Interlinked with the rising adoption of Environmental, Social and Governance (ESG) in financial services and to meet incoming regulatory changes in the business landscape, the appointment of the Chief Sustainability Officer (CSO) or Head of Sustainability is becoming more prevalent within financial services institutions. From front office roles across investing, wealth management and underwriting, through the second line risk and compliance function, touching on marketing, HR and communications, the role of a CSO is to educate and align the business to adopt a new business model that positions it for future growth whilst reducing the company’s carbon output.
WHY SHOULD A COMPANY APPOINT A CSO?
ESG is now seen as a strategic risk to most financial services institutions. As the sustainable momentum builds globally, companies who are not seen as progressive in the space will expose themselves in relation to their brand, profitability, talent attraction and retention, and more. Inside financial services organisations, they are making appointments to their senior leadership team with a mandate to interpret the external changes facing the organisation. This can further be exacerbated when shareholders expect things from the organisation that are not yet ingrained or embedded.
WHAT IS THE ROLE OF A CSO?
In its simplest form, the core aspect of the CSO is to help the Chief Executive Officer (CEO) navigate the ESG environment. CSOs are responsible for an organisation’s objectives and initiatives relating to sustainability. They have to make sense of the firm’s external environment and then shape the organisations business model and engage and connect to ensure compliance across the organisation, ultimately to reduce the carbon footprint of the firm. This process starts by engaging the front office to educate them on new frameworks and tools which is then translated into effective second line risk controls and regulatory compliance, then working with internal audit for effective review. The position of CSO is a strategic position that concentrates on communicating risks and opportunities related to sustainability as well as bottom line impact.
WHO CAN MOVE INTO THE CSO ROLE?
When firms appoint a CSO, the role is usually not as defined as that of a Chief Information Officer or Chief Risk Officer, as their mandate is usually dependent on the firm’s business model and it’s risk exposure. As such, the background of those stepping into this role varies across occupations, from legal to risk, from strategy to investments. Possessing the right skill set is really key including being able to have a strategic mindset, discuss financials and have high levels of patience as impacting change through a message set from the top can be difficult and slow to get off the ground.
WHERE DOES THE CSO ROLE SIT IN AN ORGANISATION?
The role is strategic in its focus and importance, so requires the CSO to have a holistic view and ability to communicate with the whole firm. Sitting close to the CEO is where this role can make the biggest impact, as this direct reporting line is more common in the banking industry than in asset management or insurance. If the role does not report to the CEO, then the Head of Communications or Head of HR is another common reporting line. If it was to be placed into a division of an organisation, then strategic operations is where it could sit and if direct reporting lines are outside of the CEO, then dotted lines should be mandatory.
WHAT IS THE FUTURE ROLE OF THE CSO?
Even as CSOs work to embed sustainability across their organisations, new challenges are emerging. For that reason, it is too soon to say what will happen to the role when the existing challenges have all been met. External stakeholders—including regulators, investors, and customers—are still changing firms’ operating environments to a profound degree. Since none of these drivers looks likely to diminish over the coming years, nor does the CSO’s role. A CSO who makes a success of their role—helping to formulate strategy and embed systemic change—could be a prime candidate for promotion to CEO.
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