By Robert Van Egghen
This article is brought to you by Agenda, an FT Specialist publication that focuses on corporate boards.
More companies are hiring chief sustainability officers as pressure grows to address environmental, social and governance (ESG) issues.
Global organisations hired nearly as many CSOs in 2020 and 2021 as they did in the previous eight years, says a study of 1,640 companies by PwC. Between 2011 and 2019, 414 companies appointed CSOs. In 2020 and 2021 that figure was 394 – despite the pandemic.
More than a third of British companies already had a CSO, the study found. This puts UK businesses ahead of counterparts in Germany but behind those in France, the US and India.
Companies want CSOs to take charge of the ESG agenda. They want people with strategic and business knowledge as well as expertise in the traditional areas of legal, compliance, environmental and health and safety.
Once in position, however, many CSOs find they do not report directly to the chief executive. They also struggle to secure time with the board.
“Companies need to ensure that the CSO sits at the core of their business strategy,” says Jonquil Hackenberg, head of sustainability at PA Consulting.
She says “gone are the days” when sustainability professionals were there “simply to fulfil an audit-like, tick-box exercise”.
About half of CSOs sit two or more levels below the C-suite, while only 28 per cent of CSOs were in the C-suite in 2021, says the PwC survey, which was published this year.
Andrew Lowe, senior client partner for sustainability at Korn Ferry, the global consultancy, says in many organisations the position of CSO has “either not existed or it has been three levels down and has suddenly been elevated”.
“The delineation of responsibility and accountability is very new,” he says. “It's not like appointing a [chief financial officer] where it is a well-established position and it's obvious what good looks like.”
Experts say this means that CSOs can struggle to make their company more sustainable. “Often CEOs hire sustainability people and let them loose, assuming that sustainable things will happen by magic,” says Harald Walkate, an independent ESG consultant. “Smart CEOs know that this sort of thing needs to be facilitated or enabled.”
Such a change requires companies to be structured in a way that lets departments collaborate and ensures that staff are incentivised to do so, says Walkate, a former head of responsible investing at Natixis Investment Managers.
CSOs should develop partnerships with other areas of the business, such as finance, risk management and human resources, says Lowe.
Another difficulty is that many CSOs come from outside a company and can lack the institutional knowledge of insiders.
Ninety-three per cent of companies hired their CSO externally, according to a survey by Russell Reynolds Associates, the executive search company. That 2021 analysis looked at 46 ESG leaders in large global companies.
“Having a CSO who actually understands the business and who has a business mindset” is a crucial first step for businesses that want to become more sustainable, Walkate says.
“A lot of sustainability people dream up a bunch of [UN Sustainable Development Goals] or ESG-related things a company might do,” he adds. “But there needs to be a certain connection to the business, otherwise people roll their eyes and avoid the CSO at the water cooler.”
Companies need to ensure that CSOs, who might be from a non-governmental organisation or policy background, are trained to operate in complex multinational groups.
While candidates to be a CSO might have “deep technical expertise” on decarbonisation or the circular economy, Lowe says, they may not have experience of talking to investors, policymakers and activists.
“Every part of the business needs to act with sustainability in mind. The arc of change is long, it takes time,” says Lowe.
Meanwhile, pressure on companies is growing. Hackenberg says the International Sustainability Standards Board's development of ESG reporting standards for companies means that the risk involved in not having a CSO is likely to increase.
“Not putting sustainability central to strategy means it often becomes a cost to the business with no benefit,” she says. Companies that do not have a core strategy often have nothing to offer consumers and investors other than “proclaiming that ‘we’ve signed up to science-based targets too’”.
This article is based on a piece written by Lindsay Frost for Agenda.