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CSO — yes or no?

I’m going a bit unconventional today and focusing on some interesting research from another strategy consulting firm (!). While no doubt a marketing faux pas, I’ve justified to myself due to it a) being a topic I’ve had lived experience in; and b) having a useful read-across to small / mid-tier businesses, which isn’t where the original research is focused.

So, first off, full credit to Strategy& (part of the PwC network) and their report titled Empowered Chief Sustainability Officers” (“CSOs”) on which this Perigon Perspective is based (click link to download).

the big headlines: there are growing numbers of CSOs and having one correlates to better ESG performance…

Strategy&’s research of 1,640 listed companies across 62 countries shows that, in the UK, 37% of those surveyed have an ‘active’ (or empowered) CSO, 56% a ‘light’ CSO (2+ levels below C-suite) and 8% no CSO. The larger the company, the more likely to have some form of CSO role — 51% with revenue <$1bn have no CSO which reduces to only 6% where revenues exceed $200bn.

(There are some nice charts in the original research which bring this to life some more).

The number of CSO appointments in 2021 (68 across surveyed companies) exceeded the total number of appointments over the 4 preceding years (65). So one might deduce that it’s an accelerating trend. There’s also a nice positive correlation between ESG scores (based on Refinitiv ratings) and having an ‘empowered’ CSO, in other words not one that’s buried in the depths of the organisation.

…so should we all go out and get one?…

Now I’m not against a company having a CSO — I was one before I set up Perigon — but I do think the circumstances need to be very carefully considered, for all sizes of business.

Playing devil’s advocate for a second, this correlation between ESG scores and CSO appointments could just mean that there’s an extra pair of hands to help write the necessary disclosure to feed the scoring system. That’s useful to an extent as asset managers and investors do embed these scores into their decision making (although that’s also starting to come under scrutiny). But it doesn’t necessarily mean that ESG is any more embedded across the organisation or core to its strategy, which are actually the true elements required for long-term commercial success.

Strategy&’s research also sheds some light on this grand title, “CSO”, which essentially tells us the “C” is most often a misnomer. Only between 20% and 27% of the CSOs identified in the survey were genuine C-suite roles. Around 30% were the level below and up to 50% were two or more levels below.

I’ve managed the Sustainability agenda at C-suite level and I’ve managed it at the level below and I found many differences between the two challenges. As with most things, being in the room makes it considerably easier to remain relevant, join the strategic dots, and exert influence when it matters.

ESG compliance is one thing (and often the thing that’s measured by the different indices out there right now). Strategically embedding ESG considerations across an organisation for long-term commercial success and risk reduction is a different kettle of fish (and a much more valuable one at that). As with any good business decision, whether or not to appoint a CSO requires a careful weighing up of purpose, cost and benefit — particularly for smaller businesses whose pockets aren’t as deep as the big listed firms.

…what’s the alternative to a CSO then?

Many are of the view (myself included) that a sign of a successful CSO is that they eventually do themselves out of a job. That’s the point when the organisation that you’ve been cajoling, challenging, upskilling and championing reaches true ESG enlightenment — ESG being fully integrated into every role, strategy, process and decision.

So companies, whatever their size, could think about leapfrogging to this happy end state, foregoing the need for a beefy CSO role to spearhead the transformation. This is arguably a more approachable route for smaller organisations with fewer cats to herd. Either way, it requires a consistently strong and influential CEO advocate and usually some external help to design the strategy and operating model in the early days (shameless plug for Perigon’s services).

Or you could go for a hybrid and nominally make one of the existing C-suite of the company the ‘sponsor’ for all things ESG. Sponsorship is quite neat as it helps to avoid the trap of others in the organisation thinking it’s not their problem…sponsorship implies support and constructive challenge, it doesn’t imply doing absolutely everything that smells like ESG. The risk here is the tension between the other day job and the sponsorship role — there are only a finite number of hours in the day. So you need to be almost pedantically clear about roles and responsibilities for the sponsor and everyone else around the top table and have a well-defined, shared vision of where the organisation wants to get to by when.

In both of these alternative options, a small proportion of the avoided costs from not having a CSO would be well spent engaging external ESG strategists who can support with pragmatic advice — by that I mean providing a service that is practical, proportionate, efficient and authentic. Focused on strategic thinking and development rather than project implementation. Yes, it’s another plug for Perigon here I’m afraid, but only because I believe so strongly in the potential benefit.

In summary

The competitive opportunity for small and mid-tier businesses is enormous here. But think carefully before jumping on the back of the CSO trend that the big listed companies have started. There could be a smarter alternative that leverages your unique position in the market. And seeking a little bit of help at the right level to get that right could pay dividends in the long-term. Whatever the model, if the right individuals aren’t empowered, it’s hardly worth bothering.

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