Empowering CSOs from the boardroom

AS THE global climate emergency reaches a tipping point, the world’s ability to transition towards a decarbonised economy over the next 10 years will be critical. Businesses have a major part to play in making the transition to a net-zero world. Many businesses recognise the impetus for change, not least because consumers and investors are increasingly expecting – or even demanding – that companies look beyond generating profits to focus on ESG to drive sustainable businesses.

According to the 2021 EY global institutional investor survey, 86 per cent of respondents said that investing in companies that have aggressive carbon reduction strategies is an important part of their strategy. From the consumer perspective, the sixth EY Future Consumer Index released this year found that close to half of global consumers will prioritise environment and climate change in how they live and the products they buy; and 56 per cent will be more likely to buy from companies that ensure what they do has a positive impact on society.

Companies that embrace a coherent ESG strategy and demonstrate tangible success may also benefit from lower cost of capital, given a mismatch between the growing amount of investment dollars looking for genuine ESG leaders and the limited supply of these companies. Further, according to an EY-Parthenon analysis, which measured the profitability of the top sustainable corporations globally based on Corporate Knights’ 2020 Global 100 ranking, sustainable companies had outperformed their industry peers on gross profit, EBITDA, EBIT and net profit metrics.

There is therefore a clear business imperative for companies to embed ESG and sustainability practices across the entire business, and refrain from token actions or greenwashing that will not stand up to scrutiny.

Role of chief sustainability officers

Increasingly, we are seeing sustainability becoming part of a value-based narrative – the focus being how business can create value for sustainability as well as how sustainability can create value for business. Some companies have led the way by appointing chief sustainability officers (CSOs), who have become one of the newest members of the C-suite.

The CSO’s remit is to drive the formulation and execution of an organisation’s sustainability strategy and work to establish the organisation’s level of sustainability maturity. This includes determining its carbon baseline, and that of its suppliers, and the extent to which its ESG efforts bring societal benefits. They further help to determine which ESG areas to prioritise and subsequently embed them into the business strategy.

The CSO is also responsible for defining a sustainability action plan and making sure every function operationalises it. The individual also needs to understand where the organisation’s vulnerabilities lie and work with different functions to put mitigation strategies in place. The action plan should also include measuring the true cost and opportunities of ESG in a way that is financially relevant.

Board support is crucial

For the CSO to succeed, board support is key to elevating and enabling the role. Boards and CSOs should support each other in helping their organizations put ESG at the heart of how they create and protect value for stakeholders. With this in mind, here are five key questions for boards to reflect on:

*Have you appointed a CSO to the C-suite? How are you making sure they are strategically positioned to help realise the opportunities and help reduce the risks of ESG?

*What governance is in place to reflect the importance of the ESG agenda and the role of the CSO? For example, have you assigned ESG oversight to a specific committee, or shared it across committees?

*What are the timelines and the organisation’s transition plan toward net zero? And what are the implications for building transition goals into executive remuneration plans?

*Is your ESG reporting designed to merely meet regulatory expectations? How can you better align your CSO, finance function, and risk and audit committees to measure impacts using leading external frameworks, underpinned by better disclosure processes and controls?

*Are you confident of the veracity of the ESG information your organisation collects and reports on?

In essence, CSOs and boards must support each other in three ways: elevating the CSO role, prioritising the ESG agenda and driving robust processes for disclosing data. Only then can organisations successfully make the transition to value-led sustainability, turning ESG into both a business and moral imperative.

Liew Nam Soon is EY Asean regional managing partner and Singapore and Brunei managing partner at Ernst & Young Solutions LLP. The views in this article are the writer’s and do not necessarily reflect the views of the global EY organisation or its member firms.