fuel use by ten million gallons and carbon emissions by more than 100,000 metric tonnes.
Technology is just part of the story.
In the past few years, UPS has also shifted packages to more carbon-friendly transport modes whenever possible.
For example, by shifting some ground packages to rail and some air packages to ground...
we prevented 3 million metric tonnes of CO2 from entering the atmosphere in 2008 alone.
I think these examples show that, not only do you need to talk to your CEO, but to your COO and CIO as well.
We've also been working with our customers to find more sustainable ways to pick up their packages.
A new service called Smart Pickup that we announced just a few weeks ago lets customers opt out of regularly scheduled package pick-up.
It's a great convenience for them and for us.
Under this program, UPS comes to the business only when the customer has notified us that there's a package to ship.
That means we have to drive fewer miles and use less fuel.
We estimate that this joint effort with our customers will eliminate 8 million miles driven by UPS each year in the U.S.
And, it will save an estimated 793,000 gallons of fuel and 7,800 metric tonnes of CO2 emissions.
The point is, lean is green at UPS.
And I suspect that's true at many of your own companies.
If you're able to connect cost savings and efficiencies to sustainability, you're more likely to get your CFO's attention.
Here's a second reason that CFOs should care about sustainability: to mitigate risks.
A big part of a CFO's job as a corporate strategist is to assess long-term risks to the business and find ways to reduce those risks.
Looking through a sustainability lens presents a new way of looking at forecasts and risks.
At UPS, we use scenario planning and "what ifs" to assess a whole range of outcomes - both likely and unlikely.
One of those scenarios is Oil 200?, which involves oil going to $200 a barrel.
The cause could be geopolitical unrest or carbon taxation or environmental drilling constraints. It doesn't matter.
What matters is that we anticipate risks and then prepare strategies to deal with them.
One of our issues is fuel. Yours might be water scarcity, or climate change impacts, or labor unrest, or agriculture-based issues, or activist pressure on your customers.
Whatever the issue, the CFO can be engaged to support you if he or she understands that the long-term viability of your organization could be at risk.
Another area of risk involves shareholder and stakeholder preferences.
Socially responsible investing has been growing faster than overall investments in the past few years:
18 percent between 2005 and 2007, compared to 3 percent for the universe of all investments, according to Ceres.
The 658 signatories to the Principles for Responsible Investment...
which collectively represent more than $18 trillion dollars in assets...
have stated that it's in the best interest of their beneficiaries to factor sustainability into investment decision making.
Despite these trends, SRIs are still a small sector of institutional investors.
Most companies run into them only when they get a bad score from their research departments, or they target them for a shareholder resolution.
Many Wall Street investors are still skeptical about whether sustainability is a substantial competitive advantage.
That's especially true regarding pure social or environmental efforts that at first seem more altruistic than economic (or, at least, the story is told that way).
I'd say honestly I'm in the middle on whether sustainability presents a competitive advantage.
But I can say that what sways investors is connecting sustainability with risk aversion and financial gain.
The one thing Wall Street hates the most is surprise.
So when a company confidently talks about how it will reduce risks and be successful for the long-term (aka sustainable), Wall Street listens.
Wise investors look for companies with responsible business practices, a promising future and a long-term perspective that reduces risks.
One set of risks that everyone agrees on is regulatory risks.
With the emergence of climate-change legislation, carbon taxation schemes and cap-and-trade regulation around the world...
smart companies are doing everything they can to figure out how to report their environmental impact and reduce it.
Those that don't are at financial risk when new carbon regulations with financial penalties are instituted.
Even the SEC is asking companies to report on climate change risks.
Some of the scenarios we've considered that could impact you include inner city restrictions on traffic during peak hours.
What if we could only deliver in the middle of the night, instead of during the day?
How would that change your own operations?
It's already a real possibility in some cities in Europe.
In London, companies are being taxed for their electricity bills, a tax that will be returned IF you meet carbon reduction targets in the next 5 years.
For us, it was $500,000 dollars we had to fork over. How much is your bill going to be?
Tell your CFOs to listen up: environmental demands are coming from City Hall as much as they are from fringe activists these days. And they can add up to millions of dollars.
CFOs aren't only interested in the cost side of the business, of course.
Revenue talk can get their attention just as well, and revenue opportunities are a third reason CFOs should care about sustainability.
Many companies have found sources of new revenue by offering sustainable products and services.
