By Yusuf Khan
May 22, 2024 11:56 am ET|WSJ PRO
With climate reporting requirements becoming mandatory, CSOs are helping to build company strategy, becoming the public face of the firm
When Sophia Mendelsohn started her career in sustainability 20 years ago, her co-workers would leave empty cans of cola on her desk to recycle and part of her job was to persuade people to print on both sides of a piece of paper.
Now, Mendelsohn is the chief sustainability officer of software giant SAP and reports directly to its chief executive, Christian Klein, working on the company’s long-term strategy for climate and sustainability.
Once perceived as hippies and tree-huggers, chief sustainability officers have seen their role evolve from a backroom marketing function to being key figures in a company’s business operation and growth. Demand from consumers for companies to be more upfront on their climate goals, increased regulation around sustainability and shareholder activism have added momentum to these changes.
“The role has definitely evolved. It has become a more senior role, a more specialized role and a more strategic role,” said Wendy Dobson, senior managing director at FTI Consulting, who advises CSOs on how best to manage their skills and resources.
Roughly 183 public companies in the U.S. now employ a CSO, up from 29 in 2011, according to a recent report from recruiter Weinreb Group. Of those, more than three-quarters sit on the company’s leadership team while just over a third report directly to the CEO.
In Europe, CSOs are becoming even more common. In Germany, for example, 90% of companies had a dedicated CSO role in 2022, according to PricewaterhouseCoopers, with 58% of those listed on the DAX exchange having women sustainability chiefs.
“There is business to be done now,” Mendelsohn said. “A real big multibillion-dollar business to address sustainability through a company’s value chain and business model.”
Another reason: regulations
Reporting and compliance are becoming more complex. The European Union requires companies to publish climate-reporting targets, which for large and listed companies include publishing regular reports on the social and environmental risks they face.
Other regions, including Canada, Singapore and Japan, are following suit, while in the U.S. companies in California are scheduled to start reporting direct emissions from 2026.
Analysis from the Net-Zero Data Public Utility shows that more than 20 different forms of climate reporting are expected to be introduced over the next five years, globally. These also stand separate from the biodiversity and nature-related reporting requirements that are also being mooted.
For CSOs, it means keeping up with an alphabet soup of regulatory requirements, understanding what type of reporting is required where, and when it will come into play.
“When you look at disclosure and timelines it becomes overwhelming,” said Anna Pierce, director of sustainability at Tate & Lyle, a U.K.-based food producer. “We need additional support on upcoming disclosures to make sure we are ready for the challenges that are coming this way.”
As part of that, CSOs are increasingly required to review the way people work within a company. That could mean looking at procurement practices, restructuring the company’s core strategy or even just switching the type of power used by the company in its operations. Often, it might mean working directly with the chief financial or technical officers to build new data sets. “It is a fairly big data challenge,” said Ron Kinghorn, consulting solutions sustainability leader at PwC.
Some have proposed the idea of an ESG controller, a data and compliance-focused role that reports to the CSO, freeing up the time for strategy decisions. Many companies are expanding their risk and compliance departments to help with the swaths of climate reporting requirements, Kinghorn said.
“You might see the role of ESG controller reporting to the CFO responsible for the data freeing up the CSO to be more strategic,” FTI’s Dobson added.
Face of a company
Kristen Siemen said her role as CSO of General Motors forced her to develop a new set of skills. An engineer by training, Siemen felt she had an advantage when it came to technical issues such as procurement. However, she realized she quickly had to broaden her skill set. “Developing public speaking, as an engineer these are things you do not expect to have to do,” she said. “But it is about getting people to break that big goal into small steps. It is a great opportunity to collaborate.”
CSOs often have the responsibility of communicating the company’s strategy, both to internal and external stakeholders to create buy-in for sustainable principles.
“One thing that is fascinating about the CSO role is how CSOs need to be superb communicators,” said Jayni Hein, of counsel at law firm Covington & Burling.
Some of these skills come under a stress test when companies face protests and activists. FTI’s Dobson said in a previous role, she came face-to-face with angry protesters over that company’s decision to finance fossil fuel firms.
“After that you have to go back into the boardroom to try to convince them [the board] to see we need climate targets. It is very stressful,” she said.
Conflict can also take other forms, including litigation.
Lawsuits such as one Delta Air Lines is facing over its claims of carbon neutrality and the use of carbon offsets have been highlighted as a recent example.
“From a greenwashing perspective, CSOs, in terms of their leadership, are the poster people for climate and sustainability for their companies, so what they say to the public needs to stay within bounds of what is required and not overstating commitments and goals,” she said.
Beyond all this, some sustainability chiefs are driven by altruistic goals of doing less harm.
Shami Nissan, head of sustainability at infrastructure investor Actis, said that engaging with communities when investing in projects is important if you want to have local buy-in for what you are doing. For example, when Actis invests in wind or solar projects, it often invests in programs training local women in how to run the sites, or investing in local schools. “If you come without engaging locals, that is more likely to lead to tensions which threaten business and opportunity,” she said.
Jennifer Motles, CSO of Philip Morris International, said that when she was first asked if she wanted to work for the tobacco company, she was so offended she did not want to shake the hand of the person who offered her the job.
“The more I thought about it, turning the other cheek would not make the problem go away,” she said. “I was presented with an opportunity to drive change from the inside and when I thought about it, it would be hypocritical to not even try.” (Visit WSJPRO for the original article)
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