Sustainability is no longer limited to large multinationals in high impact sectors. All firms have the potential to change the status quo and the responsibility to find ways of doing it. ESG reporting now extends metrics to mid- and small-caps, covering a wide spectrum of industries in developed and emerging markets. 

Coverage used to be patchy for lower-profile firms, less regulated industries, and emerging markets. The number of companies covered by major ESG score providers tended to range between 1,000 and 10,000.  

In 2021, Moody’s Analytics moved to close the gap by launching its ESG Score Predictor, an analytical framework able to expand coverage via a wide spectrum of ESG and climate risk metrics across large-, mid-, and small-cap firms. The tool, it says, spans a wide variety of industries across both developed and emerging markets.  

Until recently there were also gaps in the literature about the exact relationship between social responsibility and performance. The authors of an academic paper wanted to settle the question. So they analyzed 53 articles and concluded that social responsibility “directly and positively affects financial performance, and this impact increases as a company’s ESG scores improve.”* 

Designing a role architecture for the CSO (or equivalent) reveals a profile comparable to an octopus with a brain in each limb. The best are specialists in their own subject matter and deep generalists in getting to grips with their environment. They explore, evaluate and innovate. They speak the language of legal and finance, communications, HR operations and IT. In the full report we unpack three role dimensions that hiring organizations need to consider: 

• Tasks: the most relevant leadership activities in two core, inter-related areas: business transformation and inter-personal leadership. 
• Knowledge: domains requiring first-hand subject knowledge or an ability to talk credibly with departments for whom this knowledge is core. 
• Experience: the most common provenance of sustainability executives (previous corporate, technical and sustainability roles), and sub-areas. 

To this we can add the spectrum of external stakeholders illustrated in Part One of our report. 

Embeddedness begins with organizational culture. It radiates to board evaluation and composition. It is reflected in C-suite compensation systems. It infuses talent hiring, development and retention. And as employees inevitably bump into pressure from cost-efficiency and sales targets, signal spotting systems and feedback loops need to be part of the fabric of the organization.  

Culture: The organization’s DNA will make or break its sustainability agenda. The sustainability mindset and practice must be linked to the vision, values and principles that employees are expected and helped to follow. All leaders and managers (not just the CSO) must set the tone. Not only exemplifying wise and purposeful attitudes and behaviors, but facilitating the way in which socio-environmental dilemmas are surfaced, discussed and resolved.  

Board/C-suite: How well does your board embrace diversity of thought? What value do its members really attribute to sustainability and ESG criteria? What beliefs underlie their position (for example, “the primary objective of business is to satisfy shareholders”). It is important to identify zones of tension and/or consensus. Questions also surround how purposeful leadership or equivalent indicators are built into board evaluation and hiring. 

Reward systems: C-suite compensation and KPIs deserve keen attention. KPI-setting for CSOs should reflect their wider strategic role. Alberto Lopez Valenzuela, author of The Connecting Leader, draws a line directly from ESG reporting to executive pay:  

“As metrics evolve, expect to see ESG become more embedded into financial reporting. As the pressure mounts, and as more investors demand greater ESG accountability, it’ll become harder for businesses to justify refusals to bind ESG rhetoric to action — and action to executive pay.” 

Leadership talent strategy: How can the Board develop its coaching and advisory function to optimize the quality of leadership of its top executives and CEO? Furthermore, as we’ve argued, sustainability efforts encounter numerous blockages in practice. Even the Board has noble ambitions, employees can encounter pressures surrounding cost efficiency and profitability. CHROs should therefore embed Purposeful Leadership (or equivalent criteria) into talent selection, assessment and development. Beyond formal structures, informal learning must be cultivated by healthy feedback loops. Finally, employee performance measures and KPIs need integration into goal-setting — reflecting sustainability strategy beyond short term, commercial considerations.