The New Reign of the Chief Sustainability Officer

Product sales, financial performance, talent acquisition, financing and share price will all depend on the success of the Chief Sustainability Officer.

Chief Sustain...who...? Let me put in context.

Many years ago with the emergence of IT as core function of business, the Chief Technology Officer (CTO) quickly rose to a new key figure in the inner circle of the C-suite. Many of today’s most valuable corporations were in fact founded and/or lead by a technical CEO.

But today we don't talk anymore about IT as a competitive edge, and the CTO moved out of the Board's spotlight. Because we have much bigger and more important topics! Like our planet! Stopping the climate change - preventing companies from generating profits on the cost of our planet - establishing a circular economy... Becoming sustainable!

Many companies have already demonstrated that being sustainable can improve the company’s performance and shareholder value. Therefore, big investors, like Asset & Fund Managers, are making sustainability an investment criteria or requirement. And regulators, like stock exchanges quickly followed with guidelines and mandatory sustainability reporting for listed companies.

So how do companies respond to this new demand for sustainability? You need a new Manager that can not only handle this topic (some naughty tongues may say "greenwashing"), but can convert it into an opportunity to pivot the old going concern into a fresh, forward-thinking and “concerned” corporation. Because his drives valuation upwards – which we all like – and, even better, our planet gets to spin longer without floods, droughts, hurricanes, etc.

This new senior officer was adequately named Chief Sustainability Officer (CSO). So what does the CSO and CTO have in common?

The CSO is also a hybrid expert of technical and business expertise. The CSO is a highly complex matrix position that tries to merge technical aspects with almost all operational business activities and departments – and involves a good portion of Change Management too.

Let me elaborate and explain how the CSO will soon reign as one of the highest, if not the highest, C-Suite Officer - and why there will a big shortage on good CSOs in Malaysia soon.

The CSO role involves analysing how a company’s business activities impact the environment, and formulating strategies for improvement which benefit both the environment and the company. To be effective in this role means having an excellent working knowledge of the best-in-class sustainability technologies and processes, including material management, energy management, energy efficiency, renewable energy, IOT, water conservation, rain harvesting, waste recycling, electrification, digitalisation, and many more. And this list continues to grow as new green technologies emerge every day.

But environmental benefits are not the only KPIs of the CSO. Sustainability is about considering and maximising benefits for ALL stakeholders, and this includes the environment as well as shareholders, employees, clients, etc. Thus, the CSO also pursues improved business outcomes in the form of lower operating costs, higher productivity, improved growth prospects, better risk management, and ESG-relevant IR and PR. This explains why the CSO has his or her fingers in so many business aspects and departments.

The CSO is responsible for communicating the company’s sustainability strategies and achievements to the Board of Directors, employees, shareholders, clients, partners and regulators. For clients, the CSO must influence the R&D as well as Sales & Marketing teams because sustainable product properties are part of most consumers’ buying decisions.

Communicating sustainability transparently involves providing measurable data such as carbon emissions (scope 1, 2 and 3), waste generation and recycling, water usage, etc. This information is often presented in the form of an annual Sustainability Report, and is generally available on a company’s website but today, most often still lacks a consistent structure with facts and transparency.

One of the greatest opportunities in communicating sustainability information lies in telling the stories behind the sustainability strategies alongside the data. According to McKinsey, brands with higher ESG ratings (Environmental + Social + Governance metrics) are more financially successful and have more public support. For example, Clorox, the cleaning wipes provider have committed to making 90% of their product packaging recyclable. The company has told this story effectively, so the business benefits of this strategy extend well beyond the PR benefits and cost savings. Future revenue growth is also likely to benefit from the company’s improved sustainability strategy. Research shows investors and consumers want to feel more connected with sustainability issues through corporate communication.

Chief Sustainability Officers are also responsible for complying with any regulatory sustainability guidelines and requirements. For example, Bursa Malaysia’s Sustainability Reporting Guide gives guidance on the information Malaysian listed companies must report, as well as the sustainability management and structures required. The guide is particularly focused on financially material ESG issues such as carbon emissions, waste and effluent, water, energy and biodiversity. And it’s noteworthy that Bursa Malaysia’s definition of sustainability issues extends beyond environmental issues to include social issues such as diversity and human rights.

Sustainability reporting is becoming more comprehensive and mandatory globally. At the Glasgow Climate Change Conference (UNFCCC COP26), it was decided that the IFRS Foundation would create a new International Sustainability Standards Board to help establish a globally accepted and adopted sustainability disclosure standard. This new standard will take into account South-East Asian regional needs, however, it’s clear that the trend is towards greater measurement and disclosure of sustainability data across all regions. As this trend gathers pace, more Malaysian companies will need in-house sustainability expertise and dedicated sustainability roles.

Investors are increasingly in favour of better sustainability performance from their investments. Harvard Business Review interviewed 70 senior executives from 43 global institutional investing firms, including the world’s three biggest asset managers (BlackRock, Vanguard, and State Street), and most of the investment leaders described meaningful steps their firms are taking to integrate sustainability issues into their investing criteria. The interviews made it clear that global corporate leaders will be held accountable by shareholders for their ESG performance.

The transition towards a low carbon, more sustainable world is well and truly underway, and it’s creating a fast-growing, demand-like expectation for all companies to improve their sustainability practices and disclosure with regards to business operations and products. This new massive task comes down to a single person. Power is measured by someone's influence. Product sales, financial performance, talent acquisition, financing and share price will all depend on the success of the Chief Sustainability Officer.

Which other C-Suite Officer has more influence?