01 June, 2022
As companies face an increased focus on sustainability and environmental, social and governance (ESG) issues, more and more companies recognise the value and importance of appointing a Chief Sustainability Officer (CSO). In this research, we explore the increasing prevalence of the CSO role, the expanding mandate associated with the role, and the profile of those appointed to CSO roles in Irish headquartered companies. We also consider how the Irish experience compares to what we see globally.
Driven by the demands of stakeholders, companies everywhere are rapidly increasing their focus on sustainability and ESG. The associated transformation puts CSOs at the heart of change in their respective organisations.
Companies need to take account of these stakeholder demands, together with their increasing emissions and ESG reporting obligations. In our most recent annual corporate director survey, leaders said that addressing ESG issues is so complex—and the issues so all-embracing—that they simply don't know where to begin.
Enter the CSO.
The ESG transformation affects not only the products and services offered, but also the ways employees work. Hence, the CSO needs to ensure that all parts of the organisation buy into—and actively take responsibility for—the transformation. This requires listening skills to understand the trade-offs and intricacies across departments, but also the ability to influence stakeholders beyond one's own control to reach a common understanding and shared objectives.
It's rare to find so many skills combined in one person. That leaves organisations with two general choices: they can bring in an expert in sustainability who also has a generalist or strategic mindset and have them report to the CEO (or another C-suite executive) or they
can bring in a senior manager (C-suite level, for example) and support them with someone within the organisation who is an expert on sustainability.
While it is not a silver bullet, a well-established CSO can make a real impact connecting the dots and supercharging the sustainability transformation. Our research reviewed the ESG rating from Refinitiv—one of the world's largest providers of financial markets data—for 1,455 companies globally. Among the companies that scored an A rating, almost all (98%) had an executive with at least some sustainability responsibility, highlighting that companies with CSOs in place are better ESG performers.
Our study reviewed the role of the CSO at 1,640 listed companies globally across 62 countries, 19 of which were Irish headquartered plc companies. We looked at what proportion of these Irish companies have a CSO, where they sit within the structure and how long the role has been in existence. We then compared the findings from the Irish companies to the global findings to determine how Ireland compares, and identify key points for companies to consider.
Our study considered three classifications of the CSO role:
The 'CSO light' category includes sustainability officers whose focus is not on sustainability as such, but who work on sustainability in the context of corporate social responsibility (CSR) or health, safety and environment (HSE) roles. At present, our research suggests that too few CSOs have sufficient access to the board, because roughly half of all CSOs are two or more hierarchy levels below the C-suite and therefore lack the influence to shape the sustainability transformation. These are also included within the 'CSO light' category.
Our key findings are as follows:
Irish companies compare favourably against the overall study results. 52.6% of the Irish plcs reviewed have a formal CSO role with a powerful mandate, compared to 29.8% globally and 34.6% of European companies. The remaining 47.4% of Irish companies had a 'CSO light' in place, compared to 49.2% globally and 56.5% of European companies. While 21% of all companies reviewed globally had no CSO at all (8.9% for European companies), all Irish companies reviewed had either a formal CSO role or a 'CSO light' role.
The study demonstrates that Irish companies are serious about sustainability and ESG. How does your company compare? If you have not yet appointed somebody with responsibility for sustainability and ESG, your company could risk getting left behind as your stakeholders continue to demand action on these issues. If you have appointed a CSO, have they been given a powerful enough mandate to implement real change, or are they a 'CSO light'? Can their mandate be extended to enable greater impact?
There is a correlation between a company's revenue and the appointment of a CSO—the greater a company's revenue, the more likely they are to have a formal CSO in place. For companies with revenues of less than USD$1 billion, only 12% globally have appointed a formal CSO. As revenue increases, there is a greater likelihood of a CSO being in place. 56% of companies globally with revenues in excess of USD$200 billion have a formal CSO in place.
The findings of the Irish companies bear this out. Of companies with revenues of less than USD$10 billion, only 22% have a formal CSO in place and the remaining 78% have a 'CSO light'. However, of the Irish companies reviewed with revenue in excess of USD$10 billion, 80% have a formal CSO appointed while the remaining 20% have a 'CSO light' in place.
Companies with higher revenues are more likely to have a CSO in place. However, given the correlation between companies having an ESG A rating and the presence of a CSO, if you are serious about your sustainability and ESG performance you must consider appointing somebody with responsibility for this area, regardless of your organisation's revenue.
The gap in CSO expertise is narrowing. 2021 saw a threefold increase in the number of CSO appointments globally compared to 2020. The trend began in 2018, when issues such as climate and racial and gender equality started to influence investor and CEO decision-making. There were more CSOs appointed in the companies surveyed globally in 2021 alone than there were in the period 2016–2020.
The experience of the Irish companies reviewed is broadly consistent with this, whereby 53% of the CSOs were appointed in either 2020 or 2021, more than doubling the total number of CSOs in place in these companies prior to 2020.
The figures demonstrate that more and more companies, both in Ireland and globally, are recognising the value of appointing a CSO. We expect this trend of growth in CSO positions to continue. As the number of roles expand, organisations may struggle to find appropriate personnel to fill the available roles. With that in mind, act now to limit the likely impact of any skills shortage on your company.
58% of CSOs appointed by the Irish companies reviewed were internal appointments. This is consistent with the global findings—over half (52%) of global CSO appointments are internal appointments.
Sustainability is the most common background of the appointed CSOs, followed by strategy. This is consistent both globally and for Irish headquartered companies. 20% of CSOs appointed by Irish companies had a background in both sustainability and strategy, and is consistent with the global proportion of 20.8%.
Interestingly, the global results indicate that internal appointments are more likely to be appointed higher in the corporate hierarchy than external appointments. 58% of global internal appointments were appointed at C-suite or one level below, compared to 50% of external CSO appointments. The experience in Irish companies is a little different, however, as 63% of externally appointed CSOs were appointed at C-suite level or one level below, compared to 45% of internally appointed CSOs.
Our research suggests that too few CSOs have sufficient access to the board with approximately half of all CSOs being two hierarchy layers or more below the C-suite. Having a CSO on the executive board or reporting directly to the CEO or another board member helps educate and upskill the executive team on evolving ESG issues. It also allows the CSO to better influence strategy and operations in order to align commercial and sustainability objectives which ultimately delivers better long-term value for the company. A board-level CSO also signals that sustainability is as important to the company as, for instance, its finance or human resources functions.
With the increased focus on ESG, companies need to ensure that they proactively tackle any sustainability or ESG issues. The appointment of a CSO is key and once appointed, the CSO should have sufficient access to the board to enable real impact.
The role of the CSO will undoubtedly continue to grow as organisations put ESG at the heart of their business. Whatever approach your company takes in addressing sustainability and ESG issues, and whether you have a dedicated CSO in place or not, PwC Ireland is here to help you navigate this rapidly changing landscape. Contact us today.