Why chief sustainability officers are in a pickle
Sustainability is about transformation — creating more value with far fewer resources.
Many industries will be transformed in the next decade, and examples already abound. Without owning a single hotel room, Airbnb grew in just eight years from an idea to one of the world’s largest hotel chains. They pursued a creative way to monetize a completely underused asset (spare bedrooms).
Over the same period, Waste Management transformed itself from an "old economy" waste services firm to a model "circular economy" company. Looking forward, Bloomberg projects that electric vehicles will dominate by 2022; and Google is creating a driverless car.
Yet, at many Fortune 500 companies, the progress toward transformation is slow. Why? Data from 90 heads of sustainability or environment, health and safety (EHS) at a recent Conference Board meeting suggests that sustainability governance is broken.
What do we mean by governance? In short, governance is leadership. It is the glue that binds together people, planet and profits. It connects ESG with strategy and execution. Governance incorporates vision and values, organization and culture, goals and metrics, incentives and rewards.
It is tempting to say that only the CEO can fix governance flaws. Yet, CEOs likely depend on their sustainability leaders to help fix it. Indeed, for a chief sustainability officer (CSO) or equivalent, improving governance may be the biggest "value-add" in the modern-day corporate era.
The best of times
Terry Yosie’s excellent recent article in GreenBiz noted that the tide has turned. Sustainability has moved from the sideline to become one of the greatest global challenges that society faces.
In many ways, today represents "the best of times" for a CSO. (In this article, CSO is used to represent the most senior person overseeing the sustainability portfolio, regardless of title.)
Imagine being in a leadership position of a major company at a time when your role intersects with global transformational trends. This is a time of significant opportunity for innovation and growth — and related transformation.
Consider a few examples:
1. Climate change is the No. 1 global risk
For the first time since 2006, the World Economic Forum’s Global Risks Report 2016 identified the biggest risk as a failure to mitigate and adapt to climate change.
Pause and consider this statement. The global thought-leader in the field of economics classified climate change as a greater risk than the spread of weapons of mass destruction, water crises, large-scale involuntary migration and a severe energy price shock.
2. CEOs get it
For the second year in a row, the Conference Board’s global CEO Challenge Survey found that over 600 CEOs rate sustainability as one of their top challenges. They plan to address that challenge by embedding sustainability at the core of what the company stands for — its brand.
3. C-suite heads are turning
Executives at the recent Conference Board meeting reported that chief human resource officers ask CSOs for help in attracting millennials. Heads of R&D aim to harness environmental trends to drive innovation. Chief marketing officers want to bring the human side to messaging. Heads of public affairs want assistance in telling their story. CFOs want compelling numbers that resonate with Wall Street. All of this points to a greater, far more strategic role for those with CSO skills.
4. It’s about value creation
A BlackRock vice president recently told this same Conference Board group that the interest of mainstream investors is not about risk (carbon, water, toxics, etc.). Instead, investors want to understand how sustainability is woven into the CEO’s innovation and growth story. They want to hear how sustainability drives value.
5. The scale of opportunity is massive
Both Accenture and McKinsey say the convergence of global environment, resource and demographic trends represents the largest set of business opportunities in over 100 years.
The bad news
Without getting governance "right," a company rarely gets anything right. This is true in creating successful products and services, building robust brands, delivering consistently strong financial results, hiring talent and building shareholder confidence. It is also true of sustainability.
Robust sustainability governance is 20 percent structure and 80 percent execution. Most companies tell a good story about structure: board oversight, sustainability council, long-range (2020) goals and footprint reductions.
All of that may be true; and it helps secure good external sustainability ratings. Yet it masks some real problems:
1. Little face time for CSOs with their CEOs
At the recent Conference Board meeting, just half of the CSOs reported they spend 30 minutes or more with the CEO only three times or less each year — not even one meeting with the CEO each quarter.
2. Misaligned resources
CSOs typically have limited staff and very small budgets. That might work if CSOs also tap into a chunk of other (much larger) departmental resources, say 10 percent of the R&D and marketing budgets and 50 percent of the strategic planning budget. Yet only 12 percent of CSOs at the recent meeting knew the marketing budget of their company.
Similarly, only 50 percent of the CSOs knew their company’s R&D budget. A serious disconnect exists between sustainability resources and those needed to transform the company for tomorrow’s circular economy.
3. Perceived mandate to 'not be bold'
Three in 10 of the executives at the recent Conference Board meeting feel a mandate to be bold (such as aggressively driving carbon reductions). On the flip side, seven in 10 say their mandate to be "bold" is medium (24 percent), low (30 percent) or lacking (15 percent).
Truly robust sustainability governance is far more than structure. (Unfortunately, sustainability ratings — including the DJSI submission form — focus primarily on structure.) The "other 80 percent" is about execution: how key business decisions are made; who sits at the table when strategy is set; how resources are allocated; what incentives drive behavior; and how much air time the CSO has with the CEO and board.
