Should the Chief Sustainability Officer be Sustained?
Many business experts say that with increasing natural resource costs, regulation and public scrutiny, companies today need to go beyond traditional efficiency, and that requires a highranking manager with a specific mandate—a chief sustainability officer.
March 16 2012 by Fran Hawthorne
- To be effective the CSO must interface with all corporate departments
- The post is not appropriate for all companies
- Sustainable practices can reduce risk in nontraditional ways
- PR is a component of the role, but ultimately CSOs must deliver value
Two years ago, the director of sustainability at a $1 billion consumer-products company suggested that the corporate budget committee add a new criterion in deciding which capital projects to approve: the project’s environmental impact. The director devised a metric for measuring the impact in categories such as water usage, waste reduction, packaging and carbon emissions. The chief financial officer and other committee members were so impressed, according to Kyle Tanger, a director at Deloitte Consulting, that they adopted the idea, put the sustainability director on the committee and saved $20 million the first year.
Take away terms like “sustainability,” and isn’t this just a case of old-fashioned efficiency? If using less water or fuel saves $20 million, any smart business will do that. “CEOs would say, ‘We’ve been doing this since our great-great-great-grandfather started the company in 1896,’ ” concedes Jonas Kron, deputy director of shareholder advocacy at Trillium Asset Management, a Boston-based investment firm that manages $1 billion for nonprofit institutions based on sustainability and other so-called socially responsible principles.
But many business experts say that with increasing natural resource costs, regulation and public scrutiny, companies today need to go beyond traditional efficiency, and that requires a highranking manager with a specific mandate—a chief sustainability officer. Sure, part of the job is image. In this world of activist consumers and shareholders like Trillium, a socially responsible image is also a crucial business asset. But image-building—or guarding—alone won’t justify establishing a CSO spot; there must be more than just a warm fuzzy feeling to be gained.
“If we thought it was idealism, a nice reputation, we could never do it,” says André Veneman, the corporate director for sustainability at Netherlands-based AkzoNobel, a $19 billion manufacturer of paints, coatings and specialty chemicals. Noting that sustainability-related ideas not only save AksoNobel more than $270 million per year but have also spurred the development of new products that account for one-fourth of annual sales, Veneman adds, “It drives the sustainable economic success of our company.”
Apparently many CEOs agree. According to Knut Haanaes, the Geneva-based partner who heads the global sustainability practice at Boston Consulting Group, most Fortune 500 companies have hired chief sustainability officers, usually at a C-suite level with direct (though perhaps infrequent) access to the chief executive. Veneman, for instance, meets with CEO Hans Wijers at least once a week. The two men also sit on an executive sustainability council that meets quarterly to set and review goals.
“These are not things traditional business people are trained to pay attention to,” says Adam Kanzer, general counsel at Domini Social Investments, another major player in socially responsible investing. “There are opportunities all over the place, and you need somebody who is tasked to find them.”
Going Beyond Green
Even advocates admit that the CSO concept is still fuzzy, having taken root in corporate America only in the last two or three years. While it sometimes applies solely to environmental issues, usually it also encompasses areas such as overseas sweatshops, work force diversity, pay equity and community service.
Not surprisingly, CSOs are particularly common in industries that are heavy users of natural resources, like AkzoNobel, including mining, oil, pulp and paper, chemicals and construction materials. Their goal is reducing both the cost of the resources and the environmental operating risks. Ever since BP’s oil drilling disaster in the Gulf of Mexico nearly two years ago, “there’s no resource company that I know of that’s willing to take the risk of delegating this to a lower level,” says Jay Millen, a senior partner at executive recruiter Korn/Ferry who specializes in these sectors.
Companies with a well-known consumer brand—especially in apparel, electronics and food—are also likely to hire sustainability officers. Nike, Gap and Apple have already been pummeled by bad headlines over onerous working conditions in overseas factories.
Pressure from all sides
YRC Worldwide, the $5 billion, Kansas-based transportation and logistics-services company, faced both sorts of pressure, plus the looming threat of increased environmental regulation, when it named J. Michael Kelley—then the vice president of external affairs—as its first CSO three years ago. Major retail and manufacturing shippers wanted to know what YRC was doing to save fuel, in order to answer their own customers’ supply-chain questions, Kelley says.
YRC was already aggregating shipments and packing its trucks tight to save costs, but under Kelley it has dug deeper. For instance, it now puts truckers up in hotel rooms rather than running the engines while they sleep in their cabs overnight. CEO James Welch says that the cost of bulk-purchased hotel rooms is roughly the same as a night of diesel fuel, and in any case, “this helps with driver safety and retention.”
