Green » Finance firms look to CSOs

Nearly every financial firm believes the role of chief sustainability officer (CSO) will grow in importance as ESG become a major priority for corporates in financial services.

In a report published by Deloitte and the Institute of International Finance (IIF), 99 percent of firms said the role of the CSO would become more important over the next two years. The report noted the single dissenter reasoned, that by 2022 they hoped sustainability would be embedded in organisational thinking.

“The financial sector in particular really seems to be, front of stage, in terms of how our sector is helping to use finance and capital to help support the changes that we’re already seeing in the world,” said Val Smith, CSO at Citi while speaking on a panel discussing the reports findings.

Close to half of the firms surveyed that have more than $100bn in assets under management (AUM) have a CSO or equivalent. If including similar positions like head of ESG or sustainability, the number increases to over 90 percent. Likewise, more than 60 percent of firms with AUM of less than $100bn have a CSO or another position looking at the firm’s sustainability.

While a large majority (80 percent) believes the CSO will continue as a distinct role five years from now, Damian Hales, partner at Deloitte said as ESG becomes more of mainstream issue, some believe the CSO’s responsibilities may be picked up by the traditional c-suites.

“When we started to explore over a longer period, there was still a view that [corporates] see the CSO continuing to be a distinct role, but there were other schools of thought that said given the strategic nature of the role, it may migrate to a CEO. It might migrate to the CFO.

“A few people said that actually [the CSO] won’t be required. Instead of talking about sustainable finance, we’ll just talk about finance. Instead of just talking about ESG risk, it just becomes risk. In other words, sustainability is so ingrained into everything that is done within the organisation across all the functions that you don’t need a separate role to act as an orchestrator.”

CSO skills

Despite most firms indicating the CSO will become more important, their own team remains small.

“It’s fair to say that sustainability teams are evolving, They’re still fairly small. My team right now is six people,” said Smith.

She added that most people on her team started out as subject matter experts but there is increasingly a need to frame their expertise from a corporate or finance sector perspective.

“You can bring that technical skill set, but you also need to be able to engage at many different levels in the company, then turn around and communicate to clients about how our expectations may be changing. It requires people who are good at understanding outside trends and good at bringing together complex sets of information and clarifying them.”

Andrew Bowley, wholesale governance officer at Nomura said the main responsibilities of the CSO and their team is to act as “the glue in the middle”.

“As with any organisation, there are functional, divisional and regional management structures in place, including budgeting, planning and strategy. Finding a way to, to create an overlay on that is really essential.”

Primacy of E in ESG

Much of the external focus on the role of the CSO has been on the environment and climate change.

“There’s been a lot of focus on the E,” said Smith. “Sometimes I talk about environmental sustainability, just to sort of clarify what facet of sustainability we’re talking about. Part of the focus is that it’s more easily measured and more easily defined, there is a taxonomy for it.”

However, most CSOs view their mandate more holistically with two-thirds saying they focus equally on all three components of ESG.

“Many times we think of the E, the S and the G as separate items, which we can trade off, or we can prioritise. The truth is that they are so connected,” said Lara de Mesa, head of responsible banking and group executive VP at Santander.

“If we needed something to remind us, coronavirus is here to tell us that social impact is also there. [Governance] is clearly the enabler. We can green the economy, we can support social challenges. If we don’t do the things right, we won’t obtain the loyalty of our stakeholders. Without that, our business won’t be sustainable. And the first rule of sustainability is profitability.”

 

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