This week we want to flag an article that was recently published on the Harvard Business Review (HBR) which touches on a question that we frequently get from organizations working on their ESG strategies: does my company need an ESG Officer? You can find the complete article here, but we share below what we think are the highlights.
This head of ESG position (or Chief ESG officer, or whatever a company calls it) is still relatively new and not that common in the Mexican market yet. Looking at the companies that are part of the IPC index in the BMV, only 54% of them have a person fully dedicated to ESG as a whole (some of the ones that don’t may have people in charge of some specific topics within the ESG arena, like environmental impact, but not one head of all 3 pillars). If we looked beyond the IPC, the number would be much lower. Furthermore, the job description for ESG officers varies significantly from one company to the other (we sometimes see people who are very focused on environmental topics for instance but have little communication with the CEOs on governance topics). We think this shows that companies are still figuring out what having someone on this role really means (and even whether they need someone for it).
The HBR article, after looking at senior executive teams in U.S public companies in 2020 and 2021, propose three questions (described below) that CEOs and boards should ask before creating this position. We think the questions are quite useful for organizations trying to figure this out.
- Do your stakeholders care about ESG? “… [A] survey conducted by Nielsen in 2019 found that 48% of consumers cared about ESG. This number increased to 83% among millennials. According to a survey reported in the Harvard Business Review, 9 out of 10 employees said that they would trade a portion of their life’s earnings for greater meaning at work… Appointing a chief ESG officer signals to stakeholders that your company takes ESG issues seriously… Hence, if ESG is particularly relevant to your company’s stakeholders, it may be worth appointing a chief ESG officer to ensure that ESG issues receive sufficient attention and influence.”
- What role does ESG play in your strategy? “…Our analysis reveals that chief ESG officers are present in companies that make concerted efforts to incorporate ESG into their strategy… When a company’s strategy needs to be built around a certain function or element, research demonstrates that including a C-level executive with the corresponding knowledge and responsibility in strategy formation is the best way to do it… [If] ESG is becoming an integral element of your company’s strategy, it’s time to think about appointing a Chief ESG Officer to inform strategy development and execution.”
- Would a chief ESG officer be complementary? Companies need to ensure that “appointing one is adding value to the executive team. One of the biggest challenges of ESG is that it is so multifaceted and complex… Our analysis of chief ESG officers uncovers that they focus on all aspects of ESG and, importantly, on balancing the sometimes-competing demands of the individual pillars… Hence, if your company is faced with complex ESG demands and the existing C-suite positions are not fulfilling your ESG needs, you may want to consider adding a chief ESG officer.”
Once these three questions have been answered and analyzed by CEOs and boards of directors, the article suggests that a detailed definition of the responsibilities the position must have should come next. The authors’ research indicates that coordinating ESG efforts in their organizations, both horizontally between the ESG pillars and functions, and vertically across hierarchical levels up to the CEO, is at the core of a chief ESG officer’s purpose.
Adding this position into an organization could likely result in it becoming more inherently ESG-oriented, regardless of its size. This of course will only happen if the person is given enough power within the organization to effect change. We don’t think that all organizations need to fill this position initially (sometimes ESG can be championed by an existing C-Suite position), but we do think when ESG strategies grow and become more visible it is likely having someone who oversees the whole picture and coordinates all the efforts (and data!) is helpful.
I hope you found this interesting. As usual, if there is anything we can help you with, please reach out.
Partner, Miranda ESG
Contacts at Miranda Partners