“Companies are monitoring the impact they’re having environmentally and on society, and the appointment of the CSO reflects an underlying need for companies to not only monitor but also improve their performance,” says Harvard Business School associate professor George Serafeim.
Organization charts normally have boxes for lots of chiefs – whether it’s chief executive officer (CEO), chief financial officer (CFO), chief operating officer (COO), or even chief technology officer (CTO) – to indicate positions of senior responsibility for large areas the organizations’ day-to-day and strategic operations. However, organizations that are making an explicit commitment to more sustainable business practices have not yet granted the same seniority to the person in charge of those sustainability initiatives. There are a growing number of chief sustainability officers (CSOs) out there – DuPont appointed Linda Fisher as CSO as far back as 2004 – but for many organizations, sustainability is seen as being part of other strategic responsibilities such as compliance or environmental health and safety, corporate affairs, marketing, community relations, which precludes the creation of an entirely separate division.
As we have discussed in other blog posts, greenwashing is the practice of using advertising and PR messages to promote a commitment to sustainability that has no real evidence in operational practice. Companies say all the right things but make no significant changes to their business practices to support those commitments. On that basis, many companies see no need to support sustainability initiatives with a formal organizational structure or operational metrics. The compliance department can make sure that the company isn’t breaking any rules, and marketing can make sure that we are promoting all of our good community efforts in the name of sustainability and corporate social responsibility (CSR). However, sustainability and CSR is about exceeding what is required by law and going beyond ordinary compliance.
Customers, partners and investors are no longer willing to settle for PR messages and advertising slogans. They now expect to see firm commitments, disclosures and sustainability reports as to how the company is meeting those commitments. It may make sense for your supply chain manager to monitor better use of recyclable packaging, and for your operations manager to monitor energy and water usage, but these are internal procedures and do not cover the full spectrum of sustainability topics, like social value created, investment in local community or stakeholder engagement. If your company plans to incorporate sustainable business practices as a core value, it should also embrace the accountability of a public commitment to that value.
A Strategic Approach
Of course, putting a CSO in place in a small organization may see like you’re trying to run before you can walk, but there is a clear path to follow. Compliance is a great place to start. Actively promoting the fact that you devote time and resources to maintaining compliance with any and all regulations can be a good first step on your path to sustainability. This compliance will involve all departments that are subject to such regulations. In that sense, sustainability acts as a risk management mechanism. The next step will be to move beyond basic compliance into cost efficiency in order to realize financial savings while incorporating greater sustainability. Moving to wind or solar power to reduce carbon emissions would be a good example here. This will enable brand differentiation and identification of business opportunities. To gain a strategic advantage though, would involve a formal transition to sustainability as a core value. Products and services that you offer to your customers need to truly reflect your commitment. This typically involves innovation as you start to redesign existing products, services, management and engagement methodologies in addition to expanding your offerings. At this point, you may be ready to post that CSO vacancy!
Three Stages of Sustainability
To study a CSO’s responsibilities and to look at how the role shifts depending on the company’s level of commitment, Serafeim and Miller surveyed 66 CSOs and people with similar duties but different titles in 27 industries. They found that companies are often engaged in sustainability at one of three stages:
Compliance: In this initial phase, companies often start with activities related to complying with regulations. Activities are not strategic or centralized. In addition to compliance, employees may volunteer to work on recycling projects or green teams. Most companies at this stage have not created a formal CSO position.
Efficiency: Companies become more strategic about sustainability by finding ways to achieve efficiencies that will save corporate dollars, such as cutting energy and water use or reducing waste generation and carbon emissions. “These things are an easy sell,” Serafeim says. “They’re a good thing to do and the obvious thing to do.”
At this stage, more companies are likely to hire or appoint an official corporate sustainability officer, who works with the CEO. The CSO is often tasked with building a business case for making changes that improve the company’s bottom line, while also protecting or enhancing the company’s reputation. “The CSO is really driving the execution of the sustainability strategy,” Serafeim says. Many companies end up hovering in this phase without moving on to the final stage, innovation, the research shows.
