Chief Value Creator?: The changing role of the Chief Sustainability Officer (CSO)

The world’s first CSO was appointed in 2004; this was Linda Fisher at DuPont and her full title was VP Safety, Health and Environment and Chief Sustainability Officer. It’s taken nearly 20 years for the popularity of the role to gather momentum, and for it to stand alone from other functions. A much-cited PwC study shows that companies appointed as many CSOs in 2020-2021 as in the previous eight years combined. While the growing public renown of the position is perhaps evidenced by the launch in 2022 of CSO Barbie.

The creation of a dedicated C-suite sustainability position in many large organisations reflects the significant increase in the importance of ESG. There is general agreement among the senior sustainability executives we interviewed that ESG is indeed fundamentally changing the way businesses operate.

I think that’s the big difference – ESG was a sort of peripheral box ticking exercise and now it is central to everyone’s work.

There is a convergence of factors driving the rapid rise of ESG up the corporate agenda. Most significantly, the increasing expectations from stakeholders – investors, governments, consumers, talent and, in some cases, business leaders themselves. (We explore these drivers of change further here.) An organisation’s ESG performance and reputation can now impact its ability to access finance and insurance, adhere to regulation, win customers and attract talent - all of which determine its longer-term success, and indeed survival. Alongside this, ESG topics pose ethical questions of business leaders and, certainly in the case of climate change, present a threat of far greater collective significance than the survival of any single organisation.

We have gone through a transformation and hidden inflexion point where once upon a time some passionate individuals were knocking on doors to bring the agenda on sustainability up the priority list and we have now hit the point where actually it is really up there on the priority list.

Hence not only are we seeing increasing numbers of CSOs being appointed, but also these roles are evolving quickly. All those we interviewed agree that the role or its equivalent (e.g. Head of Sustainability, Head of ESG) has changed over the last 5 years, with nearly three quarters saying it has changed a great deal.

The broad arc commonly described is one where ESG or sustainability has emerged from a marginal position within procurement, risk management, corporate reputation, or philanthropy, and is becoming central to the strategic management of organisations.

Nearly nine in 10 of those interviewed agree that the CSO or its equivalent has become a strategic leadership position within organisations. There are three key dimensions to this.

1. Long-term ESG vision. Over the last few years, a key part of the CSO’s strategic role has been helping organisations set their basic long-term ESG goals or commitments. These commitments tend to be based on assessments of the issues that are most material for an organisation and its stakeholders and where the organisation can have the most positive impact. (Read more about organisations’ setting and road-mapping towards these commitments.)
2. Value creation. With the elevation of ESG roles towards senior management comes a far greater focus on value, and identifying ways to achieve long-term ESG goals in ways that drive business value. This includes driving stakeholder value and other key forms such as growth (e.g. new product development) and efficiency (e.g. reducing energy usage or cost).
3. Embedding ESG strategy throughout the organisation. From commitment to ESG targets follows the expectation to demonstrate progress. This is especially the case when commitments are public, science-based and ambitious, all of which have become basic stakeholder expectations. Achieving progress requires strategy to be supported by planning and resourcing across business units.

The sustainability commitments that we have made as a business are front and centre of business strategy. When you commit to, for example, achieving net zero, then this has got to be linked to your commercial strategy, your pricing strategy, your customer strategy etc.

Among those we interviewed, there is widespread agreement that businesses still have a long way to go on this aspect of the role.

Challenges facing CSOs: managing complexity

The challenges that CSOs currently face are often based upon the scale and complexity of ESG or sustainability issues themselves, and their interconnectedness. This demands that the CSO has or has access to vastly increased levels of expertise, while also managing a much wider set of stakeholders, both internally and externally.

1. Multiple dimensions of ESG. The UN Sustainable Development Goals alone cover 17 areas of sustainable development, from sanitation to gender equality to education. MSCI covers at least 33 dimensions in its ESG materiality map. Each potentially comes with reputational or regulatory risk for organisations and issues are increasingly interlinked, meaning allocating appropriate resources across multiple issue areas remains a challenge.
2. Stakeholder expectations. Organisations face increasing scrutiny and feedback (plus regulation) from a wide range of stakeholders, who often have a narrow focus on a specific topic or region. (We discuss in more detail stakeholder management and communicating around ESG elsewhere in this report) 
   
   “I think we’re always shooting at a moving target – there is no standard way of reporting. Even the ESG ratings, their weighting on different elements of E, S and G varies significantly and changes year on year. Shooting at a moving target is very difficult because fundamentally what ESG ratings should do is allow those looking at them to compare performance on a like-for-like basis. And if you can’t do that they don’t really serve their purpose.”
3. Reporting demands. Reporting demands have increased significantly over the last 5 years. Organisations are now required to report in more detail and to a wider range of audiences: regulators, investors, ratings agencies, the public and customers. There is a lack of standardisation of data and format, and requirements are also changing as the industry matures. For organisations, and CSOs, this results in an increasingly heavy reporting load, often “shooting at a moving target” at odds with business planning cycles, and an inability to compare performance like-for-like with relevant peers. Likewise, there is difficulty in sourcing data from groups with no history of robust ESG reporting – e.g. business units within an organisation or smaller suppliers. And certain topics, for example Scope 3 emissions, require an uplift in reporting capabilities virtually across the board.
4. An increasingly scientific discipline. TFCD and CDP reporting, LCA and climate impact modelling, Scope 3 measurement – these are just some examples of the greater rigour and specialism being applied to sustainability measurement and planning. Likewise, topics such as biodiversity and natural capital are increasing in importance. Currently, CSOs are often under-resourced to meet these requirements.
   
