The environmental, social and governance (ESG) and sustainability revolution is in full swing. Today’s investors are no longer only looking at financial yields and returns. They are increasingly also factoring in societal, environmental and other non-financial considerations when making investment decisions.
The increased focus on “responsible” investing has been so swift that Bloomberg Intelligence expects ESG assets to account for over one-third of global assets under management by 2025,1 whilst Deloitte believes that ESG-mandated assets are on track to represent half of all professionally managed assets globally by 2024.2
Projections like these, and the ever-increasing ESG and sustainability-related “carrots” and “sticks”, have spurred organisations to integrate ESG considerations into many more business functions.
A practice which has recently started gaining traction, although not yet among South African companies, is the assignment of C-Suite3 level roles focusing solely on ESG and sustainability.
Considering the increase in ESG-related regulation, risks and stakeholder demands, coupled with the already busy workloads of current C-Suite executives, it makes perfect sense for organisations to have a C-Suite executive permanently dedicated to, and taking ownership of, the organisation’s ESG function.
All in the name: chief ESG officer (“cESGo”), chief sustainability officer (“CSO”) or something else?
Unlike CEOs and CFOs, there is not yet a single, universal title for the executive tasked with overseeing ESG and sustainability. The title will likely depend on the organisation’s principal area of focus between the aforesaid. However, given that the “E” in ESG encompasses sustainability and the promotion of environmentally responsible practices, it could be argued that cESGo is the more apt title.
What role will the cESGo play in the organisation?
The role of the cESGo will evolve alongside the definition of ESG itself. Nevertheless, there are a number of duties which are typically viewed as being part of this portfolio. These include:
• along with the board, establishing the organisation’s ESG strategy, goals and initiatives;
• overseeing and bringing together the ESG-related aspects in the different (often siloed) functions of the organisation, such as product, marketing, compliance, risk, etc.;
• monitoring the ESG environment outside of the organisation to discover trends and best practices, as well as to identify potential risks and opportunities applicable to the organisation;
• liaising with external stakeholders and regulators, and introducing their insights to the organisation;
• overseeing and analysing the organisation’s reporting on ESG and sustainability to ensure goals are being achieved; and
• benchmarking competitors.
Does your organisation need a cESGo?
The answer will depend on a host of factors, including the organisation’s size, industry, geographic locations and exposure to ESG-related risks. The organisation’s culture and the brand image it wishes to portray will also be key considerations in this decision.
Organisations who do appoint a cESGo are generally seen to take ESG and sustainability as a strategic imperative, with the areas worthy of board representation. Having the cESGo report directly to the CEO also gives the cESGo the necessary authority and influence to effect timely actions.
However, those organisations who decide against such an appointment do have other options. They could have the current C-Suite executives take on additional ESG-related roles or, alternatively, have their social and ethics committees’ mandates widened to take on more responsibility.
With the ESG and sustainability landscape continually evolving, along with the need for disclosures of same, now may be the perfect time for South African companies to start considering this formal appointment to help them to become more responsible corporate citizens and, as a result, attract additional institutional investor funds.
1 https://www.bloomberg.com/company/press/esg-may-surpass-41-trillion-assets-in-2022-but-not-without-challenges-finds-bloomberg-intelligence/
2 https://www2.deloitte.com/us/en/insights/industry/financial-services/esg-investing-and-sustainability.html
3 “C-suite” describes senior executive titles in an organization, with the letter “C” referring to “chief”, as in chief executive officer or chief financial officer.
Johann Piek is a Senior Corporate Financier | PSG Capital.
This article first appeared in DealMakers, SA’s quarterly M&A publication
DealMakers is SA’s M&A publication
www.dealmakerssouthafrica.com
