THE FUTURE OF CHIEF SUSTAINABILITY OFFICERS

This report looks at the evolving role of the Chief Sustainability Officer (CSO) in the financial services industry. We explore why some firms have CSOs and others do not, the typical mandate of the role, the skills needed to deliver that mandate, and various governance models.

We expect the role of the CSO to gain prominence over the next two years. The CSO is emerging as the “sense-maker in chief” in the organization. They are being asked to interpret changes in the external sustainability environment and work out the strategic consequences for their firm. The CSO is also charged with influencing, communicating and cutting through the organizational complexity to allow their firm to deliver on ESG commitments.

The mandate of the CSO’s role

The skill set of the CSO

Reporting lines and relationship with the CEO

The CSO’s contribution to governance

Future pathways for the role

The role of the CSO is evolving as organizations have a long way to go before sustainability is fully embedded into every function, process, and person.

Since the start of the 2000s, a high-level corporate position has evolved that is still something of a mystery. As companies have engaged in more efforts around sustainability, environmental and otherwise, the “chief sustainability officer” has been created to champion and monitor these efforts.

But despite dozens of individuals in some of the world’s largest companies taking on these duties, the role has been little studied. Just what are chief sustainability officers (CSO), where do they come from, and how much influence do they exert?

“Companies are monitoring the impact they’re having environmentally and on society, and the appointment of the CSO reflects an underlying need for companies to not only monitor but also improve their performance,” says Harvard Business School associate professor George Serafeim.

To create more understanding about the position, Serafeim wrote the paper “Chief Sustainability Officers: Who Are They and What Do They Do?” with Kathleen Miller, CEO of Miller Consultants. Their results suggest that CSOs are of critical importance in successful sustainability efforts, but ironically become less central as sustainability efforts blossom.

Although often linked with environmental issues such as water and energy use, a growing number of companies are taking sustainability efforts much further by improving working conditions in their supply chain, creating better safety procedures, and reaping profits from products that address environmental and social problems.

Many companies don't make it to the innovation stage because they focus only on short-term goals like the cost savings they achieve from reduced energy use, rather than taking risks with more ambitious sustainability plans.

"Many organizations are afraid to raise the stakes and make bigger bets," Serafeim says. "It's not easy to make that transition. That's why you need the CSO to make a push to move on, become more ambitious."

Nike and Dow Chemical are examples of companies that have made it to the innovation stage. After Nike faced accusations about violations of human rights by subcontractors, it made drastic changes to operate more responsibly in its supply chain. At Dow, company officials used its science capabilities to develop components for solar panels and are now working on materials for cars that make them safer and more efficient.

"Dow is using its science background to address fundamental issues and problems we're having," Serafeim says. "That's a whole different level of sustainability strategy. And it's trying to understand how those environmental, social, and governance issues create value in the long term."

The CSOs in the study made a variety of suggestions for success:

• CSOs should plant themselves as close as possible to the corporate areas where sustainability can produce value for the company. Initially, CSOs need to work with company officials who oversee compliance and issues. As sustainability goals become more ambitious, the areas where sustainability will produce value will vary from company to company.

• CSOs should have their finger on the pulse of the company culture, understanding what motivates employees and devising a strategy for implementing change that aligns with the workforce. Sometimes the strategy needs to be customized to work for offices located in separate geographic locations. "If you come up with a strategy that the workforce is not going to buy, you will have a very tough time implementing that strategy," Serafeim says. "The strategy needs to be compatible with what employees are expecting, the skills they have, and their aspirations."

• Some say the CSO should be placed on the executive team because the mere presence of the CSO at the C-suite table keeps sustainability on the agenda.

• It's important to articulate a compelling business case for such efforts and to make the strategy understandable and relevant to internal stakeholders. CSOs are often challenged with pushing company leaders out of the "trade-off" mentality. "For years there was this institutional logic that says if you do the right thing, your competitiveness will be hurt and it will come at a cost to the firm," Serafeim says. "People don't understand that if you do things strategically, you can create significant value for the firm. The CSO is in the best position to change this perception, but he needs to have the data and the tight business case to communicate that."

• CSOs should focus on a manageable set of sustainability issues, rather than biting off more than they can chew at once. And they should keep in mind that sustainability goals will change over time. Edelman says his approach is "evolutionary, not revolutionary." IKEA CSO Steve Howard says, "You can't transform everything at once. The hardest thing about leading the change is managing the complexity …"