This article is sponsored by Heidrick & Struggles.
While today the chief sustainability officer (CSO) seems indispensable, the role has only been around for about two decades. Yet what began as a specialty silo that served as an extension of communications, branding, philanthropy and/or environmental, health and safety has evolved into something integral within the c-suite of many organizations.
In early integration, sustainability leadership roles had little to no interaction with the board, influence in corporate strategy, impact on product innovation, partnership with audit nor any interaction with shareholders. These activities were informed and shaped by more traditional C-suite executives.
Today, many CSOs have an important executive position in communicating risks and opportunities that are most material to a company’s underlining business model. Often, this means overseeing the ESG process, developing and embedding long-term sustainability strategies in concert with the operating and functional executives, and presenting and recommending to the board.
1. Many CSOs are external hires
Most board directors have low levels of sustainability knowledge or experience, and few have fully integrated sustainability into their business strategies, according to a recent report by Heidrick & Struggles, INSEAD Corporate Governance Centre and Boston Consulting Group. This explains why many CSOs are being recruited from the outside: more boards favor a CSO with extensive experience already with ESG and sustainability portfolios.
JP Morgan, for example, hired a former member of Britain’s Parliament as EMEA ESG & Green Economy Investment Banking officer. The logistics real estate provider Prologis in 2022 appointed the president of Schneider Electric’s sustainability business division as its CSO. And BASF’s senior vice president in its sustainability operating segment became Volkswagen’s CSO in April. In the U.S., Microsoft in December named the National Security Council’s senior director for climate and energy as CSO. This hiring trend illustrates that the risks (legal, reputational, and the like) of having the wrong CSO are now too great, and more companies are importing talent to what is now a strong pool of experienced candidates.
As CSOs have become key advisors to C-suite executives, they increasingly partner cross-functionally to communicate and deliver on the organization’s sustainability commitments and, in general, reduce organizational complexity. This embeds sustainability in the company’s strategy, processes and the actions everyone takes every day.
For the CEO, CSOs explain changing ESG-related regulations and requirements and the steady move toward requiring firms large and small to disclose their sustainability goals and achievements. They help the chief executive manage stakeholders’ relationships and build organizational capabilities.
As for boards, the CSO increasingly keeps directors apprised of new global ESG-related rules and regulations and how the company is doing in achieving goals. Some companies form Sustainability Steering Committees led by C-Suite Executives that own reporting to the board.
2. CSOs are growing with corporate clout
CSOs’ increasing responsibilities and stature signal CEOs will advance them within their organizations — ostensibly to other visible operating roles. The percentage of CSOs holding an executive-level position, alongside board members such as the chief executive or chief financial officer, rose to 28 percent in 2021, more than tripling from 9 percent in 2016, a survey of 1,640 companies across 62 countries by PwC showed. About one-third of recent CSO appointees report to the CEO. Having a CSO sit on the executive board or report directly to the CEO or another board member helps educate and upskill the executive team on evolving ESG issues, the PwC survey concluded.
Exemplifying the growing importance of the CSO, global technology leader Emerson two years ago appointed then-president Mike Train as its first CSO. Train CEO Lal Karsanbhai said that “our work is increasingly focused on helping our customers navigate environmental and regulatory challenges. Train has decades of experience across industries and a deep personal passion for sustainability.”
As their roles and responsibilities change, CSOs demonstrate broader attributes and competencies. In addition to possessing a deep and enduring purpose-driven passion for working in the sustainability space, they grasp strategy and a vision for foreseeing the future — and execute to make it a reality. They also must be a decoder and translator to communicate what is achievable, aspirational and material within their business.
Another key characteristic is an uncanny ability to influence organizations without the authority of a chief operating officer or CEO. They must possess both direct and indirect influencing styles. People throughout the organization, including across functions, as well as board members, must appreciate and benefit from their counsel.
3. CSOs must understand stakeholder ESG views
Activist investors continue to mount pressure against companies they contend aren’t achieving ESG goals. In 2021, for example, shareholder activists were successful against Shell for perceived ESG failures. More such shareholder-led campaigns are anticipated to prod companies to enhance their performance and disclosures on ESG matters.
Consequently, CSOs are increasingly advising companies on how to thoughtful make good on their ESG commitments to people and the planet.
Of growing importance, CSOs identify ways to drive revenues and reduce expenses through the company’s sustainable practices and programs. Netflix, for example, has a net zero emissions goal and is achieving its objectives by, among other things, decarbonizing film and TV production, its biggest emissions source. It also interviews sustainability storytelling into its films and series.
The world of ESG-related rules, regulations and requirements is changing so fast that companies large and small benefit immensely from a CSO who grasps the evolving sustainability requirements and best practices and applies them.
The wide range of responsibilities of the position clearly makes a high-quality CSO imperative to business value and success.