At UPS, we've taken what we've learned about more sustainable operations and started offering this body of knowledge to our customers.
We have a sophisticated carbon calculator that we developed based on our own operations.
Now our customers have access to that calculator on a contractual basis so that they can precisely and credibly determine their own environmental impact that is tied up with their transportation and distribution of goods.
We know our customers all will need this service eventually...
as a result of new regulations, labeling requirements, demands for life-cycle environmental impact requirements, and their own sustainability report needs.
So we've put into place a third-party calculator to meet their future needs.
We also have a carbon neutral shipping option, where we buy third-party certified gold standard offsets on behalf of the customer. And match them dollar for dollar.
Another example: We have a Package Lab that consults with our customers to design optimal packaging for their shipments.
The goals? To help companies pick environmentally responsible materials, to right-size their packaging, and to reduce shipping damages and returns.
Returns mean more re-ships and more carbon.
Packaging, by the way, is one of the fastest-growing concerns in the consumer goods and electronics industries.
For our bigger customers with transportation fleets of their own, we sell Roadnet technology to optimize their routes and use less fuel.
Just as we cut out miles for our brown trucks, we have off-the-shelf software that does the same for others.
To be honest, these new revenue sources are not yet CFO-significant for UPS.
But they meet a need that customers have. And we think that joining with customers to figure out solutions helps us bring them value now and into the future.
While we talk about hard revenue dollars, we also don't want to neglect the benefit to our company's brand. It's an asset valued at $xxx millions by third-parties.
In the wake of financial scandals, government bailouts and prominent recalls, consumers are more skeptical about corporations.
They are looking for companies they can trust.
Companies that will be around for the long-term.
So, in many consumers' eyes, a sustainable company is inherently a better bet.
Plus, a growing number of consumers are putting their money where their values are.
They want to know more about where products are made, the materials used, the resources needed to transport them, and post-use recyclability.
When a customer is choosing between your products and services versus your competitors'...
sometimes your sustainability story can tip the balance. And that's a competitive advantage that can translate into growth.
What's true for consumers can be true for business customers and even the government sector.
UPS recently became a preferred GSA vendor for government delivery services.
And a big reason why was our credible sustainability story and our award-winning recognition by the EPA for environmental leadership.
A recent executive order by the Obama administration requiring federal agencies to report and reduce their carbon impact certainly didn't hurt.
It made UPS a valuable sustainability partner and a competitive differentiator as we seek to grow this revenue stream.
We also see similar inquiries from Wal-Mart suppliers and government contractors for the same reason.
In fact, increasingly, the RFIs and RFPs that we receive now usually have questions about sustainability - not only about environmental issues but also questions about diversity, human rights, and community investment.
Does it make a difference? Let's hope so…for all of our sakes.
A fourth reason that CFOs should care about sustainability is that it can drive innovation.
I'm talking about innovation in new products and services that leave a lighter footprint.
Innovation in manufacturing processes and end-of-life disposal of e-waste.
Innovation in energy-efficient facilities and construction.
Innovation in supply-chain practices and more.
One caution: Innovation doesn't always pay off in the short term.
And I think that CFOs in the future, me included, need to look closely at a new way of evaluating sustainability investments.
As a staff member of Businesses for Social Responsibility recently wrote, corporate social responsibility is like investment in R&D.
It's about "disciplined action and capability-building that sustains and increases the value of core company assets over time."
We're betting that's true at UPS.
We've developed a fleet of 1,900 alternative-fuel vehicles.
We call it our "Rolling Laboratory," because we're able to test the fuel-efficiency and practicality of any number of emerging alt-fuel technologies:
technologies ranging from electric and hybrid-electric vehicles... to hydraulic hybrid... to compressed natural gas and propane.
There is no silver bullet - no single alt-fuel technology that will work in all our transportation applications.
What's good for stop-and-go urban delivery isn't necessarily good for long-haul tractor-trailer loads.
So we partner with agencies like the EPA and vehicle makers to develop and test new technologies.
This all sounds great, but right now, this alt-fuel fleet is still costing us more than it's saving us.
Alternative vehicles can cost up to twice or more what traditional vehicles cost.
And fuel savings are still somewhat unpredictable while the ROI is, at best erratic.
So why do I, as CFO, sign the checks?
Because we have to hedge against high costs.
Remember our Oil 200 scenario? We also want to be part of the solution, working with manufacturers to come up with a vehicle that will actually work for our industry.
