Sustainability has been a growing business concern for years; recently, it has become even more of a strategic priority. “Investors are demanding information about sustainability activities… and customers and affected communities are becoming more aware [of] the power that they have to affect corporate behavior on this issue,” International Finance Corporation (IFC) described in their 2021 Focus 15 report.
This demand for sustainability in business is driven by broad awareness of the danger of climate change. But also, corporate decision makers are beginning to recognize the business benefits sustainability practices can provide.
Leadership teams now have a responsibility to prioritize sustainability in their sourcing, operations, and partnerships—ethically, but also in terms of business success. As Heikki Iikka, EY Nordics Region Assurance Managing Partner describes, “The markets have spoken: sustainable operations are deemed good for business, and, as such, required across the board.”
In this article, we consider the key sustainability themes and policies business leaders are discussing today, and how they are defining the chief sustainability officer (CSO) role with these conditions in mind.
We take a look into the types of companies within S&P 500 and FTSE 350 today that are hiring CSOs and creating sustainability committees within their boards. We also explore what’s required for corporations’ sustainability initiatives to be effective, and how business leaders can redefine “corporate purpose” to include sustainability.
What sustainability themes are driving today’s corporate decision-making?
The connection between the natural world and business success isn’t lost on corporate leaders. Indeed, the best-governed companies in the world consider economic, societal, and environmental factors in their leadership decisions, IFC describes.
There are some common sustainability leadership themes that executives at the world’s most successful companies discuss. Consider these topics from a recent Nike, United States meeting of internal and external corporate, non-profit, and other environmental stakeholders:
- Set bold corporate responsibility and sustainability ambitions that align with business goals. Consider setting time-bound, quantitative sustainability targets, and make sure to hold leaders accountable for meeting them.
- Demonstrate the connections between business and sustainability strategies. Demonstrating these connections to employees, customers, investors, and regulators, among others, allows companies to increase trust, build resilience, and create business value.
- Reframe corporate responsibility narratives to illustrate sustainability as a priority. Companies must tell their story in a way that resonates with stakeholders and differentiates them from their competitors. For example, Nike’s sustainability initiatives suggest that “protecting our planet” aligns with “increasing access to sport.”
- Better articulate corporate influence and ambitions in the industry. Companies should be specific in terms of the systemic change they will drive in their particular industries, such as more sustainable sourcing practices compared to the status quo.
Despite these priorities, the process of hardwiring sustainability into business operations and decision-making is just beginning—and ambitions don’t necessarily translate into real, lasting results.
How are business leaders turning sustainability into corporate policy?
What will change as regulatory and disclosure requirements across countries continue to emerge? As part of its Net-Zero Emissions Procurement by 2050 initiatives, the Office of the Federal Chief Sustainability Officer in the United States will “require major Federal suppliers to publicly disclose emissions and set reduction targets” if they hope to do business with the Federal Government.
The effects of these long-term requirements on core lines of business put companies’ responsibility for action squarely on corporate leadership. As Harvard Business Review describes, “The ultimate responsibility for defining [sustainability as part of corporate purpose] must rest with the board, because it has a duty to take an intergenerational perspective that extends beyond the tenure of any management team.”
For many corporate boards, this is new territory. According to Responsible Investor, it has been more common for boards to rely on consultants to guide ESG decision-making, without taking significant steps to enact any long-term ESG or sustainability policies, or even prioritize sustainability at the board level. This needs to change if they hope to make sustainability a strategic success.
How are leading companies defining their chief sustainability officer (CSO) roles?
Sustainability is moving up the corporate agenda; and so too is the formal CSO role. That’s because a CSO, sustainability chair, or similar leader can help codify sustainability as a strategic priority.[CA(2]
The world’s leading corporations are already taking this step. “The number of CSOs holding an executive level position, alongside board members such as the chief executive or chief financial officer, hit 28% in 2021, more than tripling from 9% in 2016,” Reuters reports on a survey of 1,640 companies across 62 countries.
Recent BoardEx data also tells us companies specifically within both S&P 500 and FTSE 350 are creating and filling CSO roles, with noteworthy examples across industries.
Here is a closer look at the types of companies and individuals who are leading the charge on CSO appointments:
Leading companies with a CSO or equivalent
In 2022, S&P 500 and FTSE 350 companies with a CSO or some close variation span industries: finance, CPG, technology, and more. They include household names like Coca-Cola, Microsoft, Akamai Technologies, Alphabet Inc., Morgan Stanley, AIG, Visa, Intel, Starbucks, FedEx, and Wells Fargo, among others.
People in these CSO or equivalent roles
Within this group, CSO or equivalent roles are roughly evenly distributed between women and men. Most personally began their roles in 2019, 2020, or 2021; however, a look at CSOs from 2020 shows that some CSOs had begun their roles as early as 2005. (The “Chief Health, Safety & Environment Compliance Officer” role at Steris is a notable outlier; their role began in 1997.)
What’s required for corporations’ sustainability initiatives to succeed?
With a formal CSO or equivalent role, companies can begin incorporating sustainability into all aspects of their business. This includes not only core business functions but also the selection of future board members. Karran-Cumberlege, co-founder of board consultancy Fidelio Partners, claims that “every board search she has worked on in the past six months included a screening for ESG competence, where candidates were challenged on their knowledge of ESG issues specific to the company they were interviewing for,” Responsible Investor reports.
Among existing board members, “having a CSO sit on the executive board or report directly to the CEO or another board member helps educate and upskill the executive team on evolving ESG issues” in all areas, according to Reuters. In these ways, companies can ensure the longevity of their policies and best practices for sustainability, even as they evolve.
Creating ESG and sustainability committees
But doing so also requires greater specificity in how corporations measure and report on progress towards sustainability goals. The CSO can use their authority to create committees responsible for the operational details of sustainability and ESG more broadly to meet those needs.
Roger Barker, director of policy and corporate governance at the UK’s Institute of Directors recommends “narrowing the scope of ESG committees to focus solely on net zero [i.e., sustainability], with other aspects of ESG taken care of in other committees or by the board as a whole,” according to Responsible Investor. In these ways, companies can ensure the specificity and longevity of their policies and best practices, even as they evolve.
This is important not only for ensuring accountability but also for demonstrating the business benefits of sustainability to investors and other stakeholders.
A look at BoardEx’s leadership database reveals there are still many companies in the US and UK without such committees. Over a six month period in 2022, there was an 8% increase in FTSE 350 companies with sustainability committees. This brings the total companies with sustainability committees in the FTSE350 to 50. In the S&P500, there was a 23% increase in the same six month period, bring the total to 74 companies.
Redefine your “corporate purpose”
In a broader sense, these transitions mean corporations are grappling with what is their overall “purpose” in a sustainable business world. Beyond traditional business drivers, they must consider how their talent strategy, products and services truly can help create a sustainable future.
“A clear and compelling mission should be at the heart of every company’s efforts to enhance its positive impacts on the environment and society,” as Harvard Business Review describes. “Without such a purpose, a company cannot have a sustainable corporate strategy, and investors cannot earn sustainable returns.”
With little doubt, the number of businesses appointing CSOs and making sustainability a key part of their operations will only grow in time. The lingering question then is, ‘Who will pull ahead to define ‘sustainability success’ on the global corporate stage?”
Looking to include your sustainability into your c-suite or board?
BoardEx can help you identify gaps within your leadership team or board, and help you build a shortlist of candidates for key sustainability roles. Using advanced searching capabilities you can identify leaders with the right mix of experience for open roles. Connect with a member of the team and begin exploring BoardEx today.
This article was updated on December 15, 2022 with updated data from BoardEx pulled in October 2022.