   “It’s becoming more of a scientific discipline with things like TCFD with climate change. As a discipline, in its broadest sense, it’s becoming more technical and I think as things become more technical, more specialisms need to come out of that.”
5. External factors. The interconnectedness of ESG topics of course goes beyond the limits of any one organisation. In order to achieve certain goals, organisations are likely to be dependent on broader change. To take a basic example, an organisation’s commitment to replace a petrol fleet with electric vehicles (EVs) depends on external infrastructure. And this issue becomes much more complex when working across national boundaries and jurisdictions.
   
   “I think that for most big businesses to achieve their sustainability goals they cannot achieve them on their own. And most of their sustainability challenges exist well outside their own four walls that they can control. When one looks at social issues there are things that you have very little control about, for example does a government police its own rules on child labour? Because often these issues that we’re dealing with are a market failure.”
6. Scale of change. Ultimately, the scale of change required to meet commitments that have been made and the needs of stakeholders, and in particular the planet, remains intimidating.
   
   “I still think the biggest challenge is one of embracing the size and the scale of the challenges we face. If we are going to decarbonise our business for example, that is going to require huge action on our behalf, huge action on our suppliers’ behalf, lots of things to happen in the external environment that we are going to depend on, and it is going to require a huge amount of innovation and R&D as well.”
   
   "The bar keeps rising and the field keeps getting wider. The number of topics is widening and what satisfies stakeholders and the bar for what is seen as a leadership position, in terms of performance and transparency, is rising."

The future of the CSO

The last 5 years have seen significant changes in the role of the CSO or its equivalent. And these reflect a step change in the incorporation of ESG and sustainability into business strategy. But the challenges reported, which all speak to some extent to the sheer scale of the change required to meet the demands of ESG, raise two intriguing questions about the future of the role.

1. How does the CSO continue to drive value for businesses? The pursuit of value is perhaps the real acid test of organisations’ commitment to ESG and the ascendance of the CSO. Because, ultimately, for sustainability to be fully embedded, it will need it to be indivisible from an organisation’s fundamental creation of value. Either by essentially being an organisation’s value proposition, or by being fully consistent with it. Initially, there is a great deal of value to be delivered through efficiencies – for example, better reporting of existing practices, or switching to renewable energy sources where they lower an organisation’s direct costs. The next frontier, however, is a deep embedding of sustainability within governance, portfolio management, R&D, recruitment. And this, of course, comes with greater investment and risk.
   
   “Some of the easier low hanging fruit where you can get financial and environmental value are starting to be depleted and we are starting to get into some of the trickier areas. There is a mindset that you have to continue to grow, you have to make more revenues, you have to sell more stuff, but you have to find a way to do it with fewer resources and less of an impact on the planet. And nobody wants any of that to give, so you are waiting for the magic solutions to pop up. At some point something is going to have to give.”
2. How does ESG or sustainability best fit into the corporate structure? In elevating sustainability to or towards C-suite, organisations are following a model of the C-Suite as a set of functional specialists there to advise the CEO. Deloitte has previously pointed out the “this model is ill-matched to a business environment in which companies must transform themselves, and continue transforming themselves, to remain competitive”. This model, it’s argued, can be a barrier to integrated action. And this is, of course, exactly what ESG demands. Among those we interviewed, we found that in many cases senior sustainability executives are working with small teams (43% with a team of 0-5). Again, given the challenges reported, the corporate structure needs to facilitate the embedding of ESG strategy – be this a major expansion of sustainability roles, or diffusion of responsibility for delivering on ESG into all roles, including C-suite. But it’s clear that the CSO cannot shoulder the burden alone.
   
   "I think the CSO role is really interesting in that it doesn’t have as clear a definition historically as some of the other areas that have the C in it, the Chief Human Resources Officer, that is pretty much well defined in most cases, or the CFO and others. But with CSO you have to be nimble across the business in so many different ways and pull together so many different players. I do shareholder meetings and I have to talk privacy, responsible data, then environment and ethical business practices and inclusion and diversity and on and on and on."

Table of contents

1. Introduction: ESG Council Report 2023
2. Chief Value Creator?: The changing role of the Chief Sustainability Officer (CSO)
3. What is driving change: The role of stakeholder management
4. Building an integrated ESG strategy
5. Doing well by doing good: Resilience, risk and the reputation value of ESG
6. The Future of ESG?
7. ESG - a time for leadership, focus and communication, but above all action.