Shift Happens

Rethinking the role of the corporate sustainability officer

Sustainability is now inextricable from business strategy.
Sustainability is now inextricable from business strategy.

The corporate sustainability officer should be a C-level executive and engaged in the development and communication of the company’s long-term strategy.

The thought — at least in some in some organizations — that sustainability is separate and distinct from the business strategy is an antiquated notion. This is the lesson I learned when Bob Eccles and I wrote the Harvard Business School case "Novo Nordisk: A Commitment to Sustainability." What began as a case about integrated reporting turned out to be a study of what an organization must do to successfully balance "the profit motive with concerns for people and the environment."

With the passage of time, the word "sustainability," which to me means viable over the long-term, has become closely associated with environmental protection. Carbon emissions, water stress and toxic waste and pollution are all important business and societal issues.

However, these issues should not be put into individual organizational silos; they must be embedded into the way people in the company conduct business. This can happen only when corporate decision-making is based on the principle that the long-term viability of the organization and society will not be sacrificed to boost quarterly earnings. Some U.S. based companies are showing signs of embracing this view.

I attended the Strategic Investor Initiative’s (SII) inaugural CEO Investor Forum on Feb. 27. The event gave the CEOs (and one CFO) of leading Fortune 500 companies an opportunity to present elements their company’s long-term strategic plan to institutional investors and pension funds representing more than $20 trillion in assets under management.

The presentations generally provided a view that companies should help employees realize their potential, address environmental concerns and contribute to society. The CEOs demonstrated a keen awareness that these objectives were possible only if the companies focused on innovation and growth over the long term.

The corporate presentations at the CEO Investor Forum marked a first step in moving towards a sentiment expressed about some companies in a 2015 paper, "The Role of the Corporation in Society [PDF]."

They [corporations] are vocal about social and environmental issues, they commit more and more resources to address these concerns and they are increasingly transparent about their impact on society and the environment. This engagement influences a corporation’s identity, which, in turn, is reflected in the identity of what we receive when we purchase shares of the company.

Sustainability professionals should consider what the CEO Investor Forum means to their role and to their profession. Companies should develop a strategy that balances the imperative for long-term viability — of the company and the society it relies on to create economic value — with the demands for short-term competitiveness and profitability. It is hard to believe that this can be done without a highly respected C-level sustainability officer to influence the creation of that strategy and answer these questions:

  1. What does the organization want to be in the future; how will it shape the business and sector?
  2. How will population and demographic changes, human rights, poverty, education, water stress, human health impacts of emissions in countries where the organization operates, affect the business and sector?
  3. How does education and training, diversity, recruiting, workplace flexibility and employee mobility contribute to the long-term success of the company?
  4. What are the internal and external sources of critical risks and opportunities, including ESG issues facing the company?
  5. How does the business model create long-term value for investors and society?
  6. To what extent have the U.N. Sustainable Development Goals been embedded into the organization’s strategic goals?
  7. What actions will the company take to achieve its short-, medium- and long-term goals?
  8. How will changes in the external environment affect the availability, quality and affordability of resources the organization uses?
  9. What are the impacts of operations, both positive and negative, on financial capital, manufactured capital, intellectual capital, human capital, social capital and natural capital up and down the value chain?
  10. What is the relationship between board and executive compensation and specific ESG goals? 

The questions were developed using the "10 elements of a long-term strategy," which appeared in "Rising to the challenge of short-termism [PDF]," a paper published by FCLT Global in September. 

So, what can a sustainability director do to engage the CEO and other C-level executives in a conversation about embedding sustainability into the long-term strategy rather than thinking of sustainability as a stand-alone initiative?

A first step might be to advocate for the adoption of integrated reporting. There are two reasons for considering this action.

The first is that when integrated reporting content elements (disclosures) are aligned with FCLT Global’s "10 elements of a long-term strategy," the resulting report can be used to provide the capital markets with information about an organization’s long-term strategy. It can help a company attract a more long-term oriented investor base.

Research by Professor George Serafeim found that "companies that produce integrated reports show a clear tendency to have more long-term, 'dedicated' holders and fewer transient investors." Serafeim’s paper, "Integrated Reporting and Investor Clientele," concluded, "…my study provides evidence that suggests a causal relationship between the corporate practice of integrated reporting and an investor base with longer-term shareholders."

Secondly, integrated reporting can help CEOs transform behavior and decision-making. When an organization discloses its medium- and long-term goals and targets, it creates CEO and board commitments to improve future performance. When an organization publicly links board and executive incentives to results, it establishes personal accountability for meeting financial, environmental and social objectives. When an organization is transparent about both good and bad performance, it creates a foundation for rebuilding public trust.

The International Integrated Reporting Council recently added "Integrated Reporting for a Long-term Strategy" to its website under "Training and Resources/Third-party resources." The publication maps the International Integrated Reporting Framework [PDF] to FCLT Global’s "10 elements of a long-term strategy." (Dislosure: I am the author of "Integrated Reporting for a Long-term Strategy.")