How Sustainability Can Improve Business Outcomes > Key Trends That Every CFO Should Know

CFO Magazine Editor, Richard McBride, is joined ‘In Conversation’ with Sophie MacIntosh, Chief Legal & Sustainability Officer at Smartsalary to discuss the crucial role sustainability now plays for finance leaders within all organisations.

RM – Why is sustainability important in business?

SM – Sustainability is a fundamental part of doing business in Australia in 2023. Increasingly, consumers and employees are seeking out companies that align with their personal ethics and values. But it’s no longer just about people – sustainability is becoming a “must have” to both attract capital and win contracts.

At Smartsalary, we’re a supplier to all levels of Australian Government, as well as many large corporates and charities. In recent years, we’ve seen a strong theme emerge of clients looking for suppliers that align with their sustainability values and can help them meet their targets. Tenders and procurement decisions are being made not just on commercials, but on Environmental, Social and Governance (ESG) metrics too.

By integrating sustainability standards within their company’s financial narrative, CFOs can help to ensure a healthy flow of capital, maximise opportunities for winning contracts and attract the best talent. This theme will continue to increase in importance as we head towards 2030.

RM – Transparency in sustainability reporting is gaining momentum for consumers, investors and shareholders. How will this impact organisations?

SM – Australian organisations are starting to understand the importance of climate related financial risks and robust sustainability reporting. KPMG reported in 2022 that 90% of ASX100 companies* recognise climate as a financial risk, and 74% of this group are now reporting against the TCFD framework.

Federal Treasury recently released a second Consultation Paper on climate-related financial disclosures for Australian companies. This Consultation Paper proposes that mandatory climate reporting aligned with IFRS standards will start for the first cohort of captured entities in the 2024-2025 financial year, with full implementation for all entities by 2030.

The impact of this regime is that sustainability reporting is about to become a key issue for both CFOs and for Boards. Mandatory climate reporting will be subject to standards and assurance requirements in the same manner as financial reporting and every CFO needs to start preparing for this.

RM – Are other regulators focussed on sustainability?

SM – Sustainability is a hot topic not just in Treasury, but also for other key regulators, ASIC and the ACCC. Both regulators have been clear that this is a focus area for them, particularly greenwashing, governance and the growth of sustainable financing.

In 2022, the ACCC did a broad review of internet content focussing on “greenwashing” claims. Of the 247 different businesses and brands that they looked at, 57% raised concerns for the ACCC2. The crux of the ACCC Guidance on this area is simple: businesses must ensure that any environmental or sustainability claims that they make are accurate and can be substantiated.

RM – What do you think are key components of a robust Sustainability Strategy?

SM – A good Sustainability Strategy is developed in conjunction with key stakeholders, reflects the overarching goals and values of the organisation, and is deeply embedded within the overarching business strategy.

It should include initiatives and measurable targets across a range of areas, including in relation to the carbon emissions of the organisation. Importantly, the strategy must build in clear reporting and accountability against each initiative, with documented action plans showing how each target will be met. It’s not good enough to just have a target without demonstrating how you are going to achieve it.

RM – What can organisations do to reduce their carbon footprint?

SM – Carbon emissions are categorised into “Scopes”. At a very high level, Scope 1 are direct emissions and Scope 2 and 3 are indirect emissions. For a service organisation such as ours, over 96% of our emissions relate to Scope 3 emissions. This is the trickiest Scope to both measure and to reduce.

Two key ways we have identified to reduce our Scope 3 emissions are to focus on:

1. Engaging with suppliers that are aligned with our sustainability goals and targets; and

2. Employee commuting – how employees travel to, from, and at, work is part of an organisation’s Scope 3 emissions. By helping our employees to transition to more sustainable forms of transport, we will have a real impact on this Scope.

With this focus on emissions, many of our employer clients are working hard to help their employees transition into an electric vehicle (EV), by taking advantage of the significant government discounts available in the Federal Government Electric Car Discount Policy.

RM – Tell us more about the Electric Car Discount Policy. How does it work?

SM – The Electric Car Discount Policy is a tax benefit that the Government introduced in late 2022 to help more Australian employees purchase an EV. The full benefit of the Electric Car Discount Policy is only available to most employees through salary packaging a car (otherwise known as a novated lease). Basically, if you buy an EV under the Luxury Car Tax (LCT) threshold, you’ll pay for it with wholly pre-tax dollars, but only if you salary package it through a novated lease.

For someone on the highest tax bracket, that means almost half price. There is no Fringe Benefits Tax (FBT), no GST on the purchase price, and no GST on the running costs. Any EV first owned or registered after July 2022 is eligible, including second hand vehicles, but the value of the car must be under the LCT threshold, which is $89,332 for FY2023-2024.

It does include plug-in hybrid vehicles up to 1 April 2025, when they will be transitioned out with grandfathering of existing arrangements. Employers can help their employees to take advantage of these significant discounts by giving them access to a salary packaging program through a provider like Smartsalary.

In doing so, not only can this increase employee engagement and retention, but it also has the added benefit of reducing the organisation’s Scope 3 emissions and helping them to reach their sustainability targets – which is ultimately good for all of us!

* KPMG Sustainability Reporting Survey 2022: Sustainability Reporting Survey 2022 | ASX100 & G250 – KPMG Australia

** Australian Competition & Consumer Commission: ACCC ‘greenwashing’ internet sweep unearths widespread concerning claims. https://www.accc.gov.au/media-release/accc-greenwashing-internet-sweep-unearths-widespread-concerning-claims