Essential ESG: Episode 22 – The evolving role of the Chief Sustainability Officer

Phoebe Wynn-Pope, Head of Responsible Business and ESG, Corrs Chambers Westgarth

Susan Mizrahi, Sustainability Executive

Phoebe: Welcome to another edition of Essential ESG, coming to you from the lands of the Wurundjeri people of the Kulin nation. My name’s Phoebe Wynn-Pope and I’m the head of responsible business and ESG at Corrs and today I’m joined by Susan Mizrahi. Susan is a well-known sustainability strategist and has over 25 years’ experience working in Australia, Asia, Europe and North America on international business sustainability and human rights issues. Susan was one of the first chief sustainability officers, serving at Australia Post between 2015 and 2023 and she is now one of the non-executive directors of the UN Global Compact Network Australia and an Honorary Fellow at Melbourne Climate Futures at the University of Melbourne and we’re really delighted to welcome you to the podcast, Susan.

Susan: Thank you so much Phoebe. Very happy to be here.

Phoebe: Over time you’ve had an extraordinary career, but I wonder if you could tell us how you’ve observed sustainability practices and the role of the Chief Sustainability Officer evolve within the private sector.

Susan: I guess, first of all, is defining ‘sustainability’ and I think that that’s changed and evolved over time. So first of all you were really seeing businesses focus on what they call corporate citizenship which was an emphasis on corporate community investment. And that morphed into corporate social responsibility. But that’s a term that’s sort of fallen out of favour a little bit because environmental issues became more obvious and yet it wasn’t in the title and so people weren’t necessarily seeing environmental as part of the social. But I would say for those of us that were working in that space at that point in time, we viewed environment as part of that. And then more recently it’s sort of morphed into language around sustainability and/or ESG which are overlapping concepts and terms that are often used interchangeably. And sustainability is very much around the practice of operating a business in a way that meets the economic and social and environmental needs of the present without compromising the ability of future generations to meet theirs. And ESG is more around a set of criteria used to evaluate a business’s environmental, social and governance practices. And so it’s particularly of interest to stakeholders and investors that are looking to assess a company’s non-financial performance. So, with that sort of backdrop and how that’s sort of evolved, I think enter the function of the chief sustainability officer or the CSO. And the role of the CSO was first conceived of in the US, probably about 20 years ago, at the company Dupont and it’s something that we’re now starting to see come into play, you know, in North America more broadly and then Europe and also Australia. The chief sustainability officer is, as its name implies, an executive level position and the purpose is to build strong relationships and transformative strategies to address both opportunities, but also risks, relating to the ES&G, the environmental, social and the governance. I was doing some reading on this and by 2020 US Fortune 500 companies hired more CSOs than the previous three years combined and during that time, you know, 31 of them had appointed their first CSO. And you’re seeing a lot more of the Fortune 500 now have CSOs.

Phoebe: And are we seeing a similar trend in Australia?

Susan: Yes. So the first organisation in Australia to have a CSO was Telstra. The second was Australia Post and I was very fortunate to have that role for many years. And that was sort of in the late, or the mid-to-late, 2010s. About 18 months ago I did a tally to see which other large Australian companies had CSOs and at that time I counted about 12, including BHP, Qantas, Woolworths and Westpac as well as some others. But what I’m starting to see now is a significant growth in junior and mid-level sustainability roles in the Australian context, and more senior sustainability or chief sustainability officer roles are being sort of double-barrelled. So I did a rough count this morning (September 2024) and it seems from my LinkedIn that there’s probably about 25 today and examples of the double-barrel are Chief People and Sustainability Officer or Chief Strategy and Sustainability Officer, Chief People Data and Sustainability Officer. And I read one that was a Chief Growth and Sustainability Officer which is arguably an oxymoron. I think, you know, how a company appoints somebody of a senior level to sustainability really depends on the size of the business, to what extent sustainability is part of their strategy and their risks. And so I think it’s going to continue to evolve, but certainly in the US I don’t think it’s double-barrelled as much. I see more people that just have the title of Chief Sustainability Officer and those roles report directly to the CEO.

Phoebe: Right. That’s really interesting, especially given what’s often seen as the ESG backlash in the US and yet there’s this sort of apparent commitment to that sustainability practice internally. So Susan, what do you think has been the driving force behind some of these changes and the development that’s been happening?

Susan: I think there are multiple factors that have led to the establishment of the Chief Sustainability Officer role. First up, probably the increased awareness of the climate crisis and environmental issues more broadly and the role of business both in contributing to those issues but therefore the role of business to help address them. The function of the CSO helps businesses recognise that need for transformative change and one of the key things that a CSO needs to do is develop solutions in business cases that align for a net zero future. Regulatory pressures, of course, with governments and bodies globally introducing stricter regulations around ESG criteria. And a CSO really needs to partner with the legal team in understanding and responding to those requirements: the changing landscape, bringing teams’ executives and the board, who is a really critical stakeholder, and bringing them all along.

