Does Your Business Require a Main ESG Officer?

CEOs and boards of directors are less than expanding tension to address environmental, social, and governance (ESG) challenges. To help them, corporations like C.H. Robinson, Royal Caribbean, and Verizon have just lately appointed chief ESG officers. To explore whether your company would reward from owning one, the authors recommend looking at 3 concerns: Do your stakeholders treatment about ESG? What role does ESG play in your method? And would a chief ESG officer be complementary?

There is a new title in the C-suite: chief ESG officer. Even though major executives with “ESG” in their title are new and not nonetheless prevalent, this function is an option that firms may well take into consideration as they facial area rising strain to address environmental, social, and governance (ESG) difficulties providers like C.H. Robinson, Royal Caribbean, and Verizon have not long ago appointed chief ESG officers. But what does a chief ESG officer do? And when should really a enterprise have a person?

To find out, we analyzed senior executives from much more than 1,400 U.S. public providers in 2020 and 2021. Applying insights from this evaluation and from researching other top rated executives, we formulated a few questions that CEOs and boards ought to question right before generating a main ESG officer position.

1) Do your stakeholders treatment about ESG?

While shareholders are turning into progressively concentrated on ESG, so, much too, are other corporation stakeholders. For instance, a study performed by Nielsen in 2019 observed that 48% of buyers cared about ESG. This selection enhanced to 83% among the millennials. Staff treatment far too. According to a study claimed in the Harvard Company Evaluate, 9 out of 10 workers mentioned that they would trade a part of their life’s earnings for greater this means at function. As do the job carries on to evolve in the wake of the Covid-19 pandemic, and as the Wonderful Resignation proceeds among millennials, it is getting to be more and more evident that personnel are emphasizing what they do, how they are taken care of, and no matter whether their function is possessing a positive influence.

Appointing a chief ESG officer signals to stakeholders that your enterprise will take ESG problems seriously. Past sending a constructive sign, a chief ESG officer can also ship far more substantive ESG facts again to stakeholders. Certainly, companies like UGI Corp. and Verizon highlight that their chief ESG officers are charged with the reporting and voluntary disclosure of their ESG attempts. In addition, with a prime government focused on ESG challenges, who preferably has immediate CEO obtain, ESG will get a solid voice in the C-suite.

Therefore, if ESG is particularly applicable to your company’s stakeholders, it may perhaps be worth appointing a main ESG officer to make sure that ESG problems get ample interest and affect.

2) What position does ESG perform in your approach?

ESG is turning into a cornerstone of a lot of companies’ methods. For some, ESG has been extra of a compliance or interaction concern. For other folks, ESG has turn out to be a strategic worry or possibility. Our examination reveals that chief ESG officers are current in corporations that make concerted initiatives to integrate ESG into their technique. For instance, C.H. Robinson, a main logistics enterprise, has exclusively directed its system in the direction of building technologies to help its shoppers with ESG problems. Semtech, a business that supplies substantial efficiency analogs, semi-conductors, and advanced algorithms, identified 5 key strategic ESG initiatives for 2021. Tenneco, an automotive parts business, created a framework to align the company’s corporate technique to ESG-associated impacts. In all these circumstances, the main ESG officer plays an vital role in driving ESG in the corporate method.

When a company’s technique demands to be constructed all over a particular purpose or element, study demonstrates that like a C-level government with the corresponding expertise and accountability in strategy development is the ideal way to do it. Firms have long been accomplishing this for other strategic concerns and have appointed top executives like a main digital officer or chief innovation officer.

That’s why, if ESG is turning out to be an integral component of your company’s technique, it is time to think about appointing a Main ESG Officer to inform method enhancement and execution.

3) Would a chief ESG officer be complementary?

A main ESG officer really should definitely enhance the C-suite. Corporations hence will need to take into consideration the purpose of the chief ESG officer vis-à-vis their other top rated government roles and guarantee that appointing just one is incorporating price to the govt team. A single of the greatest troubles of ESG is that it is so multifaceted and advanced. The Earth Financial Forum identified 21 main metrics and 34 expanded metrics to measure a firm’s ESG effect. Thomson Reuters Refinitiv, which several educational researchers use when conducting scientific tests on ESG, calculates a company’s ESG rating from extra than 450 metrics. It is no surprise that some of these metrics across the ESG pillars of atmosphere, social, and governance could possibly conflict with a person a different.

Our examination of chief ESG officer uncovers that they emphasis on all elements of ESG and, importantly, on balancing the from time to time competing needs of the person pillars. For occasion, in announcing the appointment of a chief ESG officer, Royal Caribbean’s CEO highlighted the want to take into consideration the interaction concerning lawful, geo-political, environmental, and social troubles. Other folks, like Verizon, tasked their main ESG officer with acquiring a framework to deal with the most significant ESG factors that the corporation faced. This focus on the more substantial photo is what distinguishes a chief ESG officer from other positions that may target on person features of ESG. This is also why some companies decide for a main ESG officer in addition to other C-suite positions like a main sustainability officer or chief diversity officer.

Hence, if your firm is confronted with advanced ESG needs and the existing C-suite positions are not fulfilling your ESG wants, you may perhaps want to take into account including a main ESG officer.

A Transformational Job

Answering these a few issues should be the very first phase for CEOs and boards of administrators to evaluate no matter if they have to have a main ESG officer. What should really appear following is a detailed examination of the obligations the position must have. Though these rely on your company’s certain technique in the direction of ESG, we found that chief ESG officers have a common function throughout firms. At the coronary heart of their purpose is coordinating ESG efforts in their corporation, equally horizontally in between the ESG pillars and features, and vertically across hierarchical degrees up to the CEO.

One more critical job of the main ESG officer is transforming the organization to turn into additional ESG-oriented. This is what clearly distinguishes them from ESG professionals of decreased ranks. Of course, a particular person in the job should continue to report ESG endeavours and talk with stakeholders. But when you choose for an ESG govt in your C-suite, the purpose should go perfectly past that of reporting, and lead to your company’s progress. Chief ESG officers do so as they tell board discussions, create procedures to tackle chances relevant to ESG, and drive ESG initiatives. If you then find the ideal human being for the occupation, your main ESG officer will be truly transformational for your company.