Key Takeaways
- Ownership of sustainability processes has progressed from Chief Marketing Officers to Chief Operating Officers to, most recently, Chief Financial Officers.
- The Chief Sustainability Officer role is responsible for providing a holistic strategy regarding how each functional department can manage sustainability risks relevant to their function (marketing, operations, finance, etc.).
- With governments and investors rapidly pushing to standardize sustainability risk, integrating sustainability across the C-suite and the role of the Chief Sustainability Officer becomes ever more critical.
The nature of sustainability risks and opportunities can impact or accrue to businesses in a wide variety of ways from customer sentiment to supply chain disruptions and from energy prices to employee recruitment and retention. It is therefore not surprising that we see companies vesting responsibility for sustainability performance and risk management in a wide range of professional roles across the company. In the early days of sustainability, Chief Marketing Officers frequently took responsibility as sustainability risks were largely driven by the opinions of external stakeholders and the main output of the corporate sustainability program was the annual sustainability report. We then saw a wave of Chief Operating Officers assume the sustainability mantle as operational costs such as energy, constrained natural resources and disruptions from climate change began to hit the balance sheet. In recent years, there has been a move toward the Chief Financial Officer as investors begin to exert more significant pressure for companies to identify and manage sustainability risks.
Through these evolutions, there has been one consistency for companies leading the way on sustainability risks: the Chief Sustainability Officer (CSO). The role is typically heavily steeped in strategy and tasked not with managing risks, but rather advising the rest of the executive team on how they can manage sustainability risks within their own functional responsibilities. This has made the CSO an inherently challenging role as they wield enormous responsibility for understanding risks, but little authority to manage them.
Today, sustainability is rapidly bifurcating between ever more complex strategic needs for companies to navigate the myriad sustainability risks while governments and investors rapidly push for the standardization of how companies assess and manage these risks. The result will be a continuing stretch and bifurcation of the CSO’s role. Are they strategic officers, tasked with navigating the company’s direction without a hand on the tiller? Or are they compliance officers, tasked with reacting to external pressures even when the expectations of regulators, society and markets may erode the strategic benefit of proactive sustainability management? The answer will be critical for companies to successfully govern in these more complex times.
Looking forward, the companies will need to evolve or even overhaul the role of the CSO. Evolution will entail surrounding the CSO with structure controls that empower implementation of risk strategies – for example embedding performance metrics for other executive team members that are dependent on the actions of the CSO. Essentially creating structures to give the CSO some leverage on the corporate tiller. An overhaul will entail the movement of the strategic role of the CSO to the rest of the executive team. Effectively empowering the COO, CMO, CIO, General Counsel and others to consider sustainability risks more effectively. This could include for example policies that expand expected return horizons for sustainability investments as an acknowledgement of the longer time horizons needed to address social and environmental risks.