Developing an ESG Culture: Does Your Company Need a CESGO?

Your company can unlock the power of sustainable growth with ESG. However, ESG success doesn't always come easy. That's why many companies are turning to Chief ESG Officers to lead the charge toward a better future.

We now have the ESG agenda at the core of businesses. Fundamentally, this involves minimizing short-term profit-seeking drives that negatively impact the environment.???

Companies that emphasize sustainability have higher staff morale, low turnover rates, and reduced waste. Consumers and investors also value companies that align their resources and productivity in a way that improves their sustainability and contribution to the community.??

Studies by Morgan Stanley and PwC suggest strong market demand for ESG indicators. A?study?by Morgan Stanley suggests that 35% of consumers are ready to pay 25% more for sustainable products. The same study indicates investors are also becoming overwhelmingly sensitive to ESG-related issues. Ninety-five percent of investors polled showed a desire to implement ESG in their portfolios.?Research by PwC?suggests that 76% of buyers are willing to stop buying the products of companies that are unsustainable, mistreat their workers, or harm their communities. The study indicates employees themselves are more interested in working for companies that care about the same issues as themselves.?

Reports indicate ESG assets will?surpass $53 trillion?by 2025. Overall, the data suggests ESG is here to stay and will continue to grow in importance. In fact, ESG funds have been?outperforming the S&P 500?by 27%-57% since COVID-19.?

When corporate strategies include ESG in a meaningful way, it can intensify the impact of branding, marketing, public relations, and more. In other words, ESG isn’t a deadweight expense. It can increase growth and profitability.???

What Are Some of the Other Benefits of ESG??

There is no doubt that ESG creates?long-term value for companies. In fact, it contributes to improved financial performance. This may be the most statistically significant factor that connects higher shareholder value with increased sustainability. Other benefits include improved management, reduced uncertainty and risk, and improved capital policy. A better relationship with stakeholders also improves the value of intangible assets.?

ESG goes beyond shareholder value in the following ways:?

What Does the Age of ESG 3.0 Mean for You?

ESG will continue to play an increasingly important role in our corporate landscape, but that does not mean it will remain static. We are currently in the era of ESG 3.0. Prior phases, ESG 1.0 and ESG 2.0, were characterized by exclusions in defense of sustainability and the environment, digitalization of benchmarking, and mainstreaming of ESG concepts. In ESG 3.0, however, you are required to put your money where your mouth is.

What makes stakeholders insist on serious monetary investment in ESG? The answer is that greenwashing has disillusioned and disappointed many. In 2022, two large European banks’ offices were?raided as part of an investigation?into allegations of greenwashing, which involved misleading investors about ESG issues. In the wake of Morningstar?culling approximately 1,200 of its ‘sustainable’ funds, the SEC has proposed?new rules?to curb greenwashing too. There is a growing consensus that many companies’ ESG methodologies are flawed, leading to the misallocation of resources intended to combat issues like climate change.??

The answer? Instead of simply offsetting the unintended damage companies can do to the environment and communities, companies need to invest in change. This investment must be tangible, well-managed, and properly reported. There will no longer be any tolerance for misinformation about ESG initiatives and progress among investors, index providers, and regulators. Inaccurate ESG reports will have real consequences for companies.?

Do You Need a Chief ESG Officer?

A shift is occurring in ESG and the expectations related to it. The C-suite is constantly evolving too. In the face of a push for more impactful ESG practices, you might need a Chief ESG Officer (CESGO) on your side. Many companies, including Verizon, C.H. Robinson, and Royal Caribbean, have recently appointed one.?

Your CESGO’s duties and responsibilities will depend on your company and its functions. At its core, this role assures that someone is responsible for ensuring the company abides by environmentally friendly practices, that it strives to improve sustainability, and that it interfaces with the community that it belongs to as well as the regulatory bodies that oversee it.??

A Chief ESG Officer’s role also includes transforming the company into a more ESG-conscious organization. Consequently, CESGOs need to go further than just reporting on ESG issues. As part of their role, they should promote board-level discussions about operational, functional, staffing, and asset changes through an ESG framework.?

The following questions should guide your decision about creating a CESGO role at your company:?

1. Is a CESGO a good fit for your current executive team???

It is vital to consider whether any of your current executives have absorbed ESG responsibilities in their roles. If they have, you will need to consider the effect of transferring them to a new executive. Additionally, if another executive has taken on ESG responsibilities, you should evaluate whether their performance in this regard has been satisfactory. You will also need to consider whether they have the qualifications and experience to effect change. The World Economic Forum identified?21 core and 34 expanded metrics?for measuring a firm’s impact. Therefore, even an adjacent executive like a Chief Sustainability Officer or Chief Diversity Officer may find it challenging to manage all relevant metrics.

2. How important is ESG to your stakeholders??

Shareholders aren’t the only stakeholders you have. You should consider your employees’ and executives’ engagement in your ESG initiatives too. If they aren’t committed, you won’t be able to improve your ESG impact even with a CESGO on board. Younger generations are pushing for a greater focus on ESG. According to?Nielsen, 83% of millennials care about whether the companies they support have effective ESG programs. It will become increasingly imperative to cater to millennials and Gen Z as their buying power increases.?

3. Is ESG an important part of your business???

As you know, ESG is important, but its importance may vary based on the functions of your business. For example, ESG will be more important to a company that manufactures and distributes eco-friendly soap than to one that doesn’t market its products under a green label. Your company may want to invest in a CESGO if part of its pitch is that it is eco-friendly, sustainable, or community-oriented.?

Finding Your Next ESG Executive?

If you’ve realized that you’re missing ESG skills in your organization or need a Chief ESG Officer, finding the right person may seem impossible. The process of identifying potential candidates, determining what to look for, and deciding what to offer can be stressful and difficult.

Stanton Chase?has helped numerous international companies find top ESG leaders. If you want to change your company, and perhaps even the world,?our global team of consultants can assist you?in finding the right ESG executive.?

This article is an excerpt from our white paper, "Developing a Culture of ESG and the Emergence of Chief ESG Officers."

Download the full white paper by clicking here, or view it online by clicking here.

About the Authors

Fernando Rodriguez?is a Senior Partner at?Stanton Chase Santiago. He is also the LATAM Regional Practice Leader for?ESG.?

Heidi Tieslau?is a Director at?Stanton Chase Nashville. She is also the North American Regional Practice Leader for?ESG.??