The C-Suite Sustainability Struggle - Part 1
Environmental and social responsibility have been a feature of the business landscape for a surprisingly long time. And yet the place of sustainability on the corporate agenda, how it is addressed, and by whom, is in a state of revolution.
The road to sustainability is still under construction. But is it even headed in the right direction?
In this report we take a hard look at the current context of sustainability in business and why it is such a headache for hard-working organizations. We open the box on why the ever-expanding function of the Chief Sustainability Officer (CSO) is only a partial answer to these challenges.
The Struggle is Real
There is persistent confusion about CSR, ESG and Sustainability.
‘CSR’, ‘ESG’, ‘sustainability’ — today, they’re part of everyday business language. Yet many executives use the terms interchangeably. The confusion is understandable. ESG, historically used to reference an investment rating and framework, is now being used as a shortcut for corporate sustainability. But sustainability is defined as meeting present needs without compromising future generations. Taking a long-term perspective, it holistically (and more broadly) encompasses responsible and ethical business practices. It has an internal focus and helps companies decide where to invest their own resources.
Boards must ensure that stakeholders understand the terminology used in the design, implementation and communication of sustainability endeavors. This clarity also needs to extend to hiring processes surrounding the CSO and related functions.
Sustainable efforts are backfiring and accusations go deeper than greenwashing.
Accusations of greenwashing have haunted organizations’ sustainability efforts for decades. But the current backlash goes deeper than accusations of PR laundry. In a 2022 report, the US Sustainable Investment Forum (US SIF Foundation) warns of “multiple regulatory proposals … as well as accusations of greenwashing and political attacks by some policy makers.” In May it released two proposals to prevent misleading or deceptive fund names and a requirement for more detailed ESG disclosure by funds and advisors — mirroring patterns underway in the EU.
As the authors of a recent HBR article put it, CSOs must “change their focus from public communication and outreach to more direct interactions with key stakeholders and investors.”
Read more in our full report.
Compliance is no longer enough — organizations can raise the moral bar.
The 2023 Edelman Trust Barometer surveyed 32,000 people across 28 countries. It delivers clear messages for hard-pressed business leaders. Around 50% of people still don’t believe that firms are doing enough to combat climate change, economic inequality, energy shortages and healthcare access.
A recent Amrop global study surveyed the factors motivating leaders to join one kind of organization and avoid another. Our findings reveal that senior executives are even more demanding than the general population. Regarding sustainable behaviors, 91% want an ethically intact player and a serious negative fallout would dissuade 84% from joining. We invite Boards and CEOs to position their organization on a 4-level moral scale. From legal risk, to legal compliance, through to moral responsibility and ultimately, moral excellence, where does your company currently stand? What is its ambition?
Drowning by numbers — ESG reporting has exploded but may get easier.
Organizations have a sincere desire to do more and better and are under pressure to quantify their progress. But for some, the demands of reporting are becoming overwhelming. Even investors are struggling: private equity firms are in the dark regarding their investments and the value creation chains of their portfolio companies, according to a recent Amrop study. Say the authors: “It is vital to implement data driven, corporate ESG controlling systems. Getting access to ESG data processing knowledge will be a difficult but necessary first step.”
Despite inconsistent reporting methodologies and standards, successful Boards and CSOs decide on priority ESG reporting areas, ensure access to accurate and relevant data and secure the manpower needed to synthesize it. This demands a realistic allocation of resources.
Many leaders are still navigating in a fog of dilemmas.
Your consumers are demanding low cost, ‘fast’ fashion. Your factory is in a location with zero environmental regulation and is polluting the local river. Should you invest in a cleaning system, even if this slows production and hits the share price?
How well are leaders conducting subtle discussions around tensions such as these? Not very well, according to a 2022 review of 200 sustainability reports. Whilst many contain a ‘materiality’ matrix to identify critical ESG issues, most fail to distinguish between value creating and ethical concerns. Or between risk reduction measures and strategic opportunities.
Especially given the current cost-of-living crisis, and as the effects of global warming become more painfully evident, how can companies keep prices down whilst protecting the planet as well as the human beings serving their supply chains?
Dilemmas and paradoxes are an integral part of the sustainability landscape. Wise and purposeful leaders are adept at identifying and resolving them. Doing so means combining seemingly opposite demands in innovative and agile ways, allowing the leader to move beyond the tension and get the best of both worlds. Moving from ‘either/or’ to ‘and/and’ thinking.
The rise of the CSO is generating as many questions as answers.
The business case for sustainability is clear and the heat is on. Stakeholders and investors are relentless in their demands for measurable performance. Sustainability is a struggle. Unsurprisingly, CSOs are in hot demand. BoardEx data reveals that 27.2% of S&P 500 companies had a CSO in 2022, rising from 19.1% in 2017. In 2021, more CSOs were hired than in the previous five years combined. Amrop saw a 211% global increase in client demand for sustainability hires between 2019 and 2022.
Inevitably, the scope and weight of the CSO role is changing. Once a lone evangelist, the CSO operated in an isolated and under-resourced silo, overseeing tactical CSR initiatives, and frequently linked to HR or communications departments. Their most visible output was a glossy annual report.
Today, the CSO is more likely a strategic and high priority hub. One that works closely with the board, senior leadership team, customers and investors, hotwired into corporate strategy and operations. In short, occupying a pivotal role.
Whilst this is positive, it brings more difficulties for boards and hiring organizations in its wake. Unlike legacy functions such as the CFO, the CMO or the CHRO, the CSO is a relative newcomer, and consistent role benchmarks have yet to be developed. But sustainability is wide-ranging, shifting and ambiguous. CSOs face fuzzy mandates, crossed reporting lines and multiple demands. For the movement to be sustainable, Boards must set the focus of their organization as best they can. They need to be clear on the ESG targets to prioritize. The mandate and reporting lines for the CSO must align with these in order for sustainability to be sustainable.