If you’re wondering if your company needs a Chief Sustainability Officer, you probably do.

In brief:

• More and more companies are recruiting a Chief Sustainability Officer to lead their sustainability efforts.
• C-level management of sustainability is increasingly important because of the complex requirements of double materiality, whereby companies must manage their ESG impacts while also responding to the impact of the environment and society on their organization.
• Employing a Chief Sustainability Officers can help to identify opportunities and manage risks in a way that contributes to overall business success.

Ever since Linda Fisher took on the job of Chief Sustainability Officer (CSO) at DuPont in 2004 — thought to be the first ever CSO at a publicly-traded US company — senior-level management of environmental, social and governance issues (ESG) has significantly grown in prominence.  

The current level of demand for ESG leadership talent is “unsurpassed and unrelenting.” According to the Harvard Law School Forum on Corporate Governance, just over a third of recently appointed sustainability leaders are the first to hold the position in their company, reflecting the nascency of the CSO role — and just how quickly it has accelerated in the last two years.

The evolution of corporate sustainability management

Of course, the Chief Sustainability Officer is not the first role to tackle issues relating to environmental impacts. Today, more than 90% of companies that make up the FSTE 100 Index have a Head of ESG or Sustainability — and evidence suggests that 100% of corporate affairs directors anticipate recruiting to bolster expertise in ESG in the next 12 months.

But the rise of the investor ESG movement has increased the need for companies to look beyond their own operations and consider the impact of their entire value chain — suppliers and customers included. With this expansion of sustainability initiatives, the importance of ESG leadership has shifted; it’s increasingly a C-level executive role, and deservedly so. 

For years, ESG was a topic for the investor relations department. According to data from the Saïd Business School at Oxford University, in 2018, only 18% of surveyed companies saw ESG as a “top three pressing risk” to global business. In 2021, the same survey sees this number jump to 46%. “Today, ESG commitments are a defining aspect of perceived corporate character, shaping the way in which different stakeholders interact with the organizations they do business with,” it says. 

However, without any clear role definition or standardization of job function, the CSO’s authority and responsibility varies widely between organizations. This is understandable to some degree given that companies are at very different points on their sustainability journeys and have varying priorities depending on their business. Some are at the beginning of their journey, setting targets and initiating key changes within their facilities to move from compliance to energy and resource efficiency. Some have set science-based targets and are innovating to hit net zero goals in the coming years.

Does your company need a Chief Sustainability Officer?

The answer to this question lies in determining where you are on your ESG journey. If you’re just embarking on that journey, you’re undoubtedly focused on compliance and staying within current ESG laws. Here, there is a need for strong leadership, but not necessarily at the C-level.

But the number of companies in this category are shrinking.  As ESG initiatives become more sophisticated and pervade more areas of the organization, appointing a CSO is a very good idea. Companies are increasingly compelled by both consumers and regulators to build more holistic sustainability programs that address environmental impacts while taking the social ramifications of their mitigation activities into account. Navigating these considerations to preserve the organization’s “social license to operate” requires a strategic touch. 

A CSO can help to transform not only your ESG agenda of programs and initiatives (reporting, measuring and communicating to stakeholders will still be key), but also integrate sustainability deep into the company’s operations. What distinguishes Chief Sustainability Officers from ESG managers of lower ranks is that they will actively contribute to the development of your company by finding opportunities for innovation and reducing numerous risks, ESG or otherwise.

A CSO can help to align an organization’s business model with its sustainability strategy, and then embed that strategy into the company culture and overall mission in a way that advances innovation and suitably engages with partners and suppliers too. This is something that requires collaboration, orchestration and knowledge management. It also requires exceptional communication skills that can persuade, encourage and influence a wide range of internal and external stakeholders that have different — and sometimes, competing — perspectives and objectives. After all, we still have a long way to go before sustainability is fully embraced by every function, process, and stakeholder.

