The key to remaining credible and competitive
Sustainability used to be disconnected from important business decisions and typically revolved around minimizing safety or reputational risks for the company. Those days are over. Today, companies all over the world are rapidly increasing their focus on environmental, social and governance (ESG) issues. Yet many executives feel uncertain about what action to take. In our most recent annual corporate director survey, leaders said that addressing ESG issues is so complex – and the issues so all-embracing – that they simply don’t know where to begin.
That’s where the Chief Sustainability Officer (CSO) can make a difference. In this new research, we explore the expanding role of the CSO within the organization and how these executives increasingly find their opinion valuable not only in compliance, but also HR, strategy and even finance.
While not a “silver bullet” in itself, a well-established CSO can make a real impact connecting the dots on ESG and supercharging the sustainability transformation. The role of the CSO will undoubtedly grow as organizations continue to put ESG at the heart of their business. This report reflects on our research and draws upon expert opinion from leading CSOs to review the current CSO landscape and provide recommendations on how to design an ESG governance framework that will supercharge your ESG transformation.
To better understand how the business world is being reshaped by ESG, and how firms are managing this change, we researched the role of the CSO at 1,640 listed companies. We looked at what proportion have CSOs, the backgrounds of these officers and where they sit within the structure of the organization.
Just under one-third of companies had a formal CSO role, while one-fifth of the companies had no CSO at all. Our research revealed that a significant number of companies have CSOs whose sustainability mandate is limited, based on their role or overall standing in the corporate hierarchy. This includes sustainability officers whose focus is not on sustainability as such, but who work on sustainability in the context of corporate social responsibility (CSR) or health, safety and environment (HSE) roles.
At present, our research suggests that too few CSOs have sufficient access to the board, because roughly half of all CSOs are two or more hierarchy levels below the C-suite and therefore lack the influence to shape the sustainability transformation. We classified these executives and managers as "CSO light" to account for their limited mandate.
Based on this classification, nearly half of the companies had a CSO with limited remit. Companies in the consumer goods and products sector boasted the most formal CSO roles – perhaps not surprising given the high-level media and social media focus on sustainability issues in the food and apparel sectors, to name just two.
Companies in the chemicals and oil and gas sectors also had a high percentage of formal CSO roles – an indication of just how much ESG scrutiny investors, regulators, governments, the media and NGOs in particular apply to their operations. The engineering and e-commerce sectors had the lowest representation in terms of formal CSOs.
That gap in CSO expertise is about to change: 2021 saw a threefold increase in the number of CSO appointments globally compared to 2020. The trend had begun in 2018, when issues such as climate and racial and gender equality started to influence investor and CEO decision-making. The pandemic fueled that trend as companies started to prepare their businesses for the coming ESG challenges, building sustainability expertise through hires and internal promotions.
It’s clear from our research that companies are recruiting increasing numbers of CSOs and that they are gaining influence and importance. How, though, is this sustainability expertise being integrated into the organization? Here are the main trends that are shaping the evolving role of the CSO.
From back office compliance to the heart of the business
Embedding ESG into the entire organization
Making ESG a key topic for the board and executive agenda
The growing importance of ESG reporting
“One of the CSO's key priorities – especially early on – is to make clear how sustainability contributes to the business. It is not an either/or but an and. Creating that understanding and linkage of how sustainability drives value is absolutely key. You also need to address how sustainability links up with and strengthens your brand story. Sustainability in itself is not a differentiator, so you need to develop your sustainability narrative.”
Today sustainability teams, led by the CSO, are typically pushing the rest of the business to become more sustainable by sharing insights and knowledge. But as resistance diminishes, and ESG starts to influence every part of business, other parts of the organization, and other executives, will gain their own sustainability expertise. This will alter the role of the central ESG team and of the CSO, and may even make some parts of their tasks redundant. But we are still a long way from this point. It seems likely there will be several more COPs, and many more CSO appointments, before ESG becomes integrated into every business decision and CSOs become victims of their own success.
The CSO study relies on a review of CSO appointments, broad-based company research and detailed executive interviews.
We have reviewed press and corporate announcements in English to track the appointment of Chief Sustainability Officers globally since 2011. Based on that analysis, we gathered the number of CSO appointments per year and conducted additional research on the CSOs identified – particularly their current employer (if that had changed), their individual professional and academic background, as well as the corporate department organization with which the CSO is aligned (finance, procurement, or the board of directors, for example). We were able to identify and categorize more than 150 appointments by means of this approach.
The authors would like to thank Bridget Jackson, Dima Sayess, Samer Al Chikhani, Wineke Haagsma, Meike Hegge, and Thomas Hocks for their advice and contributions to the analyses.