Charles Darwin is coming for the chief sustainability officer. Either CSOs step up to work on material and strategic issues, interacting with the board, investors, and CFO. Or another executive will eat their lunch and push the CSO function back to where it came from: the forgotten world of corporate social responsibility (CSR). That’s our conclusion from Harvard Business Review’s must-read article, “Evolving Role of Chief Sustainability Officers.”
It’s another tale of “adapt or die” in the merciless savanna that is the corporate boardroom. As sustainability gains in importance, so do the expectations of the CSO. Gone are the days when CSOs could focus on feel-good initiatives or put out a shiny ESG report. Enter the CSO who has an impact on strategy, operations, and the bottom line, and has close ties to key company stakeholders and decision-makers, Robert Eccles and Alison Taylor write in HBR this month.
Are CSOs ready?
They are when it comes to board access and power, Ellen Weinreb, a sustainability recruiter and author of a yearly CSO report, told me. “We have seen considerable increase in authority for the CSO since we started [our] research in 2011,” she said. Notably, 99% of CSOs at publicly listed companies in America now report to the board, a sign of how strategic sustainability issues have become.
Yet CSOs’ formal position in the C-suite is less well defined. Eccles and Taylor argue that a CSO best reports to the company’s chief financial officer, if not the CEO. This reporting structure guarantees that sustainability work has an impact on the bottom line and ensures alignment between the annual report and the ESG report.
Yet most CSOs lack this reporting line. “We looked at where the CSO sits, and it’s all over the place,” Weinreb told me. About a third nominally report to the CEO, a number that hasn’t moved in a decade. Those who don't directly report to the CEO most often report to the COO, chief corporate affairs officer, or general counsel. Only 2% report to the CFO.
This means many CSOs have to rely on soft power rather than formal access or authority to succeed. This can be tricky given that one of their core functions is “narrowing the focus to ESG issues that are material to a company’s value creation,” as Eccles and Taylor put it. Doing so requires fluency in financials or at least a direct line to the CFO and investors.
Simply inserting an ESG materiality matrix into the yearly ESG report won’t do. That would “fail to distinguish between value-creating and ethical concerns, or between risk-reduction measures and strategic opportunities,” Eccles and Taylor write, sharing an assessment we previously made in Impact Report.
Instead, CSOs should make sure their matrix is used first and foremost to frame conversations at the executive committee or in investor relations. It is here where the rubber meets the road, where the concerns and wishes of a wide array of stakeholders are confronted with the hard reality of corporate strategy and asset allocation. So far, the HBR authors write, that remains an unmet challenge.
Finally, Eccles and Taylor observe, regardless of their authority or reporting lines, CSOs need to become essential. Aspects of their work that grew out of traditional corporate social responsibility are nice to have, but not mission-critical. Pretending that it is anything else—as is often done in ESG reports—hurts their credibility.
But since many CSOs have a pedigree in communications and PR, philanthropy, or CSR, they often fall back on optics. I’ve seen this quite a bit already myself in working with CSOs and their comms teams. If you want to talk about sustainability, you need to be ready to offer a company-wide or even a systemic view of your impact. Not having that is where sustainability stops and greenwashing (or greenwishing) begins.
Or as Eccles and Taylor put it: Being an evolved CSO is about “moving the focus from feel-good corporate social responsibility to hard-nosed sustainable value creation.” This requires a shift in the skill sets and toolkits of CSOs and their teams. Those who are able to do this will be set up best to succeed. The others, I’m afraid, will slowly retreat to irrelevance.
Speaking of the evolving role of the chief sustainability officer: Next week, on Thursday, June 27, at 12 p.m. ET, we will kick off our "Sustainability 101" speaker series, on exactly this topic. Our first guest is Melanie Nakagawa, the CSO of Microsoft and a former U.S. deputy assistant secretary for energy transformation. You can sign up for that session and the following ones in the series here.
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Peter Vanham
Executive Editor, Fortune
peter.vanham@fortune.com
This edition of Impact Report was edited by Holly Ojalvo.
