Why Chief Sustainability Officers as we know them should disappear

Sustainability is now a sky-rocketing topic on every major corporate board. The Covid-19 crisis has accelerated consumer sustainability awareness, generated a sense of urgency and increased pressure for new governmental regulations. Companies are now pledging in turn to track and improve their sustainability metrics. Indeed, the world sees as of last year 92% of Fortune 500 Companies tracking and reporting sustainability metrics, often implemented by a Chief Sustainability Officer (CSO) directly reporting to the Chief Executive Officer (CEO).

While all is not perfect, with only about 40% pledging some significant Carbon footprint move by 2030 in line with the Science-Based Target recommendation to remain below the 1.5C increase target, we can only encourage and continue to push for this momentum.

However, we find that there are overlooked opportunities to accelerate and deepen the impact of the businesses world on our journey to a more sustainable world.

This article aims to show how by making sustainability a more business friendly topic, without compromising on the end goal, we can collectively do more and faster. In this article we will discuss:

1.     Why CSOs potential is currently not maximized to answer Sustainability and business needs

2.     What frameworks exist to link value creation & impact on communities, climate & biodiversity

3.     What best practices exist to sustain a new culture that fosters value creation with impact in the long term.

The root cause of the issue – the current job description of a CSO

      A CEO is the owner of the strategy and the resource allocation of its company to achieve its objectives. His or her purpose is to ensure profitable growth to the company in a way that benefits customers, shareholders and employees.

      The CSO on the other hand “are to work with managers, employees, customers, and shareholders to address the organizations approach to environmental responsibility with the goal to minimize the company’s environmental impact”. This job description requires CSO to ensure that reporting is duly made, that new regulations are taken into account and implemented in the company’s process, that tools to follow up its carbon and other sustainability related footprint are built, and, that proper governance to execute them is set.

     Aren’t we missing something?

     What about helping with the company’s business objectives?

     While future proofing and reducing footprint of a company in anticipation of new regulations and ever changing expectations of peers, regulators, customers and other stakeholders such as investors is a must, why is a CSO’s job framed in a way that only generates costs for a company?

       This type of job description is not a surprise. Indeed, even though most CEOs understand Sustainability is important, a majority (60%) of them do not see business value in Sustainability. Even after Covid-19, only 66% of European CEOs  have reconsidered their assessment to give a more priority to Sustainability (with the EU being one of the most environmental conscious economy).

      As long as  CEOs and their board do not understand that Sustainability can be a business advantage, we will continue to see this topic as a lame duck of corporate strategies - a massive waste in term of potential value creation to shareholders, customers and more.

      With all that being said, the barrier of entry into Sustainability remains relatively low and the opportunities definitely are at reach. Indeed, you do not necessarily need an expert to lead your corporation to find its path; solid frameworks, common business sense and good leadership are all you need to get started.

A big waste in term of untapped potential

      As you might have guessed from what we discussed above, there are 2 ways to see the Sustainability topic:

1.     Sustainability as a compliance and reporting tool: You can focus on an organization’s own footprint. This will be needed as new regulations are coming with the new Net-Zero world to be, where this will serve as licenses to operate and get financed. This new world is already happening with 33% of investment looking as ESG metric among others and is expected to rise and consolidate globally by 2035-2040.

2.     Sustainability as a business innovation and performance medium: This is where you leverage Sustainability by tuning it to the functional, social and emotional needs of your stakeholders & business ecosystem: customers, suppliers, employees as well as shareholders & investors. Using it to derive new products and services with reduced footprint, increase your margins by reducing your own costs, or as a tool to help others reduce their footprint and achieving their own Sustainability objectives.

How do you lead your company to move from the first view to the second? How can you operate the switch so your company views Sustainability as a business advantage?

      This is the “mother of all questions” CEOs and Boards should ask themselves to not only comply but thrive in the incoming Net-Zero world and maximize their value creation.

      While each industry and company are different, frameworks exist to move your organization from being a follower to an actual leader and good news is that this is not as much as a tricky process as one might think.

Turning Sustainability to a business advantage

      Turning Sustainability into a business advantage starts from the board acknowledging this is a priority that needs to be pursued. This is where the author humbly believes the CSOs should step-in beyond their current role defined above, to drive this process.

