Andy Agg is Group CFO at National Grid plc, a member of the Accounting for Sustainability CFO Leadership network, and Chair of the 100 Group Tax Committee. In our conversation, he sets out the compelling case for why the finance function should be key to collecting and analysing non-financial metrics and measures, and why CFOs should lean in to sustainability and the environment.
This interview was conducted as part of research by the Board Intelligence think tank, in partnership with ICAEW, Accounting for Sustainability, and Odgers Berndtson, into the CFO’s role in creating a fairer future. To see more CFO insights click here
The CFO is stereotypically seen as the person who says “No”, but in reality, that’s not your role at all. Your job is to support the CEO and board to work out the strategy that will take the business forward and create financial value for all your stakeholders. Where the role has really changed over time is that value creation also now looks at non-financial elements, understanding how they impact us as a business and the economy and society too. For National Grid, that has meant making sustainability and the energy transition central to our strategy. It’s my job as CFO to help deliver that strategy, which means focussing on both financial and non-financial objectives, and delivering a strategy that brings those elements together successfully for value creation.
“It’s my job as CFO to help deliver that strategy, which means focussing on both financial and non-financial objectives.”
That shift has been astonishingly quick. When I came into the role, “ESG” was more of an end-of-meeting matter. Today it’s front and centre in our discussions with investors and other stakeholders.
I don’t think that the legacy aspects of the CFO’s role will ever go away — you focus on performance, reporting, financial controls, and protecting the company’s value. But more so now, finance has a critical role around how we measure non-financial performance and set non-financial targets too. When it comes to sustainability, the processes and controls needed to set external commitments, internal targets, undertake performance measurement, undertake data collection and assurance, and produce external reporting are all similar to those needed for financial data. Hence it makes perfect sense for Finance teams to apply those same specialist skillsets to non-financial data as well.
“Finance has a critical role around how we measure non-financial performance and set non-financial targets.”
It adds a level of rigour to non-financial data which I think is especially important to investors and stakeholders. It provides reassurance that the non-financial data has been subject to the same series of robust controls and standards that we apply to financial data. I think finance functions will continue to have a major role to play in this space. That has knock on implications, too. If we introduce and embed data processes and controls in parts of the organisation that are less experienced with it, we need to pay attention to how we educate those people as data and controls may not be core to what they normally do. It also means looking at the systems and controls we have around that non-financial data to establish what new systems, controls and processes we need to enhance or establish.
We ensure that when making decisions, whether it's a high-level capital allocation plan or a decision to invest in specific projects, we take into account the full range of impact, not solely focusing on the cost and financial benefits. The activities carried out by National Grid have far-reaching effects on extensive regions of the country and multiple communities. We must be considerate of the consequences of our decisions, and that’s absolutely a core part of our decision-making process.
A good example of this is “balanced scorecards” which we have been using for a long time now. The scorecards consider aspects of employees, safety, and customers as well as other outputs and stakeholder impacts. In more recent years, we’ve revamped those scorecards to ensure we’re fully across the whole range of ESG factors and have integrated ESG-related targets into both short- and long-term incentive plans. We’ve also set non-financial targets for our businesses which are tracked monthly in regular business performance reviews. It’s become part and parcel of our process, alongside financial performance.
The CFO, as head of the finance function, is in a privileged position with a view across the entire organisation, which means we can really balance different perspectives in investment and capital allocation decisions. And it’s up to us — as finance, and as the CFO — to utilise that with care.
As I see it, the biggest challenge to being able to drive and support the energy transition is planning consent. It takes too long to deploy and construct infrastructure at the pace demanded by government, policymakers, consumers, and other stakeholders wanting to heighten the pace of transition. This is a difficulty in the UK and even in the U.S. too — getting planning consent can be an extremely arduous process that takes a huge amount of time and resource. For some things, we could essentially halve the time it takes to go from an idea to a completed piece of infrastructure — but the key to this is in unlocking the planning regime to enable us to move forward, faster.
“The biggest challenge to being able to drive and support the energy transition is planning consent.”
If there was one thing I or the industry would change overnight, it would be to upgrade and enhance the planning process, so we can construct the essential infrastructure required quickly.
It sounds simple, but I’d challenge my peers to lean in on sustainability and the environment. Of course, different companies and sectors face different challenges and areas of focus. But climate change is an issue for the whole of society, and one we must engage with as businesses. Work with your sustainability teams and talk to business units to really understand the areas where you can be proactive in making a difference. Hopefully, that kind of “engagement” on this topic can help to change the view of the CFO from being the person who rejects things, to the person who’s helping the business find a way to make things happen, despite difficulties.
This interview was conducted by our Director of Think Tank, Scarlett Brown. Interested in furthering the conversation about the changing role of the CFO? Take part in the second phase of our research here.