I do not think there is any disagreement that sustainability as a corporate term has gained immense traction over the past few years. For me, the indicator has been the World Economic Forum at Davos. Over the past few years, sustainability has taken center stage at this global gathering. One positive is that I see many of my fellow Chief Sustainability Officers (CSO’s) attending this conference.
With this growing prominence of sustainability, the role of the CSO is evolving. But in most recent times, with a significant focus on compliance and this shift is a potential pitfall. While the importance of regulations has elevated the status of the CSO within the company, it also risks reducing the role to that of a mere compliance manager.
The move from a voluntary to a regulatory regime of sustainability has pushed the careers of sustainability professionals. It has become one of the trendiest professions post-2019, to the extent I have even come across people who have spent more than 20 years of their professional careers in other streams of work now wanting to shift to sustainability. While sustainability professionals have been basking in the glory for the last five years, the profession is slowly moving into a trap created by the same movement which brought them to fame – Compliance.
The alphabet soup around the sustainability reporting space has only been furthered by new regulations. BRSR (Business Responsibility and Sustainability Reporting), NFRD (Non-Financial Reporting Directive), CSRD (Corporate Sustainability Reporting Directive), CSDDD (Corporate Sustainability Due Diligence Directive), ISSB (International Sustainability Standards Board), NZ CS (New Zealand Climate Standards), SDS (Sustainable Development Services), etc, are just a few examples. In addition to that, other sector or domain-specific ones like SFDR (Sustainable Finance Disclosure Regulation), Modern Slavery, and other Human Rights regulations.
This in no way is exhaustive, and while I am writing this, several regulations are up for consultation, and many more are in the making. Every country and regulator think their regulation is much better and suits their circumstances and go the extra distance to make regulation different. Many of these regulations apply to companies in that country and to companies who do business in those countries. This would mean that even though a company is headquartered in India but does business in the US, EU, UK, Australia etc, then this company needs to comply with not just the regulations in India but also the applicable sustainability regulations in the country where they are doing business. There can be regulations that may not be directly applicable but indirectly because the company’s client must report on the sustainability performance of their supply chain. The disclosure requirements now mandate assurance, and that process for a big company is nothing short of 2 months.
Add to this the requirements on disclosure by ESG ratings. Apart from the regulatory requirements, there is a whole set of information and data the companies need to provide for the ESG ratings. Having done all these disclosures, you might feel the relevant stakeholders will try to review the reports you put out and find out what they desire. But, you still get questionnaires from clients and investors seeking more specific information. I have heard from many CSOs that much of the time goes into collecting, collating and presenting this. To this extent, some new team members joining the sustainability team have started feeling that sustainability is all about disclosure.
While I am not against sustainability disclosures and am a believer that the processes can get streamlined as the regulations will slowly align and IT tools bring better efficiencies. However, in the current phase, the CSO should refrain from drifting to becoming a mere compliance manager. They should always keep a ‘Sustainability First’ approach and dedicate their time accordingly. As regards to identifying the compliance requirements, every company has a legal department that should be looking out to ensure that the company is informed of any compliance requirements much ahead to help the company prepare. The Governance, Risk and Compliance (GRC) teams in the company should ensure that the company sets up the appropriate governance to ensure compliance and that the proper internal controls are in place. This integration with the company’s existing governance setup will give the CSO adequate time to focus on the company’s sustainability roadmap. The KPIs of the CSO should be around initiatives that protect and restore the environment, preserve natural resources, ensure the dignity of humans, improve quality of life, etc. Like every profession, a sustainability professional has a higher purpose, which should guide them more than regulatory compliance.
The importance of the role in recent times has created a mindset that the leadership has started taking sustainability seriously because of the compliance requirements. To a significant extent, it is true, and this can be an opportunity. As a CSO, you should treat the regulations as a ramp provided to you. If you plan your jump using the ramp, it helps you go over many obstacles much faster. But if you increase the slope of the ramp more vertically, or if you are not using the right gears, you may not have the momentum to go through the ramp. This is an opportunity to fast pace the sustainability journey and use regulatory compliance effectively. Remember, Reporting is not the ‘Be-all and end-all’ of a CSO’s existence.
And if you are intrigued by the potential role of a CSO, here is a motley list.
- Regulatory compliance
- ESG data collection, collations, assurance and preparing reports
- Respond to stakeholders on the sustainability performance and progress (Incl Investors, ESG ratings etc)
- Enhancing organizational capabilities around sustainability
- Integrating sustainability within every business process and decision-making
- Creating clear roadmaps towards sustainability goals and targets and oversee the progress (Incl setting goals and targets)
- Leading a culture of change towards sustainability first (Convincing internal stakeholders)
- Listening to the stakeholders and being a conduit to ensure they are heard at the highest level inside the organization
- Scout for innovations around sustainability and help organizations adopt appropriate innovations
- Driving value chain sustainability performance-oriented projects
While writing this, I sought feedback from some CSO friends as to what percentage of time they spend across the above activities at present and how much time they would like to spend in future. Most of their responses indicated that they spend anything between 40 – 60% of their time today in the first 3 activities and in future would like to reduce this to below 25%. This feedback shows the need to reverse priorities and it is up to the CSO to initiate the drive for that change. Else, you will be caught in the drift and beware, the current is getting stronger.
Absolutely opt Santoshji, can co relate each aspects you talked about!
Great article, Santhosh! Like any other profession in the world , one requires constant reminder of the higher purpose else it’s very easy to fall in the day to day trap. I particularly liked your suggestion of using regulations as a lever to engage all internal stakeholders more closely in these processes which in turn will help with building that sustainability first culture.