Chief Sustainability Officers Thrive as ESG Risks Rise

Not so long ago, sustainability directors were a new thing in business. “Is this a fad or a role that will last?” asked for a Financial Times think piece in 2011.

Now the answer is clear. The CSO has become an essential member of the management team, an increase reflecting the growing importance of sustainability on the corporate agenda.

This, in turn, changed the mix of skills required. While the ability to manage climate risks and navigate an increasingly challenging regulatory landscape is vital, so is expertise in managing corporate affairs at the highest level.

Rachael De Renzy Channer, who leads the sustainability practice at executive search firm Egon Zehnder, says “the requirement for deep climate expertise” is less important than it used to be. “It’s actually the ability to operate in sequence C [level]to have these conversations with the CFO [chief financial officer] on the story,” she said.

A decade ago, corporate CSOs often came from investor relations or human resources departments, says Scott Atkinson, a partner at executive search firm Heidrick & Struggles and co-lead of its sustainability practice. . These are people who “raised their hands” to say they care about sustainability.

Now, “many [the job] has to do with what’s most important to the business and what the strategy is,” Atkinson observes. CSOs “must be able to talk about legal issues, supply chains and also be able to sit in the boardroom and articulate a vision to the board.”

Last year, 28% of 1,640 public companies surveyed by management consultancy PwC said their CSO was in the C-suite – the highest level of management – ​​compared to just 9% in 2016. For example, Honeywell’s CSO reports to the industry’s senior vice president and group general counsel. At Kelloggs Food Company, the Director of Safety reports to the Senior Vice President of Corporate Affairs.

At other companies with well-known brands, the CSO might report to the CEO, says Cheryl D’Cruz-Young, senior client partner at staffing firm Korn Ferry.

The growing influence of CSOs goes hand in hand with growing corporate nervousness about environmental risk, as activist investors sue companies they see as sustainability laggards and regulators crack down on greenwashing.

In the finance sector, exposure to climate change risk – at the center of recent regulatory “stress tests” – is another area of ​​concern.

Impossible shows? : Citigroup’s net zero task force is led by its CSO © Bloomberg

Last year, banking giant Citigroup set up a Net Carbon Emissions Task Force led by its CSO. He helped develop and launch Citi’s net zero plan – a daunting task for one of the biggest financiers of fossil fuel companies.

“Activist Investors [are] drive change,” says D’Cruz-Young, noting that oil giants ExxonMobil and Shell were targeted last year. For businesses, “there is a fear factor. Commitments have been made. »

These pressures are felt in all sectors. The Oracle software group, for example, has an environmental steering committee that includes the CSO. In the regulatory documents, he notes that a failure of this committee to identify climate and environmental risks could damage the company’s reputation and financial performance.

However, a higher profile does not necessarily mean greater job security. Last year, for example, Desiree Fixler was fired from her position as head of sustainability at DWS, the asset management arm of Deutsche Bank. Fixler says she was fired for warning that the company’s statements about its environmental, social and governance (ESG) investment criteria were misleading — that it was actually greenwashing. DWS, whose offices were raided in May by German police in connection with the case, denies the allegations.

But, since Fixler went public with his allegations, whistleblower lawyers have taken notice. Former officials of the Securities and Exchange Commission – the US financial regulator – who now represent potential whistleblowers, told the Financial Times that Fixler’s case demonstrates that CSOs can be a useful source of whistleblowers.

CSOs can provide valuable evidence if greenwashing is suspected, lawyers say. The SEC has a task force in its enforcement division dedicated to hunting down greenwashing; it also has a program that pays out rewards to people whose reports result in fines.

With sustainability increasingly taking up corporate bandwidth, some companies have also started to rethink the role of CSO, with ESG reporting work starting to be split. This means the CSO can then focus more on finding ESG-related revenue opportunities, Atkinson says.

“It could be that in the next six months there will be more of a bifurcation of the role of CSOs,” he says.