Phoebe: Because we’re seeing sustainability sort of shift around where it sits in different organisations, right? So sort of sustainability and then with the regulation around disclosures and some of those mandatory financial disclosures are shifting some things into finance, and sometimes it sits in risk and compliance, and it seems that at the moment with the developments that are happening, sometimes it’s not necessarily super clear where sustainability itself sits.

Susan: Yes, and I think part of the reason for that is that sustainability’s a new discipline. You know, different companies are viewing it in different ways still. I always talk about and think about sustainability as being on a bit of a spectrum, where at one end you’ve got risk and compliance and the other end of the spectrum you’ve got the opportunity to create new forms of social, environmental and economic value. Some companies view it as a compliance obligation at the one end and so, you know, may not necessarily give it sufficient resources and may just view it as a bit of a reporting exercise, particularly with some of the changes that we’re seeing in the landscape in Australia but also globally. But for me, really, sustainability is around transformational change. It’s the other end of the spectrum. It’s actually the whole spectrum. And so depending on how a company views it, they will resource it and position it differently within an organisation. But coming back to your earlier question about the driving force behind the changes and the establishment of the chief sustainability officer, the CSO role, there’s a few other reasons that I feel like it’s come about. One is obviously investor and stakeholder demand, and that obviously depends on the nature of the organisation, but there is demand for businesses to play a more constructive role with respect to ES&G and the Chief Sustainability Officer function really needs to be there to develop ESG strategies to enhance a company’s reputation and that’s part of it. Risk management is critical, including those across the businesses supply chain and I’m a big fan of saying that all sustainability solutions are found in the supply chain, but if the solutions are found there that’s where the risks are as well. And so a CSO really needs to help a company identify, assess and mitigate those risks right across that value chain. Ethical leadership, I view as another factor. By and large companies are increasingly moving beyond the Friedman doctrine of shareholder theory and recognise that they do have a broader set of responsibilities to society and to the environment but that’s often debated still and it is not necessarily consensus. But I like to think most businesses have understood that now and if not it is up to the CSO to really get the business to lean into that and to understand what its true purpose is as an organisation and what its core value should be.

Phoebe: Yes that’s right, and I think there has been a lot of evidence to show that the investment in sustainability is a financial – I mean it’s a financial investment, but it also leads to financial benefit. It’s not just a cost and sometimes people are prone to see it as a cost centre or a compliance requirement instead of actually an extraordinary opportunity to add value and impact and to attract new investors and new customers and there’s a whole range of that positive side of the spectrum that you were talking about earlier.

Susan: Yes I think it is an unfair and erroneous criticism sometimes of sustainability that sustainability has to cost more and definitely costs more. I don’t think that’s the case. I’ve worked in organisations where investments in renewable electricity and other energy efficiency mechanisms, for example, have saved an organisation millions and tens of millions of dollars over time. There might be a slight increased cost in the short term but the benefits over the longer term, both financially and environmentally, are increasingly playing out and those business cases are only getting stronger.

Phoebe: Which is a good thing and that role of the CSO to be there and to be pushing that case where you might have some people who are so on board is really important.

Susan: And I think the other factor around the driving force behind the establishment of the CSO role in these changes is obviously competitive advantage. The CSO facilitates the development of sustainable product services and solutions for an organisation and that comes back to what I was saying about the spectrum and the value creation end of it.

Phoebe: So we’ve touched on regulation and that being one of the drivers, but how do you think that that mandatory due diligence and disclosure regulations will impact on how sustainability is run and viewed inside Australian businesses?

Susan: Yes, this may be an unpopular response, but I feel that mandatory due diligence and disclosure regulation needs to happen because the business sector has not voluntarily leant in to address ESG issues to the degree that it is needed to and there’s a couple of examples that can bring that to life. One, and probably the most obvious one from the environmental side, is that 2023 was the hottest year on record by a clear margin. Also the wealth gap is widening and we know that extreme weather will further undermine socio-economic development as well. So we are seeing that the cost of climate inaction is higher than the cost of climate action, despite what a finance team or a CFO may claim or believe at this particular point in time. So there’s that example, and I think another example is also gender pay. So equal pay has been a legal requirement in the Australian context since 1969 but, in the absence of mandatory reporting across all organisations in relation to this, some 55 years later, we have a gender pay gap of 11.5% according to the latest data from the Australian Bureau of Statistics. So we need to have this mandatory due diligence and disclosure regime come into being, and I welcome the steps that have been taken in Australia, particularly with the climate-first approach. It is necessary in my view to hold business responsible for their fair share of the social and the environmental issues that society faces today. But I do, at the same time, think we run the risk of sustainability functions being forced to focus more on reporting and less on the transformative change and on the value creation perspective. It is a little bit like the tail wagging the dog.