That's why our real-life mechanics and drivers are part of the tests. We want to make a commercially-viable vehicle that can be mass produced and is operationally superior.
Until then, we consider our Rolling Laboratory a long-term investment.
There's also an intangible benefit to sustainability.
Employees get excited about it and get personally vested in the outcome.
They innovate because it matters to them, their families and the planet.
Not long ago, we assigned a team to come up with the carbon-neutral shipping option.
The team wanted us to be first-to-market, so they overcame a lot of the institutionalized barriers that ordinarily impede speed at a global multinational.
They found internal partners who also cared. They devised "work arounds" and pushed the executive team to make quicker decisions.
The result: the product was launched less than 9 months... not the typical 18-24 month product cycle.
Here's another example of innovation springing from passion:
After the devastating Earthquake in Haiti, one of our employees went to Haiti to volunteer at the Salvation Army.
He told his colleagues back home in Sacramento about the truggle to keep track of families –
2000 of whom were staying on a soccer field in tents made from bed sheets.
Well, over a single weekend, these UPSers went to work reconfiguring an existing UPS package-tracking technology.
The new system let Salvation Army workers scan special badges on each person using a handheld computer.
Using this tracking system, it was much easier to keep track of information about family size...
who had gotten supplies...
who was the head of household...
and where in the camp the family was located.
Other relief agencies were so impressed that they've said they want to buy the system.
It's all because some employees spent their weekend taking what they knew to solve new kinds of problems.
So here's the fifth and final reason that CFOs should care about sustainability:
It can help you improve employee recruiting, development and retention.
CFOs care about this, because they can avoid the costs associated with finding and training new employees.
They can avoid the dips in productivity that occur when employees leave.
And they can tap into the growing numbers of employees who are looking for work.
It's no secret that the current generation of employees is looking for stability and an employer that is going to be around for the long run.
They want an employer that shares their values. One they can trust.
And, although they may not articulate it this way, they want a company that, in short, is a good corporate citizen.
They want to be at a company that allows them to do good work but also to do good
Depending on how you measure it, Generation Y already makes up a quarter to a third of the workforce.
And with upwards of 40 percent of today's workers retiring within 10 years...
companies realize that we had better soon figure out how to harness the talents of the next generation and how to keep them around.
One of the activities that's particularly important to younger employees is community volunteerism.
From a pure business perspective, volunteering is one terrific way to teach leadership skills, build teamwork and make valuable business connections.
Connections, by the way, that might even win new business and generate revenue.
(I couldn't help adding that. I'm a CFO, after all.)
We think volunteerism is so important that it's one of the mandatory sessions required for new management training and orientation.
Every year, our UPSers around the globe volunteer 1.2 million hours of their time in the community.
That includes activities such as helping teach people to read...
building homes and schools in poor neighborhoods...
mentoring at-risk youth...
and providing management skills and technology support to non-profits.
Hands-on community involvement really develops leadership skills and problem solving.
We believe that UPS working with non-profits can create a beneficial result for both of us.
And increasingly, our philanthropic grants are tied to volunteerism and knowledge sharing.
For example, one of our key initiatives is disaster relief.
We have trained 20 of our UPS logistics people for deployment as part of the World Food Programmes Disaster Relief Team.
These and other employees, some of whom had never been out of the country before, found themselves in Honduras, Indonesia, a Darfur refugee camp in Chad, in Haiti, and Thailand, to name a few.
I can assure you that each of those employees has a much stronger understanding about what it means to work for a global company.
When they come back to the U.S. after their assignment, they are changed people.
They say they are reinvigorated.
More importantly, they have learned how to creatively solve problems with very limited resources.
Their new perspectives have led to new UPS solutions and ideas...
especially related to operations in emerging economies.
And they are an inspiration to their co-workers, and that can ultimately lead to more innovation, higher retention and company loyalty.
At this conference, we probably all agree on the notion that businesses have a responsibility to be prosperous and also to make the world a better place.
CFOs have traditionally focused on the first part of that mandate.
To get them more interested in the second part, it's important to show them the link between long-term prosperity and sustainability.
Speak their language:
Cost cutting.
Risk mitigation.
New revenue opportunities.
Increased innovation.
Enhanced employee development and retention.
When these are the stakes, you can count on CFOs to become surprising champions of corporate sustainability.
I know I'm convinced.
Thank you.
 |
 |
 |
|