The Road to CSO Success
Author Anna Krotova explains how chief sustainability officers can successfully anchor their function within the core operations of an organisation.
With the EU’s Corporate Sustainability Reporting Directive (CSRD) coming into effect this year, many of the 50,000 in-scope companies will be looking to hire or appoint a sustainability lead or chief sustainability officer (CSO).
Anna Krotova, co-author of ‘How to be a Chief Sustainability Officer: Leading the transition to a sustainable organisation’, identifies two groups of individuals coming into these roles.
One group is comprised of sustainability professionals who understand the topic, perhaps with specialist knowledge in a particular sustainability area.
According to Krotova, many are coming from non-governmental organisations or consultancy firms. However, despite having extensive sustainability expertise, they might not have familiarity with the internal workings of a corporate, which usually has different roles as well as culture compared to other types of organisation.
The other group engaged in sustainability roles is internal leaders, who get a tap on the shoulder to take on ESG after being with the company for a long time, the author explained.
While these people are familiar with the business and its mindset, they are new to the sustainability domain, she added.
In the book, Krotova and co-author Jennifer Geary provide both groups with a strategic toolkit, including a compass to navigate the role and basic technical knowledge of sustainable topics that need to be understood to perform well in the role – such as materiality assessment, integrating sustainability into risk, and building investor relations.
A maturing function
Krotova, formerly a standards manager at the Global Reporting Initiative and now Head of Sustainability at Netherlands-based firm focused on grocery delivery, believes that a new level of professionalism is emerging in sustainability.
The days are over when a CSO was solely a cheerleader for ESG, with no real influence in the company’s day-to-day decision-making, she argued.
As a result of CSRD and other regulations, the role is evolving, professionalising, institutionalising – and becoming a new corporate function. “Previously, most companies treated [sustainability] as an appendage to the marketing department,” said Krotova. “Now, it’s graduated to being an important input into strategy, legal, risk, and long-term value creation.”
Importantly, corporates are increasingly recognising the need to invest and provide space for the CSO or sustainability leader to be effective.
“By providing insights into risks and opportunities, CSOs can transition business models to become more sustainable and resilient in the long term,” Krotova added. “Organisations that give their CSOs a platform, empower and equip them, and think about the function in a strategic and pragmatic way, will see the benefits.”
Strategic fit
To help those in sustainability roles operate more successfully, Krotova’s book provides an overview of senior management positions in a company, their goals and where those might overlap, and where conflicts might arise. It also gives advice on where the sustainability function should sit in an organisation – including reporting lines and when the CEO should step in.
Importantly, each company needs to assess the CSO’s positioning and priorities depending on its operational goals, the author argued.
“For example, if the key objective is to decarbonise products, the CSO might want to work closely with the chief operating officer – who is responsible for the supply chain – to find and integrate new material streams, as well as review production processes,” she explained. “If the key focus is related to people – such as pay gaps, diversity and inclusion, and employee relations – then the CSO will want to work closely with head of HR or the chief people officer.”
Once the function is well-established, the CSO can look to working more closely with other senior executives and those responsible for different business units, who will be implementing the company’s transition strategy.
“The CSO office acts as a centre of excellence,” said Krotova. “It assembles and synthesises everything that happens in a company into a strategic vision and ensure the plan is embedded to guarantee that the organisation is moving in one direction.”
She likened the CSO role to being a chief of staff for sustainability. “Once the C-suite has determined what the direction is, ideally the CSO then sets the responsibilities for respective functions to implement the strategy, allocate teams and budget, and hold them to account,” Krotova said.
The CSO role is well positioned within the triangle of strategy, legal and finance, she added. “Regulations such as CSRD and the International Financial Reporting Standards have introduced the language of risk and opportunity, which traditionally sit with these three departments.”
In many companies, the CSO is now reporting to the chief financial officer (CFO) – who, according to Krotova, has increasingly taken ownership as regulations elevate non-financial reporting to the same level as financial reporting, which is in CFO’s domain.