Phoebe: Yes, so it becomes a tick-box exercise and have we done what we have to do rather than thinking outside of the box and thinking about how we can really transform the business and the opportunities.

Susan: We are running the risk of that. I don’t think it is necessarily a tick-box exercise and it really comes down to how sustainability is perceived within the organisation. But I think we really run the risk of that, particularly with multiple reporting requirements coming in close together.

Phoebe: Which is enormously challenging, right? So we’ve done a couple of podcasts recently on the different reporting requirements that there are, and they’re increasing all the time, and the demands and the extent and the breadth of them is really challenging so it’s important in that context for the CSO to be able to keep an eye on the impact side.

Susan: And there’s so many…

Phoebe: And the business.

Susan: Yeah, and there’s so many voluntary and mandatory standards and frameworks and requirements coming into play and if you’re working for a large multi-national organisation with presence in multiple countries, you have to be across the different jurisdictions as well. So more than ever there needs to be a close relationship between the sustainability teams and the legal teams because no one, small sustainability team can be expected to be on top of all of that.

Phoebe: No that’s right. So with that in mind, how do you think sustainability functions should be organised internally to ensure sustainability is effectively embedded and operationalised within an organisation?

Susan: So there’s no hard and fast rule. As I was sort of suggesting before, it’s a new and evolving discipline and I feel that the best way to configure it within an organisation will vary depending on the size of the business and the profitability of the business, but significantly on its strategy and its risks and its other priorities. And look, this might change over time as well. I mean when I was at Australia Post, I was there just short of eight years, and it changed on many occasions during that time. I’d say a few other things about the best way to position sustainability within the organisation. First, and perhaps not surprisingly, I feel very strongly that the Chief Sustainability Officer role needs to report to the CEO, or at least to the Board, in a way that often Chief Risk Officers do, and not all Chief Risk Officers report to a CEO, but they need to have that direct and trusted relationship with the Board. And we need to ensure that sustainability teams are resourced adequately so that they can address not just the compliance and the reporting elements of say modern slavery or climate or whichever topic we’re talking about, but so that they can get to the root issues of those topics for a particular organisation. I see that far too often that sustainability teams have inadequate resources and it really takes its toll on practitioners at a time when we’re still not seeing all universities appropriately educate graduates about sustainability, and it doesn’t matter if you’re talking about the business faculties or we’re talking about medicine or you’re talking about IT, I feel very strongly that sustainability needs to be across all curriculums and so that everybody who graduates from university with a common baseline around sustainability. And so, in the absence of that happening, the sustainability functions within an organisation really have a capacity-building role that they need to play right across the organisation and an advocacy role. And when those teams are very small you see it taking its toll, and I see it every time I go to a sustainability conference or speak to my peers in other organisations. So I would make that point. And then, in the Australian context, also with the new climate reporting regime coming in. One of the things I’m starting to see more is that the carbon functions, or the emissions environmental roles, are moving into the finance team and truthfully this trend is making me a little bit nervous because it means that these roles will fall under the KPIs of the Chief Financial Officer and obviously that’s got a bias around reducing costs and as we were sort of talking about earlier, sometimes to create financial and environmental efficiencies, you need to spend a little bit more for sustainability in the short term at least. And so I’m nervous about that also because it means that the carbon functions, the emissions functions, those that are focused on climate, don’t necessarily have the advocate of a direct manager being a CSO that can really play that role in influencing other parts of the organisation if that makes sense.

Phoebe: Yes I think it makes total sense and it also feeds into that idea that, which often seems to happen in sustainability and going to lots of sustainability conferences as a human rights person, that the carbon and the decarbonisation of the economy which is so important, becomes front and centre and almost the only thing – it risks being the only thing – that organisations focus on and now with the mandatory reporting, that’s just another layer on that when there’s so many other aspects of sustainability that are so important to be addressing.

Susan: Yes that’s right, and when you look at the global sustainable development goals that were issued by the UN in 2016, you can see that there is strong interconnection between the different 17 goals right? And so take that to an organisation, you can’t have sustainability operate in silos. There is connectedness for the social and the environmental issues throughout an organisation and its extended supply chain. So I would make that point too. And that last point that I made about starting to see some of the environmental roles moving into the finance team is something that I’m only seeing in the Australian context. By contrast, what I’m seeing in the US is the adoption of what is being called an ESG controller and environmental, social and governance controller, which is a little bit like a financial controller that sits in the finance team and I really like this function. I think this new role is designed to help embed sustainability into financial strategies, while also strengthening the quality and integrity of ESG initiatives and reporting. And an ESG controller can help an organisation prepare for ESG assurance requirements, while increasing cross-functional ESG impact as well. They can also obviously help manage risks and influence the financial decisions and if they sit in the finance team, they are also privy to the tools and mechanisms and committees and so forth that the rest of the finance team is.

