As the importance of Environmental, Social, and Governance (ESG) issues increase, so does the influence of Chief Sustainability Officers (CSO) within companies. While this is a relatively new role, going forward, CSO will play an increasingly important role in ensuring a company's long-term success.
The role has had its critics, however, and some regard it as merely a symbolic position that’s more about greenwashing than corporate business strategy. Notwithstanding the critics, the number of CSOs in major multinational corporations more than tripled in the last ten years. This staggering growth is an indication of the importance of sustainability issues at the top levels of the world’s largest companies.
From Humble Beginnings
Not too long ago, companies were solely focused on increasing profits. Hopefully, but not always, they also managed to stay in compliance with regulations. This began to shift with increased public awareness of social and environmental impacts attached to corporate brands. Landmark examples include the allegations of poor working conditions in the supply chain for both Nike and Apple.
These headline-grabbing examples prompted many companies to evaluate their social and environmental performance throughout their value chains. This began the era of companies working voluntarily to minimize their social and environmental impacts - in essence, companies were exceeding the requirements of government regulations to demonstrate their responsibility credentials. A hallmark of these programs is the annual sustainability reports which are often heavy on marketing and lighter on hard-hitting facts.
Things started to change as investors became more interested in sustainability information. First, the name changed from sustainability to E-S-G of environmental, social, and governance. This was both a rebranding specific to investors and a new way to categorize the issues. Then investors wanted more information about the financial risks and opportunities associated with ESG information. In other words, they wanted to forecast how it might affect their investments.
This is the point at which Sustainability - now ESG - got kicked upstairs into the C-Suite. With investment capital on the line, these issues moved into the mainstream of corporate governance and strategy. Going forward, the CSO role will proliferate into companies of all types and will be increasingly integrated into business strategy. Blackrock CEO Larry Fink said it best in his 2022 letter to CEOs: “The next 1,000 unicorns — startups with a valuation over $1 billion — won't be more search engines or social media companies, but rather ones that help the world decarbonize and make the energy transition affordable for all consumers."
The Future of the Role
The CSO of the future will be primarily a business strategist focused on capitalizing on the risks and opportunities brought about by social and environmental trends. The clearest example is climate change: Companies are already under pressure from their investors and lenders to demonstrate and mitigate their exposure to climate risks. Increasingly, wise companies are finding ways to apply their core competencies to find new business opportunities in a rapidly warming climate. The role of the CSO is to identify and prioritize these risks and opportunities in the context of the forecasted changes.
Disclosure and compliance will also be a major responsibility of the CSO. The consolidation of ESG reporting frameworks under the International Sustainability Standards Board (ISSB), and the implementation of mandatory reporting requirements in capital markets around the world will make disclosure a core function for years to come.
In addition to all these newer roles, CSO’s will retain today’s core functions as the guardians of the company’s ethical capital and a chief brand ambassador. Studies of brand value - often the largest intangible asset on the balance sheet - show that corporate responsibility is the largest source of that value. This trend will continue to grow with increased awareness of sustainability issues. Based on these changes and others, a Deloitte study concluded that the CSO role will increase in relevance in the next five years.
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