What to do?
"What’s preventing you from being more bold?" Those at the Conference Board meeting responded: The No. 1 reason is "lack of data/compelling story line," followed by "lack of executive support."
The good news, however, is that if you as the CSO have the right data and a compelling story line, and ask for executive support, you likely will get that support.
Here’s how to do it:
1. Read the right stuff
In spending time with C-suite and board members, I like their ears to perk up, not their eyes to glaze over. For that reason, I stopped reading sustainability journals many years ago. (GreenBiz is the one exception.)
Corporate officers want to learn business insights about sustainability shared in the Harvard Business Review, Sloan Management Review, Bloomberg Business Week, Fortune, Fast Company, the Economist, Financial Times, New York Times or Wall Street Journal. Articles of high relevance to the C-suite (and the CSO) are published every day.
With very few exceptions (notably the Wall Street Journal editorial page), none of these mainstream business journals has questioned climate science for at least the past five years. Instead, these publications focus on reaping financial value from carbon solutions, identifying future "stranded assets" while they still have value and optimizing strategic resources. They see the coming shifts and are preparing their readers to take initiative.
2. Know your numbers
What numbers will resonate with your CEO or leadership team? Not the numbers you already know.
Instead, delve into the customer-feedback data and data gathered from employee prospect recruiting. Know the budget, headcount and trends in the dozen or so functions and sub-functions that touch ESG issues. This includes: human resources, recruiting, strategic planning, R&D, marketing, advertising, lobbying, public affairs, government affairs and finance.
Draw on this collective data to help integrate sustainability into day-to-day business decisions.
3. Manage up the organization
Find a C-suite sponsor. Then find another. Once in a while, ask them, "Would it make sense to …?" questions.
With the right data in hand, engage the heads of HR, marketing, R&D and other key functions in exploring whether it would it make sense to allocate a portion of the budget to figure out what your company's "Airbnb story" or circular economy story is.
As resource-driven disruption transforms our sector, how will our company thrive? As with Siemens, BT, Coca-Cola, IKEA, Sony, Tesco and others, how can we be the first in our sector to become carbon neutral, net positive or water neutral (depending on the company’s most material issues)?
4. Be relevant to business strategy
Every CSO should be involved actively in contributing to, shaping and supporting the execution of the business strategy. One approach is to become an expert in scenario planning.
5. Get time with the CEO
Don’t wait to be asked for a next meeting. Instead, be proactive and ask for one. Leverage your C-suite sponsor(s). Hone your "elevator message." The goal of that CEO meeting should be to earn the license to "think big."
Then, in 60-90 days, go back with an answer to the questions: If we think innovatively about our long-term sustained growth, what will transformation in our industry look like? What type of upstart companies might change how we do business? How will we recognize success?
An example: Involve the C-Suite
The sustainability director of a major North American electric utility company demonstrated the benefits of taking initiative involving the CEO.
At the request of the CEO of a major North American utility, I led a discussion with the full board of directors about "sustainability and the future." Following that presentation, I participated in a half-day scenario planning exercise with the full board and executive team.
The purpose of the exercise was to determine how the company would respond to future disruption in its industry while meeting increasing stakeholder demands. The CEO and board recognized that an incremental improvement mindset cannot achieve either outcome.
A transformation mindset is required to achieve both objectives. So, how did the CSO make this happen?
First, the CSO engaged a C-suite member to support his development of a scenario planning exercise. The CSO worked with functional experts from across the company to create two credible, relevant scenarios (alternative future stories for their industry sector and competitive space).
Next, he designed a powerful one-day interactive workshop exploring how to navigate those scenarios. The sponsor considered the pilot "successful" and urged the CEO to run the workshop with the full leadership team. Based on the success of this second event, the CEO asked the board to carve out a morning at a future meeting to do the same.
In the months since that meeting, the board increasingly has taken leadership of the sustainability agenda. The CSO was moved to the strategic planning team; and the CEO changed the corporate planning approach from the traditional "one-shot" annual event into a series of 12 monthly sessions over the year.
The CSO's choice: Tactical or transformative?
The sense of urgency to address the global forces shaping corporate sustainability agendas is real. Business as usual is not an option. Incrementalism is not a solution.
Most companies have yet to embrace transformation — creating more value with fewer resources. They continue to make their traditional products and services. They drive EHS excellence, manage risks and set goals to reduce impact while managing compliance. They have not yet broken through the transformation barrier.
CSOs have heroic and challenging roles within their corporations. They also have a choice: They can be tactical or transformative.
If they choose the transformative path, CSOs have the opportunity — indeed, the obligation — to help the executive team see the road to value creation for tomorrow’s leaner, fitter, more resilient and transparent company.
Companies can reap the benefits of transformation to the new "circular economy." But first they likely need to fix sustainability governance. It’s all about leadership, from the top down and the bottom up.