Phoebe: And what is the relationship between that person and then the Chief Sustainability Officer?

Susan: Yes, look I mean it is still evolving again, and so I think that will be different for different organisations. But I was at a conference in Arizona a few months ago and I heard a really interesting panel session about this and they talked about – some of the people on the panel that were ESG controllers have a dotted line to the CSO, the Chief Sustainability Officer, others don’t but they just to have a strong working relationship. So I would like to see that happen more in the Australian context than I’m seeing now.

Phoebe: Yes that’s really interesting, that would be an interesting innovation in the Australian context. Susan what steps can sustainability officers take to really accelerate transformative change within their organisations? This is a huge challenge. You’ve talked about this already, so what are some of the insider hints that you can give in terms of those steps that people can take?

Susan: Look from my experience the more senior the sustainability function is, or the head of that team is, the more it is being taken seriously across the organisation. The more senior the Chief Sustainability Officer or the General Manager for Sustainability function is and the closer that they work with the CFO, the other executives, and the CEO and the Board, the more mid-level managers across the entire organisation really recognise that it is a priority and respect that role and the function of that broader team. One of the ways to bring about transformative change is to ensure that the organisation appropriately positions and resource that team and that function. I also think that Chief Sustainability Officers must be able to agitate for change and speak truth to power and have access to the Board in a way that I was talking about before. But for that to happen the CSO really needs to have the trust and the confidence of the CEO. On a personal level, for sustainability practitioners and particularly those that lead the team, they need to be lifelong learners. And it’s because it is a new and evolving discipline like we were talking about before, but each week, each month, there seems to be a new framework or legislation or another five acronyms that come in to play and it is really hard to stay across all of that and so it is not like a set and forget or being appointed and forget, you have to continue to stay abreast of all the changes that are happening along the way in order to support the change that’s required within the business.

Phoebe: Yes, and there’s all those changes and also all the innovation that is going on. There’s so many incredible minds thinking about this and coming up with solutions and different solutions in different contexts and being across what is going on and being able to adopt the things that are relevant to your organisation are really critical.

Susan: Yes and with that point in mind, another thing that I’m really enthusiastic about is not just different parts of an organisation coming together in cross functional teams and working groups to achieve a desired outcome whether it is an E, S or a G, but I think it is really important that that business professionals speak with NGOs and speak with academics and speak with government entities as well. The cross-pollination between those different stakeholder groups is really critical to be able to address the global, social and environmental challenges that we have today. And too often we operate in our own silos, right? And even on LinkedIn you end up being in your own algorithm and your own cohort and your own silo and I think it is really important for all business professionals to extend beyond that these days.

Phoebe: Absolutely I couldn’t agree with you more. I’m going to get you to crystal ball gaze now and think about the future. But how do you think that the sustainability landscape is going to evolve over the next, let’s say five years, and what do you think organisations should be thinking about and preparing for and where would you like to see us in five years’ time?

Susan: Well, we are actively moving from a period where sustainability was a nice to have to now being core to contemporary business, so I would say that first up. I think businesses that have not yet fully grasped sustainability are going to quickly fall out of step with not just stakeholders, but now we are seeing with the changing regulatory requirements, I think companies need to very quickly lean in if they haven’t already. As mentioned, I feel like in the short term that sustainability functions run the risk of being perceived as just reporting rather than focusing on transformative change and we need to all ensure that that doesn’t happen because these global issues that we are facing around climate, around biodiversity, about water, around social inequalities, are getting worse rapidly, they are not going away and so we don’t have a few years to waste with these teams sort of ironing out what their priorities are. They need to be appropriately positioned and resourced to be able to do the risk and compliance and the reporting side of things but also to create the change right across the organisation. So over the next five years I hope that that’s more clearly understood within the business landscape in Australia and I hope that people that are in other parts of the organisation, particularly procurement and finance but also other areas, automatically recognise the role that they need to play into reducing the risks and reducing the negative social and environmental impacts of an organisation. So it is less of an advocacy effort by a sustainability officer or a sustainability team and so that everybody is achieving the goals together.

Phoebe: Yes, right so everyone has got their shoulder to the wheel, so to speak, and working in the same direction?

Susan: Yes, I mean look, it can happen right? A few years ago, we were going through this global pandemic and you saw teams come together in organisations that may not necessarily work together so closely with one another. You saw investment change, you saw significant effort for bringing about really speedy change in a way that protected so many employees and society more broadly at least in the Australian context. We saw that very clearly and it sometimes baffles me that people are not seeing the urgency behind these issues we are talking about now.

Phoebe: Susan, thank you so much for talking to us today, it’s been really great to have you on the podcast.

Susan: My pleasure. Thank you Phoebe.