Kelley also says the “C” in his title “gives me credibility to talk to our equipment maintenance people” about fuel efficiency. The authority to schmooze across departments may in fact be the most important part of the job. Wood Turner, the vice president of sustainability innovation at Stonyfield Farm, oversees nine teams totaling 70 people drawn from every part of the $400 million organic-yogurt maker. While working at their day jobs, these employees also look for ways to reduce greenhouse-gas emissions, water use, waste, packaging and other environmental impacts. In addition to selecting the team members—in conjunction with their direct supervisors—Turner says, “I’m responsible for keeping those teams motivated and making sure it all ties back to business priorities.”
But the responsibility goes beyond bean-(or carbon-) counting. “The CEO should also ask the CSO, ‘In which areas should we create growth? Where should we invest more? Which areas should we exit?’” notes Hannaes of Boston Consulting. Obviously, such strategic decisions won’t be based solely on sustainability factors, but the CSO can contribute insight into resource costs, future regulation and potential markets. At AkzoNobel, Veneman says his department is called into M&A discussions “at a very early stage,” and the company typically nixes three or four possibilities each year for sustainability reasons.
Public relations (PR) is also a key part of the sustainability function, to ensure that demanding consumers and investors appreciate what the company is doing. These activists are increasingly alert to phony PR, or “greenwashing,” so they look for clues like whether the CSO reports to the CEO or merely to the head of marketing, and whether the title is listed in the 10k as one of the top corporate executives.
“The bottom line is to control risk,” says Laura Berry, executive director of the New York-based Interfaith Center on Corporate Responsibility, which represents about 300 religious institutions that invest according to social responsibility principles. “CEOs who are sufficiently visionary recognize that a chief sustainability officer is an important part of the risk assessment, management, and prevention architecture of the firm.”
But maybe not forever, says Haanaes.
“In very sophisticated companies that manage to embed sustainability into the culture and make the line management take it seriously,” he predicts, “the CSO will be obsolete in five or 10 years.”
The CSO Payoff for Small to Mid-Size Companies
By definition, small companies don’t emit as much greenhouse gas or use as many resources as giants do. Yet sustainability may actually be more important for them, because each mistake or potential gain is proportionately more significant to the bottom line.
“For a small oil and gas exploration company that has only a half-dozen assets, one oil spill could be life or death,” points out Jay Millen, a senior partner at executive recruiter Korn/Ferry. Similarly, when a company consists of just a single factory or store, being seen as a good corporate neighbor “is essential to their relationship to their community,” says Wood Turner, vice president of sustainability innovation at organic yogurt-maker Stonyfield Farm, which has two facilities (in New Hampshire and California).
True, small companies may not have the resources to hire someone devoted solely to this concept, like Turner. They might outsource it to a consultant, or merge titles; General Counsel/CSO is a frequent combination, says Kyle Tanger, a director at Deloitte Consulting.
Sustainability has become such an important marketing tool that small companies known for this quality are now hot acquisition targets. Since the early 2000s, such CSR stalwarts as Ben & Jerry’s (ice cream), Burt’s Bees (personal care), Tom’s of Maine (toothpaste) and Stonyfield have been bought by global conglomerates—Unilever, Clorox, Colgate and Groupe Danone, respectively.
Steering Sustainability Without a CSO
There are many ways to focus on sustainability without having a high-ranking CSO:
- The CEO as CSO: At about 10 percent of natural-resources companies, says Jay Millen of executive recruiter Korn/Ferry, “it’s so significant that the CEO says, ‘I’m not going to delegate that.’ ” A C-suite steering committee consisting of the heads of finance, operations, procurement, manufacturing and human resources reports regularly to the chief executive. Indeed, Millen adds, the CEO may give up other functions, like going out on investor road shows, to devote more time to sustainability.
- The committee route: Other firms create lower-level versions of these committees. “The argument is that you don’t want to silo it,” because sustainability should be incorporated into all functions, says Adam Kanzer, general counsel at the socially-responsible money management firm Domini Social Investments.
- Below the C-suite: While some advocates say the “C” title signals the job’s importance, others say a vice president can be just as effective. “As long as somebody has this as part of their job description,” says Kyle Tanger, a director at Deloitte Consulting.
C-Suite see sustainability increasingly important for competitiveness
Is pursuing sustainability-related strategies necessary to be competitive? (Only C-suite responses included)
C-Suite argue they are stepping up their commitment
How has your organization’s commitment to sustainability—in terms of management attention and investment—changed in the past year? (Only C-suite responses included)