We broke down the process into 4 steps:

1.     Align your business strategy and your Sustainability roadmap

2.     Prioritize, build a vision & execute

3.     Infuse a new culture & nurture

4.     Go to Run-Mode and leverage

We will now dig into each of those items in greater details, explaining the methodology and the rational.

A.   Aligning business & Sustainability - Brainstorming

In the end, Sustainability should be a supporting strategy. This means that you can use it strategically to become a better business today and in the future. We will show how by moving from performance alone to performance with impact, one can build new competitive advantages in his industry.

The very first stage is to map all the UN Sustainable Development Goals (SDG) and see which your company aligns best with:

a. Rework the needs of your key stakeholders with a Sustainability lense:

• What SDGs are shared with customer expectations?
• How does it answer all or part of their Functional/Emotional/Status needs?
• How does it align with their concerns and associated purchasing behaviours?
• How can you support their own Sustainability journey?

And now, ask yourself and your team the same questions but for your other key stakeholders (investors /suppliers /regulators…). What key business problematics are being revealed (cost cutting/ pricing / marketing/etc…) and how could Sustainability support?

b.  The organization, cost structure and processes of the company

• How can an SDG affect the cost structure of the company or of its products?
• How can this reduce the time spent on specific tasks?
• How can this affect COGS and/or utility usage?

c.  The capabilities, skills and know-how of the company

• Which objectives are most aligned with the daily tasks of your teams involved?
• Are your teams’ skills aligned with the need for one or several objectives?
• Are your team members familiar with the technologies or business models involved?

d.  The flexibility of the ecosystem of suppliers and value chain players

• Can you leverage your value chain players to achieve an objective or learn new skills?
• Can you create new partnerships and enter new markets aligned with SDGs?
• How can the decisions above benefit your cost structure, your customers’ willingness to pay, or any other metrics?

Those few questions can help your teams brainstorm and identify which SDGs to pursue.

A few examples of new business ideas that are paired with Sustainability agendas:

• Circularity to serve lower purchasing power customer categories (within or across geographies)
• Investment in technologies that will reduce cost/usage of resources and Total Cost of Ownership (TCO) to Customers
• Higher quality products with longer lifetimes sold at a higher price but lower TCO
• New products with lower maintenance/spare part management cost for the manufacturer
• Tech giving direct insights on usage of resources to support a customer’s own Sustainability agenda
• Training unfavored community to open new local markets
• Work with suppliers to secure a climate positive resource used in the industry
• Investment in start-ups that can climate positively disrupt the industry

And many more…

There are just as many options as one is willing to look at. The challenge is rather to pick the ones that are the most impactful both for business and Sustainability, and this is what we will discuss next.

B.   Prioritize, build a vision and execute

Once you have ideas on the whiteboard, the next step is to determine which ones should be prioritised. You should see projects that contribute to both business (more or better customers, better financing, etc) and society overall (climate, biodiversity, communities) on your idea board.

Prioritization of such projects should follow a typical business canvas with the usual indicators: Net Present Value (NPV) or Return on Investment (ROI) but with one additional metric: Impact.

How do you measure Impact?

The idea here is to assess the net impact of the initiative with its value measured in currency given back to the community, climate, or biodiversity. Whether it is dollar value irrigating unfavored communities, Net carbon reduction (and its current & future dollar value), water savings, etc… All of those can serve the very own company agenda and prepare it for its own Sustainability goals, as well as a broader purpose.

Figure 1 : Illustration of project evaluation based on both Business & Impact returns

Once the projects are prioritized and chosen according to ambition and available resources, it is important to craft a vision around them that resonates with the company’s core DNA, your customers, your investors and other stakeholders. This vision, that should reach both hearts and minds, will serve as a guiding light to support accurate decision making when delegated decisions are required within the organization. It will also contribute to building a culture that prepares the next steps of the journey so that the effort can be sustained beyond the initial start.

From there, focus should move to execution. Having a dedicated team will help you substantially. This can be in the form “full line” hierarchical team under the CSO or the board, or a “dotted-line” team with the right skill set functionally reporting to the same and responsible for executing the projects where needed.

