According to executive search firms and their corporate clients, there is an "insatiable demand" for chief sustainability officers. (Registration required.)
A recent PwC study concluded companies appointed nearly as many CSOs in 2020-2021 (394) as they did in the previous eight years combined (414). The overwhelming majority of these hires were external candidates (93 percent), says Russell Reynolds Associates, a leading executive recruiter.
What explains this surge in hiring? How has the CSO role been defined and its purpose changed over time? What impacts have CSOs had upon their own organizations and in meeting external challenges? How is the role likely to evolve in the future?
In this column, I’ll tackle some of these questions.
What is behind the hiring momentum?
In my opinion, several imperatives are driving the expanding recruitment of CSOs. They include:
- Achieving internal education and alignment in response to expanded expectations from employees and outside stakeholders for improved performance on environmental, health and safety issues, climate commitments, energy efficiency and social responsibility.
- Designating a high-level external face and contact point for the company on sustainability issues with key stakeholders.
- Providing strategic insight and building a company-wide sustainability strategy and integrating it with specific business goals and processes to advance value creation.
- Responding to ESG, financial risk management and other reporting issues that engage other departments.
These and other factors differ in scope and priority depending upon the company and its business sector. As a result, the portfolio and reporting relationships of individual CSOs can vary widely across companies.
What are the positive impacts of CSOs?
The CSO position came into mainstream existence early in the 2000s. Earlier appointees with senior environmental management responsibilities had deep technical and operational experience, whereas their more recent successors are more likely to represent expertise that includes public policy/government relations, branding and marketing, legal affairs or research and development.
The principal impacts of CSOs over the past 10 to 15 years vary by company but include the following:
- Building upon environmental, health and safety (EH&S) compliance to advance performance leadership and footprint reduction across key markets and through product impacts.
- Embedding environmental sustainability within a company’s core business strategies.
- Fostering cross-company relationships with the chief financial officer, research and development, and innovation teams to create opportunities for business strategy development, risk management and customer collaborations focused on product improvements.
- Strengthening corporate governance by increasing the participation of the CSO in C-suite and board deliberations that include briefings and policy decisions on new public commitments, expanded transparency, environmental sustainability performance reviews and new external collaborations.
- Establishing and maintaining core expertise across the corporation to effectively manage changing sustainability challenges both global and local.
What are the limitations of the CSO position?
These positive impacts are offset by limitations in the role and responsibilities of CSOs. In my opinion, some major limitations include:
- A lack of clear and consistent definition of the CSO position and responsibilities. Companies structure the CSO portfolio in many ways. Some CSOs possess direct ownership of the EH&S function, while others do not. Reporting relationships also vary as some CSOs report to the CEO or other C-suite executive, and others are subordinate to the legal department, communications or operations. A small number of CSOs have possessed only external responsibilities to focus on stakeholder engagement and reputation management. One major consequence of this inconsistent focus and purpose is the absence of a standardized, defined portfolio and core skill specifications for the CSO position. CSOs must all too frequently develop their individual strategies on how best to succeed. While the broad external CSO network is generally accessible and supportive, it often doesn’t translate very directly to the culture, needs and expectations that individual CSOs must navigate.
- The growing complexity of issues, language and broadening of the sustainability agenda. While a commitment to greater transparency does help drive behavior, the challenges of managing all that’s required — and determining how specific issues such as diversity or political advocacy, campaign contributions or broader ESG considerations are co-managed — are becoming baseline expectations. Few CSOs enter the position with knowledge and experience across many of these issues.
- Fewer sticks than carrots. External stakeholders expect CSOs to have a major voice in improving the performance and behavior of their companies. This requires a CSO portfolio that combines an array of sticks and carrots. Performance and reputation are never the result of incentives and encouragement alone. As corporations near deadlines for interim net-zero commitments, water efficiency goals, waste reduction targets and other highly visible promises, the need for internal sticks becomes more compelling. And it becomes even more necessary for the CSO to possess greater authority to drive corporate accountability. Presently, the CSO position is not designed to achieve this outcome in a large number of companies.
The highly dynamic internal and external forces shaping the modern corporation make it inevitable that CSOs’ roles and responsibilities will experience further expansion.
How will the CSO position continue to evolve?
The highly dynamic internal and external forces shaping the modern corporation make it inevitable that CSOs’ roles and responsibilities will experience further expansion. Several factors will shape the future CSO, including:
- Sustainability strategy and management are increasingly data-driven. The ESG reporting experience alone has revealed how newer data sets organized around the monetization of financial risk from climate change has changed corporate data collection, analysis and transparency, and expanded the oversight from external stakeholders (especially the investor community). As companies make major investments to incorporate data digitalization into their operations, enormous new amounts of data will emerge that companies will have to manage and report. This includes: environmental, health and safety performance in real time in historically underserved communities that experienced disproportionately higher distribution of pollution risks; energy use rates and efficiencies; water consumption by plants and communities in water-stressed regions; and smart tags inserted in product packaging to facilitate waste characterization and collection. The data management responsibilities of the CSO’s office will assume an increased role for other aspects of Big Data assessment and reporting.
- Supply chain performance is becoming paramount. A greater sense of foreboding has descended across global companies concerning how little they know about the sustainability performance across their own supply chains. As corporations make longer-term commitments with interim deadlines for carbon, water, energy, waste and other metrics, they will not be successful without accounting for the footprints of upstream business partners, joint venture collaborations, logistics and distribution, and other business functions. To date, companies have maintained a reticent approach in addressing supplier/business partner performance by issuing guidelines, holding consultations and creating expectations for better outcomes. We have entered the era of expanded supplier compliance, reporting and governance in which companies will need to take more draconian decisions with lesser-performing firms with which they do business. Their own performance and reputations will depend upon it.
- Expanded sustainability functions necessitate a reexamination of the CSO job description by corporations and executive search firms. In general, this will require a folding of many separate functions (ES&H, increasing oversight over business unit performance, corporate reporting) into the CSO’s office with a dotted line more formally connecting the CSO with the CFO, human resources and investor relations. Future CSO appointees will be advantaged if their career path possesses both deeper operational knowledge of how business functions combined with relationships and experience in working with external stakeholders whose skills and credibility drive the corporate and public policy agendas.
Because sustainability trends represent such a major change driver — both risks and opportunities — for the 21st century corporation, the CSO position will become a more powerful voice, with additional sticks and carrots, in deliberations of business strategy and broader corporate governance. It should be formally designated as a C-suite position.