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ACCA Strategic Professional · Advanced Financial Management · The role and responsibility of senior financial executive/advisor

A multinational's board proposes maximising shareholder wealth by relocating a polluting plant to a country with weak environmental rules. The relocation raises project NPV by $4m, but local communities will bear significant health costs not recognised in the NPV. From a senior financial adviser's perspective, which statement is most appropriate?

The adviser should draw attention to the externalities and the associated stakeholder, reputational and long-term risks, and recommend they be factored into the decision. Headline NPV excludes uncaptured social costs, and compliance with weak local law alone does not protect long-term shareholder value or satisfy ethical responsibilities.

  1. AThe $4m NPV settles the matter because only shareholder cash flows matter
  2. BThe adviser should highlight the externalities and wider stakeholder and reputational risks, and recommend they be considered in the decisionCorrect
  3. CThe adviser should ignore the issue as environmental matters are not a finance responsibility
  4. DThe adviser should approve it because local law is the only standard that applies

Explanation

A senior adviser has a duty beyond the headline NPV, including ESG and long-term reputational, legal and licence-to-operate risks arising from externalities. Meeting only weak local law may not protect the firm's long-term value. Ignoring the issue or relying purely on NPV is inadequate.

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