Sustainability is becoming far more complex

It’s important to acknowledge that the choppy waters of sustainability are increasingly complex and challenging to navigate. A CSO can help calm the seas, spot any potential icebergs up ahead and find easier and quicker ways to reach your destination. As Harvard Business School Associate Professor, George Serafeim says, “the CSO is the person who is the change agent…who sees how the future is developing, how social expectations are changing, how regulations and the business environment are changing in the future. The CSO is the ambassador with the vision, the person who decides what needs to change when it comes to how the company is interacting with the communities and the broader societal context in which it operates.”

At the heart of the increased demand for CSO leadership are the evolving priorities for managing companies’ impact on the environment and society, as well as environmental and societal impacts on companies — and the risks and opportunities that come with them. This concept of ‘double materiality’ was formally proposed by the European Commission in its guidelines for non-financial reporting, back in 2019. It encouraged companies to judge what is material from two perspectives: how something might affect a firm’s value, and the environmental and social impact of the company’s activities on a broad range of stakeholders. Crucially, it asked businesses to consider how the two are connected.

It’s also something the incoming EU Corporate Sustainability Reporting Directive promotes, asking companies to simultaneously report on sustainability matters that are both financially material in influencing business value, and material to the market, the environment and society.

Many of the other business risks and opportunities that are best handled by a CSO are highlighted by the requirements set out by the Task Force on Climate-related Financial Disclosures. For example, transitioning to a low-carbon economy will present a wealth of policy, legal, market, reputation and technology risks that will all need to be understood, assessed and acted upon in a way that protects business interests and market share. 

The creation of a planetary economy also calls for innovative products and services, diversification, energy and resource efficiency, nimbly adapting to fast-moving markets, and finding ways to keep ever demanding consumers happy, in alignment with planetary boundaries. All of this needs C-level attention.

Step forward: The CSTO

Today, more and more leading global companies have a CSO in place. The majority publish a sustainability report, using metrics that adhere to various standards. Many companies have now set science-based greenhouse gas emission reduction targets.

But very few have started a business transformation journey that is aligned with planetary boundaries. Examples where companies could drive integration and large-scale behavior change to advance sustainability, might include:

• The integration of carbon footprint data into products and services to inform better decision making;
• Engaging consumers with advanced transparency that creates positive changes in behavior;
• Setting targets for suppliers, and giving them the tools and training to enhance their environmental performance;
• Next generation innovation that is actively supporting start-ups and encouraging investments to secure future sustainable capacity; and
• Implementing new circular business models (e.g., rental, resale and recycling) and scaling them up.

Perhaps the CSO should really be called the Chief Sustainability Transformation Officer (CSTO), because transforming the organization is the most critical contribution they can make. To that end, there are three roles they must play if they are to contribute to overall future business success.

1. Visionary — somebody to dream of what’s possible and set ambitious goals;
2. Accountant — somebody to understand, assess and measure what is required to make positive changes;
3. Do-er — somebody that will make transformation happen.

Overall, they must effectively manage the ESG impacts on their business, and the business’ impact on the environment and society, on both the supply and demand side. Imagine the CSO with a Rubik’s Cube in their hands. Unlike with a traditional, 2-D process, whereby a sustainability manager might manage, report and reduce a company’s environmental impacts over time, here there are lots of combinations a CSO must manage and match in order to have success.

Trial, test and win

As it was the first time anybody picked up a Rubik’s Cube and tried to solve it (long before YouTube videos told you how), it’s a game of trial and error. Companies must adopt a ‘test and trial’ approach to find the most effective solutions. And it’s up to the CSO and their sustainability teams to identify and quantify the proof points for success, and to integrate the solutions in business models that will improve and transform products, processes and operations for the future.

If we are to really move beyond compliance to innovative business transformation, the CSO must be a bridge between executive management and stakeholders, an exceptional communicator and a leader with direct access to the CEO. After all, it’s the CSO that has a full and proper outlook on the most urgent and systemic risks and opportunities for any organization.