While the “full-line” team works better for smaller organization, large organization might benefit more from a “dotted-line” constellation of resources actively contributing and measured on the success of those projects, as this will infuse and build-up understanding, skills and ownership across the different business units of the company.

The first couple years of implementation are critical and proper governance key for performance monitoring and follow-up of the execution (business & Sustainability wise). These will allow the board to remove any obstacles and provide guidance to the team, while having the option to fine tune future initiatives should the need arises.

C.   Infuse a new culture and nurture

This stage makes extensive use of the vision crafted earlier and of the ongoing projects. The objective is to re-shape the culture by educating, rewarding and ultimately giving ownership of the Sustainable Growth initiative to the rest of the organization.

This step is critical to ensure that the leadership, employees and stakeholders understand the importance put into the topic as well as how they can contribute at their own level to move towards that same objective. Ensuring the organization understands the commitment and its link to business plants the seeds for future bottom-up initiatives that will help sustain and even accelerate the journey.

Several things (some obvious) can be made to ensure this is covered end-to-end:

a. Communication: Communicate actively on the strategic intent (improving business while tackling chosen objectives) - This is critical to align the organization.

b. Target setting and incentives: Set easy to understand company KPIs that monitor the accomplishment of Sustainability objectives on top traditional business KPIs. Ideally link to compensation schemes of the company’s executive and employees alike.

b.     Target setting and incentives: b.     Target setting and incentives: Set easy to understand company KPIs that monitor the accomplishment of Sustainability objectives on top traditional business KPIs. Ideally link to compensation schemes of the company’s executive and employees alike.

c. Delegate: Challenge the company’s executive/leaders to set their own initiatives and contribute to the Global KPI achievement in new and granular ways.

d. Expertise building: Assign a limited number of experts on the Sustainability to advise those leaders and infuse expertise locally.

e. Governance: Set councils, steering committees or any type of governance that can monitor new ideas generated that support said business & Sustainability objectives

All those are here to foster bottom-up initiatives and make stakeholders feel capable and incentivized to bring their own ideas forward and execute them as long as they fit requirements.

With the message and the incentives set, your company’s understanding of what needs to be achieved is stronger and this opens the way for larger contribution at all levels. You have now a fertile ground to generate new ideas and sustain the transformation as your organization matures and takes on Sustainability as a major strategic objective on par with other key business objectives.

While appointed Sustainability experts support the teams in their brainstorming and execution phase to ensure proper impact, the rest of the team ensures proper business alignment.

Your role remains to tweak the signals, KPIs, incentives to ensure the psychological safety to give ideas, and the ownership to execute them are well established. As the organization reaches its first goals, those would be incrementally updated but would also be extended to new categories.

D.  Don’t stop yet: leverage further!

On top of nurturing the process, do not forget to tell the world about it and market it to your advantage. Leverage on this new path your company is taking and start making new grounds.

• Externally to increase your business through brand awareness & differentiation against your non-moving competitors. That regulatory wall to come that you may now even influence by leading the topic will also serve your business.
• Internally to boost employee engagement (as it is proven Sustainability helps to boost it) and continue to incentivize a bottom-up ownership.

This is as important as any of the other topics above, as this is how you will set your company’s branding and value to your customers and your ecosystem and build a lasting advantage. You want the market to know that your brand is sustainable when others are not there yet and influence willingness to pay and decision making.

Being many doing a bit goes a long way.

We can get there.

In the end, our role in the business community is to ensure we can delight consumers and customers with products while making a healthy profit that can grow through the years. It is possible to do even more and better by adding one more lense: impact on future generations.

If every business takes on incremental steps on Sustainability with existing technologies we can help decrease emissions by 30% to 40%, which is all we need to keep up to the 1.5C trajectory until 2027.

I hope that this small contribution changed your perception of complexity and lack of business rational in pursuing Sustainability in your business endeavours. We all have our part to do.

If doing good while doing the business we love is possible, why not simply do it?

Is it not a great way to be doing our jobs?

Sorouch KHERADMAND - skherad@gmail.com

Feel free to contact the author to share your views and discuss more.