Stepping into a role
Aiming to help CSOs navigate a new organisation, the book also identifies four scenarios they could find themselves in.
“They need to be aware of potential set-ups to be effective, as their strategy could be very different in each one,” Krotova said.
The first scenario presents a company taking its first steps in sustainability in response to incoming reporting requirements.
“It is quite possible that the company’s leadership is excited and on board, but they need someone who can develop a strategy,” the author explained. In this scenario, the leadership would likely provide the new CSO or sustainability leader with considerable support.
“It’s a rolling-up-your-sleeves situation, where you will have to build everything from scratch,” Krotova added. “It can be rewarding because you will see the results of your work immediately. But it can be also frustrating because you will have to bring everyone up to speed, as not all of them will understand or be immediately in sync.”
Another scenario is dubbed the “judicious minimalist”, whereby the organisation realises that a regulation like the CSRD will force them to report on waste, packaging or due diligence, for example. In this case, the company is just interested in a tick-box exercise as opposed to value creation, and probably only views sustainability as another cost that it needs to manage.
“The CSO will then either need to commit to that rationale and deliver the reports, or commit, deliver and try to change the company over time,” said Krotova. “But they should be prepared that their function might be limited to reporting, without space for more interesting conversations.”
The third scenario is that of a sustainability leader. This type of company typically has big sustainability offices, with in-house lifecycle assessment and biodiversity and climate specialists. It understands the value of sustainability, and allocates responsibilities and a budget in line with this.
According to the author, these entities are usually “top of their class”, attain good ratings, and are recognised and respected in their industry.
“In that context, the CSO’s job might be mainly administrative, in the sense that they’re managing what’s already in place,” she said. “However, they could miss the spark of uncovering where the company differentiates itself from its peers. In that environment, they might want to break out of the routine and start pushing boundaries.”
The fourth scenario is the “trailblazer”, which wants to disrupt the status quo. For this category, Krotova points to Oatly, the plant-based milk manufacturer, which is sourcing materials and manufacturing products sustainably.
“The stakes are very high for a CSO coming into that environment, because everyone is looking at them,” she said. “The employees want them to make a difference. The investors have invested in the sustainability story and want to see the company deliver on it, and the competitors are waiting for [it] to make a mistake, so they can capture market share.”
While in some ways, the trailblazer scenario might seem like the most rewarding one – it can also be the toughest. “You have to be always on call and committed to the cause,” Krotova argued.
Executive attention
Although many CSOs have been “catapulted” into the boardroom by now, this is fairly new, as they didn’t use to have access or exposure to company board members. This means they need to develop the appropriate mindset to work at the executive level.
“Previously, many passionate people found their way into these roles – some from the activist side – but such experiences will not equip them for difficult conversations with the board,” Krotova explained, adding that a cultural clash is prone to happen when a dyed-in-the-wool sustainability activist is elevated to the board, which needs to be artfully managed.
For example, a CSO may need to speak with a board member who does not have the same level of awareness and knowledge of ESG, might not be interested, has other pressing priorities or even a direct conflict – such as a chief commercial officer whose goal is to increase the sales of a harmful product.
“CSOs need to work out how to tackle these potential conflicts,” the author said, suggesting that they should assess the board’s maturity regarding ESG at the outset and take it upon themselves to raise awareness. “CSOs can do that by being the expert who educates the board, by bringing in external expertise during their offsites, or by sending them to conferences. They can get creative.”
Ultimately, it is the CSO’s responsibility to ensure that the company’s senior leadership recognises the value of sustainability. Education is a critical component of that, though CSOs tend to get “lost in translation” in many organisations.
“CSOs understand the scope of work, what needs to happen and the resources required, but their organisation might not be there because there hasn’t been that level of expectation and regulatory oversight on sustainability in the past,” Krotova explained. “While for many companies the awareness isn’t there yet, this is changing, which is positive.”
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