Chief Sustainability Officers (CSO) are relative newcomers to the corporate world. Their role has emerged in the last 20 or so years as it became clear that companies were expected to address their impact and share responsibility in solving some of the world’s biggest problems. As newcomers, many are still trying to get on the radar of their CEOs and boards, lacking a champion to help pave the way.
However, champions don’t have to be internal. The world’s largest money manager sent a message to corporate leaders this month (January 2018) about the job ahead for CEOs and boards to define long-term value that includes a social purpose. Black Rock Founder, Chairman and CEO Larry Fink’s annual letter to CEOs puts them on notice regarding BlackRock’s expectation that, in addition to delivering financial performance, CEOs show how their company makes a positive contribution to society.
In sustainability’s coming of age, there still remains a disconnect — the attention these issues receive in most companies versus their high profile in global activities. For example, environmental, social and governance (ESG) issues took center stage last week at The World Economic Forum supported by mainstream business leaders. In companies, many sustainability teams aren’t a part of the business narrative or strategy, except for marketing advantage and reporting and measurement purposes.
Will CSOs be included in the critical discussions ahead to define what value creation can really mean at their companies? It is a measure of a company’s capacity to value and integrate the sustainability function if that is even in question.
One of my previous columns looked at efforts underway to redefine the agenda of sustainable business with greater relevance and value so that sustainability is embedded into overall business strategy. Black Rock’s CEO letter offers added impetus to that focus. Fink wrote that he expects boards will be diverse and that companies be clear about their purpose, strategy, role in communities, impact on the environment and how they are adapting to technological change and addressing its impact on employees.
Addressing Red Flags
In CEO rankings of top sustainability priorities for 2017, “strengthening board oversight of sustainability issues/risk” showed up as priority #20. (Branding and marketing integration headed the list.) That attitude likely pervades the C-Suite and isolates sustainability teams from inclusion in strategic discussions and debate. It leads to everyone thinking small. It also inhibits developing a quality sustainability strategy.
According to “Corporate Sustainability at a Crossroads,” a report by MIT Sloan Management Review and The Boston Consulting Group, 40 percent of companies lack a sustainability strategy: “The uneven distribution across industry, geography and size of companies with sustainability strategies is a call to action” according to the report. In addition, only 25 percent of companies had a clear business case for sustainability efforts.
Most boards have low sustainability engagement. According to directors from 600 public companies responding to The National Association of Corporate Directors’ 2017-2018 governance survey, only 24 percent said improving their board oversight of ESG factors this year was important or very important. When directors were asked what trends would be “having the greatest effect on your company over the next 12 months,” the “role of business in society” ranked last, supported by only two percent of those polled; climate change and shifting workforce demographics tied for second to last, with six percent of those polled.
The red flags keep waving. Sustainability executive responding to a survey by The Conference Board indicated negligible board contact: 55 percent said their board meets on sustainability issues once a year, if at all. Nearly 70 percent said their boards spend four hours or less a year on sustainability topics.
Expertise in sustainability isn’t likely a competence that nominating committees had high on their recruiting “must-have” list in the past. Surveys indicate only about 10 percent or less of U.S. public companies have a stand-alone corporate responsibility or sustainability committee. To shift that dynamic and further directors’ sustainability education, Ceres, a sustainability nonprofit, recently published recently Lead From The Top: Building Sustainability Competence on Corporate Boards.
Ceres also offers pointers for sustainability teams to help them make better headway with their boards. How-to suggestions include cultivating the corporate secretary, folding sustainability into current discussions, making the business case, focusing on issues that could materially affect value and being more transparent.
These ideas and others were echoed by executives on a panel “Engaging Boards: Making a Case” at the 2017 Business for Social Responsibility annual conference. “Boards speak a language and the language of sustainability is not part of their lexicon,” said panelist Tanuja Dehne, a public company director and senior advisor to the B Team. She discussed boards’ fiduciary responsibility, the importance of materiality and their duty of long-term value creation. “When you start to use these terms with boards,” she continued, “and then start to make the linkages of why sustainability matters, then it becomes an easier conversation.”
The vulnerability to ask oneself the question, “How do I get out of my own way?” – in wanting to be more effective in complex and challenging situations – offers space to find answers.
It is a question CEOs, boards and all of us should ask ourselves regularly. The question was at the heart of a brainstorming discussion among sustainability officers I attended at the BSR conference focusing on what they can do differently to be more effective. Their skills, experience and scope of work doesn’t lend itself to a quick elevator pitch. It extends across the gamut of environmental, economic and people-centered issues that their companies impact while doing business. For those who haven’t found a champion, it is time to try harder.
Larry Fink’s CEO letter (and the increasing impetus from mainstream institutional investor interest in ESG information in investment analysis and in making investment decisions signal time for another, much needed, paradigm shift.
It’s time for companies to ask themselves how they can get out of their own way.
Gael O’Brien, a Business Ethics Magazine columnist, is an executive coach and presenter focused on building leadership, trust, and reputation. She publishes The Week in Ethics and is a Kallman Executive Fellow, Hoffman Center for Business Ethics, Bentley University