Stephen Oxley is Chief Financial Officer at Johnson Matthey and a former partner at KPMG. Here, he explains how sustainability is embedded in their approach at Johnson Matthey and why the CFO has a critical role in driving this forward. This interview was conducted as part of our research inquiry into the role CFOs play in creating a fairer future.
How would you sum up the role of the modern CFO?
A fundamental part of the role is capital allocation - what’s the amount of money that we're prepared to invest, and how do we allocate that against different opportunities in the business? Like every company, the list of demands or asks is greater than what we can afford. So we have to make sure our process for evaluating those projects helps us whittle down those that have real potential before we invest significantly. This isn’t just financial reward, we’re also looking for non-financial impact.
When it comes to the non-financial case, an investment in safety is our number one priority for obvious reasons. But, equally, sustainability is an increasing component of our capital allocation. I want to make sure we’re thinking about the sustainability impact of an investment early on. So asking, for example, how does an investment support us in our path to Net Zero? Or reduce emissions, or whatever it might be? Because for every investment decision, we’re looking at a financial outcome and a non-financial outcome.
I see the role of the CFO as twofold. Internally, the CFO works alongside the CEO to drive all aspects of performance – not just financial performance but also sustainability. Externally, you are the face of the performance of the company. So, of course, that means talking to the market and investors about financial performance and producing numbers with integrity and trustworthiness, but I also talk about all aspects of performance, not just financial.
With that broader view of performance beyond financial, what challenges does that create?
I’d like financials, operations, and sustainability measures to be more integrated than they are. Non-financial metrics are still too much of an adjunct and not as well integrated into the core as they need to be. Although I spend a large chunk of my time talking to investors, by and large, I get surprisingly few questions on sustainability. For a sustainable technology business that’s surprising. Now that might be because what we do is so integral, maybe because investors understand that controlling emissions is absolutely central to what we’re doing because of the nature of the business. In reality, I would say that financial returns are still by far the main driver of investment discussions. So, given a magic wand, I’d raise the role that non-financial metrics play, especially sustainability measures, so they are more seriously considered by investors.
“Although I spend a large chunk of my time talking to investors, by and large I get surprisingly few questions on sustainability. For a sustainable technology business that’s surprising.”
How do you think the CFO can help to make sustainability a priority?
The CFO’s role here is to ensure that the business has standards that are fit for purpose and that performance systems are integrated as much as possible. We’re going through an upgrade to our group reporting system and a key part of that has been thinking about how we use it to collect our non-financial information alongside all of the typical finance data. The last thing you want is a situation where you’ve got isolated siloes of activity that don’t communicate; you want these to come together otherwise you can find yourself being pulled in different directions.
If you integrate non-financial metrics into everything you do, it means sustainability forms a natural part of your decision-making, not something raised separately. In practice, it means if we’re discussing whether we’re on track to deliver our strategy, the first question will be about our customers and our environmental impact. Once you’ve become fluent in this way of thinking, sustainability is a natural part of discussion and it forms such a natural part of your purpose and strategy that it becomes a critical part of the debate. Setting up your reporting system in a way that encourages this is crucial, and the CFO has a critical role to play in this.
“If you integrate non-financial metrics into everything you do, it means sustainability forms a natural part of your decision-making, not something raised separately.”
What keeps you awake at night?
The world has to decarbonise and we have to reach Net Zero. We can all do our own little bit, but I wonder if we really understand the path from A to B and how we as individuals and the companies we work for are going to get there. I worry that a lack of understanding here means that we’re effectively putting it off to the next generation and saying: that’s somebody else’s job because I’m not going to be in the company in five or ten years. We’ve got amazing targets for 2030 or 2035, but unless we can translate that into baby steps today, we’re never going to get there. That’s a challenge for all of us individually, but especially as business leaders. It’s why we’ve included short-term sustainability goals in our targets and incentives to move us along this path.
This interview was conducted by Dr Scarlett Brown, Head of Think Tank at Board Intelligence, as part of our research inquiry: "What is the CFO's role in creating a fairer future?" If you’d like to nominate a CFO leader to be part of our interview series, get in touch.