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Wednesday, October 8, 2014

Who Is the Chief Sustainability Officer? 10-09

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Who Is the Chief Sustainability Officer?



There are only a few dozen chief sustainability officers in American companies, although their number has been growing rapidly. A new study byGeorge Serafeim and Kathleen Miller explains who they are, where they come from, and how to make them more effective.

Since the start of the 2000s, a high-level corporate position has evolved that is still something of a mystery. As companies have engaged in more efforts around sustainability, environmental and otherwise, the "chief sustainability officer" has been created to champion and monitor these efforts.
But despite dozens of individuals in some of the world's largest companies taking on these duties, the role has been little studied. Just what are chief sustainability officers (CSO), where do they come from, and how much influence do they exert?
“THE APPOINTMENT OF THE CSO REFLECTS AN UNDERLYING NEED FOR COMPANIES TO NOT ONLY MONITOR BUT ALSO IMPROVE THEIR PERFORMANCE”
"Companies are monitoring the impact they're having environmentally and on society, and the appointment of the CSO reflects an underlying need for companies to not only monitor but also improve their performance," says Harvard Business School associate professor George Serafeim.
To create more understanding about the position, Serafeim wrote the paper 
"Chief Sustainability Officers: Who Are They and What Do They Do?" 
with Kathleen Miller, CEO of Miller Consultants. 
Their results suggest that CSOs are of critical importance in successful sustainability efforts, but ironically become less central as sustainability efforts blossom.
Although often linked with environmental issues such as water and energy use, a growing number of companies are taking sustainability efforts much further by improving working conditions in their supply chain, creating better safety procedures, and reaping profits from products that address environmental and social problems.
"Regulators and investors are asking for it, customers are demanding it, and employees are expecting it," Serafeim explains. "Once you reach a point where a customer says, 'What are your policies in terms of your supply chain operations?' you better have a good handle on that."
Enter the CSO.
The position of CSO has been created at an increasing number of companies over the past few years. In 2003, twice as many companies had fulltime sustainability officers than in 1995, and between 2003 and 2008, the number doubled again, research shows. (The first CSO with that title in an American publicly traded company is believed to be DuPont's Linda Fisher, appointed in 2004.)

THREE STAGES OF SUSTAINABILITY

To study a CSO's responsibilities and to look at how the role shifts depending on the company's level of commitment, Serafeim and Miller surveyed 66 CSOs and people with similar duties but different titles in 27 industries. They found that companies are often engaged in sustainability at one of three stages:
Compliance: In this initial phase, companies often start with activities related to complying with regulations. Activities are not strategic or centralized. In addition to compliance, employees may volunteer to work on recycling projects or green teams. Most companies at this stage have not created a formal CSO position.
Efficiency: Next, companies become more strategic about sustainability by finding ways to achieve efficiencies that will save corporate dollars, such as cutting energy and water use or reducing waste generation and carbon emissions. "These things are an easy sell," Serafeim says. "They're a good thing to do and the obvious thing to do."
At this stage, more companies are likely to hire or appoint an official corporate sustainability officer, who works with the CEO. The CSO is often tasked with building a business case for making changes that improve the company's bottom line, while also protecting or enhancing the company's reputation. "The CSO is really driving the execution of the sustainability strategy," Serafeim says. Many companies end up hovering in this phase without moving on to the final stage, innovation, the research shows.
Innovation: A select number of companies shift to a more advanced innovative stage by integrating sustainability into the core of the business in ways that transform the company. Strategies tend to be driven by the market with an eye on maximizing long-term profitability, and sustainability efforts often look to address bigger problems in society, including climate change, water management, and obesity.
Study findings imply that in this stage ultimate responsibility for sustainability shifts from CEO to CSO. The CSO's main responsibility is to help develop a sustainability strategy as well as map out how changes will be made, and the CSO must often unify subcultures within the firm.
But the CSO also delegates more sustainability responsibilities to various departments. So while at the Efficiency stage the CSO concentrates responsibilities, at the Innovation stage he does exactly the opposite: He delegates decision rights and makes functions and business units accountable.
"What companies are doing at this stage is refocusing their strategy from an inward perspective to an outward focus," Serafeim says. "How can we enable our customers, suppliers, and others to behave and operate in a more sustainable way? It allows you to envision new markets, new opportunities, and new needs. Very few companies have reached this stage."

BOOSTING COMMITMENT


Many companies don't make it to the innovation stage because they focus only on short-term goals like the cost savings they achieve from reduced energy use, rather than taking risks with more ambitious sustainability plans.
"Many organizations are afraid to raise the stakes and make bigger bets," Serafeim says. "It's not easy to make that transition. That's why you need the CSO to make a push to move on, become more ambitious."
Nike and Dow Chemical are examples of companies that have made it to the innovation stage. After Nike faced accusations about violations of human rights by subcontractors, it made drastic changes to operate more responsibly in its supply chain. At Dow, company officials used its science capabilities to develop components for solar panels and are now working on materials for cars that make them safer and more efficient.
"Dow is using its science background to address fundamental issues and problems we're having," Serafeim says. "That's a whole different level of sustainability strategy. And it's trying to understand how those environmental, social, and governance issues create value in the long term."

SUCCESSFUL SUSTAINABILITY

The CSOs in the study made a variety of suggestions for success:
  • CSOs should plant themselves as close as possible to the corporate areas where sustainability can produce value for the company. Initially, CSOs need to work with company officials who oversee compliance and issues. As sustainability goals become more ambitious, the areas where sustainability will produce value will vary from company to company.

  • CSOs should have their finger on the pulse of the company culture, understanding what motivates employees and devising a strategy for implementing change that aligns with the workforce. Sometimes the strategy needs to be customized to work for offices located in separate geographic locations. "If you come up with a strategy that the workforce is not going to buy, you will have a very tough time implementing that strategy," Serafeim says. "The strategy needs to be compatible with what employees are expecting, the skills they have, and their aspirations."

  • Some say the CSO should be placed on the executive team because the mere presence of the CSO at the C-suite table keeps sustainability on the agenda.

  • It's important to articulate a compelling business case for such efforts and to make the strategy understandable and relevant to internal stakeholders. CSOs are often challenged with pushing company leaders out of the "trade-off" mentality. "For years there was this institutional logic that says if you do the right thing, your competitiveness will be hurt and it will come at a cost to the firm," Serafeim says. "People don't understand that if you do things strategically, you can create significant value for the firm. The CSO is in the best position to change this perception, but he needs to have the data and the tight business case to communicate that."

  • CSOs should focus on a manageable set of sustainability issues, rather than biting off more than they can chew at once. And they should keep in mind that sustainability goals will change over time. Edelman says his approach is "evolutionary, not revolutionary." IKEA CSO Steve Howard says, "You can't transform everything at once. The hardest thing about leading the change is managing the complexity …"
Serafeim agrees that companies need to constantly rethink and revise their sustainability strategies.
"Sustainability is not something that's static," Serafeim says. "It has to be dynamic because social expectations are continually changing."
It helps to have a dedicated employee—the CSO—steering the ship.
"The way to think about the CSO is it's the person who is the change agent," Serafeim says. "It's the person who sees how the future is developing, how social expectations are changing, how regulations and the business environment are changing in the future. The CSO is the ambassador with the vision, the person who decides what needs to change when it comes to how the company is interacting with the communities and the broader societal context in which it operates."