Innovation: A select number of companies shift to a more advanced innovative stage by integrating sustainability into the core of the business in ways that transform the company. Strategies tend to be driven by the market with an eye on maximizing long-term profitability, and sustainability efforts often look to address bigger problems in society, including climate change, water management, and obesity.
Study findings imply that in this stage ultimate responsibility for sustainability shifts from CEO to CSO. The CSO’s main responsibility is to help develop a sustainability strategy as well as map out how changes will be made, and the CSO must often unify subcultures within the firm.
But the CSO also delegates more sustainability responsibilities to various departments. So while at the Efficiency stage the CSO concentrates responsibilities, at the Innovation stage he does exactly the opposite: He delegates decision rights and makes functions and business units accountable.
“What companies are doing at this stage is refocusing their strategy from an inward perspective to an outward focus,” Serafeim says. “How can we enable our customers, suppliers, and others to behave and operate in a more sustainable way? It allows you to envision new markets, new opportunities, and new needs. Very few companies have reached this stage.”
Many companies don’t make it to the innovation stage because they focus only on short-term goals like the cost savings they achieve from reduced energy use, rather than taking risks with more ambitious sustainability plans.
“Many organizations are afraid to raise the stakes and make bigger bets,” Serafeim says. “It’s not easy to make that transition. That’s why you need the CSO to make a push to move on, become more ambitious.”
Nike and Dow Chemical are examples of companies that have made it to the innovation stage. After Nike faced accusations about violations of human rights by subcontractors, it made drastic changes to operate more responsibly in its supply chain. At Dow, company officials used its science capabilities to develop components for solar panels and are now working on materials for cars that make them safer and more efficient.
“Dow is using its science background to address fundamental issues and problems we’re having,” Serafeim says. “That’s a whole different level of sustainability strategy. And it’s trying to understand how those environmental, social, and governance issues create value in the long term.”
The CSOs in the study made a variety of suggestions for success:
- CSOs should plant themselves as close as possible to the corporate areas where sustainability can produce value for the company. Initially, CSOs need to work with company officials who oversee compliance and issues. As sustainability goals become more ambitious, the areas where sustainability will produce value will vary from company to company.
- CSOs should have their finger on the pulse of the company culture, understanding what motivates employees and devising a strategy for implementing change that aligns with the workforce. Sometimes the strategy needs to be customized to work for offices located in separate geographic locations. “If you come up with a strategy that the workforce is not going to buy, you will have a very tough time implementing that strategy,” Serafeim says. “The strategy needs to be compatible with what employees are expecting, the skills they have, and their aspirations.”
- Some say the CSO should be placed on the executive team because the mere presence of the CSO at the C-suite table keeps sustainability on the agenda.
- It’s important to articulate a compelling business case for such efforts and to make the strategy understandable and relevant to internal stakeholders. CSOs are often challenged with pushing company leaders out of the “trade-off” mentality. “For years there was this institutional logic that says if you do the right thing, your competitiveness will be hurt and it will come at a cost to the firm,” Serafeim says. “People don’t understand that if you do things strategically, you can create significant value for the firm. The CSO is in the best position to change this perception, but he needs to have the data and the tight business case to communicate that.”
- CSOs should focus on a manageable set of sustainability issues, rather than biting off more than they can chew at once. And they should keep in mind that sustainability goals will change over time. Edelman says his approach is “evolutionary, not revolutionary.” IKEA CSO Steve Howard says, “You can’t transform everything at once. The hardest thing about leading the change is managing the complexity …”
Serafeim agrees that companies need to constantly rethink and revise their sustainability strategies. It helps to have a dedicated employee—the CSO—steering the ship.
“The way to think about the CSO is it’s the person who is the change agent,” Serafeim says. “It’s the person who sees how the future is developing, how social expectations are changing, how regulations and the business environment are changing in the future. The CSO is the ambassador with the vision, the person who decides what needs to change when it comes to how the company is interacting with the communities and the broader societal context in which it operates.”