Below is a summarized collection of insights that we have heard from Chief Sustainability Officers (CSOs) recently.
Covering topics such as how global businesses are approaching sustainability strategies, responding to reporting requirements, addressing stakeholder feedback and communicating their priorities, these insights highlight the importance of sustainability across industries and the role of collaboration in driving meaningful change.
Ambition vs. Pragmatism
Several CSOs have noted a belief that ESG activities from 2020 through 2022 were driven by ambition, with companies lauded for setting lofty ESG goals, even if they could not meet them. With sustainability reporting now required by law for most large multinational brands, CSOs have noted that the ambition of past years has been replaced by pragmatism and realistic goals and expectations.
Trade-off Between Compliance and Innovation
Two groups of CSOs with differing opinions on the Corporate Sustainability Reporting Directive (CSRD) and its reporting requirements have been observed. One group views the requirements introduced by the CSRD as an opportunity and a solution for alignment on non-financial/ESG data. The other group bemoans the resource strain that CSRD reporting puts on their teams, as well as the opportunity cost that is spent on reporting instead of innovating.
Generational Differences
CSOs have noted a growing divide between how members of Generation Z openly communicate about corporate issues on social media, compared to other generations, who feel that publicly expressing their views on corporate behavior is either discouraged or not permitted. Why is this important? CSOs are confident the questions and challenges corporations will face in the future will revolve around how to manage climate change, not if or when it will occur.
Integration and Ecosystem
Some CSOs are focused on integrating ESG into the core of the business, while also integrating the business into the broader ecosystem in a way that acknowledges its destruction and limitations. These CSOs agreed that sustainability must be incorporated into all business operations and decision-making, rather than treated as a separate function. While certain mega-cap and large-cap companies seem to grasp this concept, they are still in the early stages of implementation. In contrast, many small-cap and mid-cap companies often still approach ESG as a separate, standalone function.
The Changing Role of CSOs
Sustainability is a collaborative effort and the role of CSOs has evolved from operational to systemic leadership, requiring the integration of ESG strategies across the enterprise. CSOs have highlighted challenges in collaborating with other corporate functions, particularly as resource constraints hinder progress further down the value chain.
A Just Climate Transition
In a year marked by anti-DE&I backlash, the need for climate justice remains a priority for CSOs. Some have emphasized the importance of considering all stakeholders in their plans. For example, while CSOs in the U.S., Europe and other developed nations are focused on ridding the world of plastic waste, there are still children in Ghana and other regions who rely on plastic bags to carry and drink water. Sustainability strategies must consider the impact on all populations to ensure equitable solutions.
The Increasing Importance of an Effective Narrative
Despite the contentiousness surrounding the term “ESG” in recent years, S&P 500 companies continue to include the term an average of 62 times in their most recent sustainability reports, as shown in Teneo’s Annual State of U.S. Sustainability Reports. However, given the term’s divisiveness, CSOs have come to recognize the importance of crafting a strong ESG narrative that does not alienate stakeholders. Some organizations are leaning more towards alternative phrases like “sustainability” and "resilience" to drive action instead.
How ESG Data Can Potentially Quell the Politicization and Stigma on ESG
While CSOs have lamented the amount of time and resources required on ESG reporting due to new regulation, some also have acknowledged the potential long-term benefit of providing objective data. The hope is that over time, ESG will be seen not as a matter of politics or values, or good versus bad, but as a way for companies to disclose non-financial information, allowing Wall Street, customers, employees and other stakeholders to decide whether to support them.
Interconnectedness: The “E” = The “S”
At times, CSOs have expressed that key constituents often isolate environmental and social challenges when in reality, an environmental issue is a social issue and, ultimately, a human issue. The increasing frequency and severity of natural disasters threaten human health globally by directly endangering lives and limiting access to clean air, water and shelter. In short, everything is interconnected.
Increasing Antagonism from Some NGOs
While CSOs acknowledge the role of NGOs, some have faced overwhelming demands from them in recent years, costing their companies significant time and money without much progress. Nonetheless, CSOs recognize that tracking all engagements, including with NGOs, is becoming a critical best practice. Some CSOs have worked with Teneo to proactively develop an NGO engagement strategy, rather than waiting until an attack is launched on their company.