Does Your Company Need a Chief ESG Officer?
CEOs and boards of directors are under increasing pressure to address environmental, social, and governance (ESG) issues. To support them, companies like C.H. Robinson, Royal Caribbean, and Verizon have recently appointed chief ESG officers. To discover whether your company would benefit from having one, the authors suggest considering three questions: Do your stakeholders care about ESG? What role does ESG play in your strategy? And would a chief ESG officer be complementary?
There’s a new title in the C-suite: chief ESG officer. While top executives with “ESG” in their title are new and not yet widespread, this role is an opportunity that companies may consider as they face increasing pressure to address environmental, social, and governance (ESG) issues; companies like C.H. Robinson, Royal Caribbean, and Verizon have recently appointed chief ESG officers. But what does a chief ESG officer do? And when should a company have one?
To find out, we analyzed senior executives from more than 1,400 U.S. public companies in 2020 and 2021. Using insights from this analysis and from studying other top executives, we developed three questions that CEOs and boards should ask before creating a chief ESG officer position.
1) Do your stakeholders care about ESG?
While shareholders are becoming increasingly focused on ESG, so, too, are other company stakeholders. For instance, a survey conducted by Nielsen in 2019 found that 48% of consumers cared about ESG. This number increased to 83% among millennials. Employees care too. According to a survey reported in the Harvard Business Review, 9 out of 10 employees said that they would trade a portion of their life’s earnings for greater meaning at work. As work continues to evolve in the wake of the Covid-19 pandemic, and as the Great Resignation continues among millennials, it is becoming increasingly evident that employees are emphasizing what they do, how they are treated, and whether their work is having a positive impact.
Appointing a chief ESG officer signals to stakeholders that your company takes ESG issues seriously. Beyond sending a positive signal, a chief ESG officer can also send more substantive ESG information back to stakeholders. Indeed, companies like UGI Corp. and Verizon highlight that their chief ESG officers are charged with the reporting and voluntary disclosure of their ESG efforts. In addition, with a top executive focused on ESG issues, who ideally has direct CEO access, ESG gets a strong voice in the C-suite.
Hence, if ESG is particularly relevant to your company’s stakeholders, it may be worth appointing a chief ESG officer to ensure that ESG issues receive sufficient attention and influence.
2) What role does ESG play in your strategy?
ESG is becoming a cornerstone of many companies’ strategies. For some, ESG has been more of a compliance or communication concern. For others, ESG has become a strategic concern or opportunity. Our analysis reveals that chief ESG officers are present in companies that make concerted efforts to incorporate ESG into their strategy. For instance, C.H. Robinson, a major logistics company, has specifically directed its strategy towards developing technology to help its customers with ESG concerns. Semtech, a company that supplies high performance analogs, semi-conductors, and advanced algorithms, identified five key strategic ESG initiatives for 2021. Tenneco, an automotive components company, developed a framework to align the company’s corporate strategy to ESG-related impacts. In all these cases, the chief ESG officer plays an important role in driving ESG in the corporate strategy.
When a company’s strategy needs to be built around a certain function or element, research demonstrates that including a C-level executive with the corresponding knowledge and responsibility in strategy formation is the best way to do it. Companies have long been doing this for other strategic concerns and have appointed top executives like a chief digital officer or chief innovation officer.
Hence, if ESG is becoming an integral element of your company’s strategy, it’s time to think about appointing a Chief ESG Officer to inform strategy development and execution.
3) Would a chief ESG officer be complementary?
A chief ESG officer should truly complement the C-suite. Companies therefore need to consider the role of the chief ESG officer vis-à-vis their other top executive roles and ensure that appointing one is adding value to the executive team. One of the biggest challenges of ESG is that it is so multifaceted and complex. The World Economic Forum identified 21 core metrics and 34 expanded metrics to measure a firm’s ESG impact. Thomson Reuters Refinitiv, which many academic researchers use when conducting studies on ESG, calculates a company’s ESG score from more than 450 metrics. It is no surprise that some of these metrics across the ESG pillars of environment, social, and governance might conflict with one another.
Our analysis of chief ESG officers uncovers that they focus on all aspects of ESG and, importantly, on balancing the sometimes competing demands of the individual pillars. For instance, in announcing the appointment of a chief ESG officer, Royal Caribbean’s CEO highlighted the need to consider the interplay between legal, geo-political, environmental, and social issues. Others, like Verizon, tasked their chief ESG officer with developing a framework to tackle the most important ESG elements that the company faced. This focus on the bigger picture is what distinguishes a chief ESG officer from other positions that may focus on individual aspects of ESG. This is also why some companies opt for a chief ESG officer in addition to other C-suite positions like a chief sustainability officer or chief diversity officer.
Hence, if your company is faced with complex ESG demands and the existing C-suite positions are not fulfilling your ESG needs, you may want to consider adding a chief ESG officer.
A Transformational Role
Answering these three questions should be the first step for CEOs and boards of directors to assess whether they need a chief ESG officer. What should come next is a detailed analysis of the responsibilities the position must have. While these depend on your company’s specific approach towards ESG, we found that chief ESG officers have a common role across companies. At the heart of their role is coordinating ESG efforts in their organization, both horizontally between the ESG pillars and functions, and vertically across hierarchical levels up to the CEO.
Another key role of the chief ESG officer is transforming the company to become more ESG-oriented. This is what clearly distinguishes them from ESG managers of lower ranks. Of course, a person in the role must still report ESG efforts and communicate with stakeholders. But when you opt for an ESG executive in your C-suite, the role must go well beyond that of reporting, and contribute to your company’s development. Chief ESG officers do so as they inform board discussions, build strategies to address opportunities related to ESG, and drive ESG initiatives. If you then find the right person for the job, your chief ESG officer will be truly transformational for your company.