The Board Imperative: Partner with CSOs to drive value-led sustainability

In such a high-stakes environment, it’s clear why increasing numbers are appointing CSOs, or allocating responsibility for ESG to a senior executive. But it’s also clear that the role, and its relationship with the board, are still evolving.

For example, to help realize the opportunities and mitigate the risks of ESG, CSOs need to be strategically positioned – with a seat at the leadership table, appropriate levels of funding, and clear KPIs and reporting lines. Currently though, our research suggests that some organizations are yet to take these important steps.

Boards can do more to support the CSO – and the other way around

Finally, and crucially, CSOs need to have a symbiotic working relationship with the board, which means interacting closely to align ESG with the strategic direction of the organization. It also means board directors proactively support their CSOs to deliver on the agreed targets, at the right pace. In turn, it’s incumbent on the CSO to help the board gain and maintain a better understanding of the ESG agenda.  

Overall, the sustainability leaders we interviewed for this article reported having adequate support from the board. But they acknowledged that directors could do more to provide “strategic interconnectedness” on ESG, including considering issues beyond climate change.

Boards seem to be moving in the right direction. Almost half now discuss and report on ESG at every meeting, compared with 15% two years ago. Yet 68% of board chairs and non-executives said that there are significant differences of opinion within the leadership team on balancing short- and long-term priorities. One interviewee referred to this as “balancing profit and purpose.”

These findings, along with the insights from our interviews, show that the level of maturity in these relationships varies widely. They also suggest that there are gaps between the board and the management team, which a closer working relationship with the CSO (or equivalent) could help to address.

We’ve organized the ways boards can support CSOs (and vice versa) under three themes, each with practical actions for boards.

1. Elevate and enable the CSO role

Organizations don’t need to have a dedicated CSO per se, but they must make someone (ideally on the C-suite) responsible and accountable for ESG. That person needs to both understand the topic and have the executive-level influence to deliver results for the organization. Here are some actions boards can take to enable the CSO or equivalent role:

Allocate responsibility for ESG to a committee (or committees)

Appropriate governance is vital, as Amy Brachio, EY Global Deputy Vice Chair – Sustainability, explains: “Putting governance in place that reflects the importance of the CSO role will send a strong message to stakeholders about how seriously the organization takes ESG.”

That means assigning ESG oversight to a specific committee, or sharing it across committees, with clearly defined roles and responsibilities for each. For example, a global company we spoke to has renamed one of its board sub-committees to include the word “sustainability.”

Upskill the CSO on board governance

Whatever the governance model, the board should help the CSO to understand the structures in place for overseeing, measuring and disclosing ESG – and how they can contribute. For example, they could ensure the CSO has regular meetings with the risk and audit committees for managing ESG risks and complying with regulation. 

Work with the CSO to deliver on the G of ESG

Strong corporate governance and transparent communication are key to making sure organizations are ethical and outperform their less-well-governed peers.  That’s why asset managers pay so much attention to governance: in a 2021 Russell Investments Survey, 80% said it led their ESG-related decisions. And according to Insightia, 67% of all the companies subject to ESG activist demands in 2021 were dealing with ones around governance.

By assessing the organization’s maturity levels in terms of ESG, CSOs can spot where it’s vulnerable to any regional focus for activists and immediately mitigate those risks. Conducting an ESG peer review and using the findings to make positive changes will also help. Boards can actively support by advocating for such a review, as well as communicating effectively with investors through earnings calls and clearer proxy materials.

Make ESG a measure of executive performance

The board can reinforce the organization’s commitment to upholding the highest ESG standards by working with the CSO and the compensation committee to build its goals into executive remuneration and incentive plans.

2. Prioritize the ESG agenda and learn from each other

A CSO’s success depends on the board and the management team spending quality time together regularly. They need this time to discuss, determine and agree upon the organization’s ESG risks, as well as the opportunities to drive differential value. Here are some specific actions they can consider:

Work with the CSO to make ESG core to the business strategy

It’s the CSO’s job to present and make the case to the board for why their ESG strategy is the right one for the organization. Making the link between sustainability and strategy will help to engage them. In return, the board should make sure ESG is fully integrated into the business strategy for the now, next and beyond.

Alan Haywood, Senior Vice-President ESG at BP, recommends CSOs make the link between sustainability and strategy. “In today’s world, as we navigate the energy transition, strategy and sustainability are going hand in hand,” he says. “It's helpful to bring them under the same umbrella, under the same leadership, to drive progress at pace as we engage the board.”

Build directors’ knowledge around ESG

It’s critical that boards educate themselves on ESG. As Mihaela Stefanov, Director, Corporate Social Responsibility, Boralex, puts it: “The world of ESG is complex and rapidly evolving. It requires a growth mindset: the Board – and the CSO – need to continuously update their knowledge, not just as individuals but also as a unit. So, the education piece is key.”

If necessary, directors should consider establishing an advisory board or recruiting someone with relevant expertise to sit on the main board. That body or person should also support the CSO directly. 

CSOs can – and should – help by using their in-depth knowledge to educate the board (and the wider organization) appropriately. This will give board directors the working knowledge of ESG they need to be able to ask questions and offer challenges. To support these efforts, one organization we spoke to ran an annual environmental sustainability week, including hands-on workshops and addresses from external subject matter experts.

3. Develop robust processes for collecting, managing and disclosing ESG data

Today’s investors are looking for clear evidence of action on ESG issues, whether it’s net zero carbon emissions or pay equality. But while 89% of respondents in an EY investor survey want global standards to become mandatory, this reality is a still a way off.

Key questions for boards to consider

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 six questions boards can ask of themselves and the management team:

1. Have you appointed a CSO to the C-suite? If not, who is responsible and accountable for sustainability? How are you making sure they’re strategically positioned to help realize the opportunities and mitigate the risks of ESG?
2. Has the board discussed its expectations of the CSO role and communicated those expectations directly to the executive management team? 
3. 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?
4. Are you working with the CSO to make ESG core to the business strategy? If so, what are the timelines and the organization’s transition plan for thriving in a net zero future? And are you building those goals into executive remuneration and incentive plans?
   
5. To what extent is the organization’s ESG reporting designed to merely meet regulatory expectations? What more could be achieved if you better aligned your CSO, finance function and audit committee to measure impacts using leading external frameworks, underpinned by better disclosure processes and controls?
6. Are you as a board member comfortable with the veracity of the ESG information your organization collects and reports on? Is the data robustly collected using a standard and widely understood taxonomy? Who’s accountable if the data is misreported?