Figures were presented showing a return of 31% for the group of companies with the highest ESG ratings and 2.9% for the lowest. The gap between the two groups is 28.1 percentage points. Whether this return refers to total shareholder return or share price return, along with the measurement period and the number of sample companies, has yet to be released. While performance indicators are drawing this kind of attention, inside companies a trend of dispersing the authority of the ESG oversight unit is under way alongside it.
Behind this is a change in the form of regulation. As ESG regulation has come to require consolidated disclosure at the site level and management at the supply chain level, ESG data has moved beyond material compiled once at year-end to become something that must be managed as a year-round operating system. Many companies manage greenhouse gas, water, waste, safety and human rights data by a different method at each site, and rely on Excel and email for compilation. As the unit of management has moved down from headquarters to sites and suppliers, the location of the working-level burden has shifted with it.
As a result, sustainability is moving out of being the task of one particular department and is being folded into the core work of several working-level departments. Cases are appearing in which the finance team handles climate risk directly, the procurement team supply chain carbon emissions regulation, the IR team ESG disclosure, and the R&D department product sustainability. Some companies are carrying out integration by distributing ESG capabilities across core departments such as procurement and R&D. But how many companies have chosen this approach, and what share of the whole they account for, was not presented.
The position of the oversight unit is also changing. The share of chief sustainability officers (CSO) reporting to the legal department has risen from 10% to 21%. An assessment was offered that the CSO role is shifting from the "strategic storyteller" who designs external messaging toward the "technical expert" who handles regulation, data and technology. The "double badge" form, in which the sustainability role is held together with that of chief operating officer (COO) or chief strategy officer, is also increasing.
There are also signs of contraction. More companies are not appointing a successor after a CSO steps down, and cases have been reported of the unit directly under the CSO being reorganized at a lower rank and title. Resource problems appear along with this. In a survey of more than 2,200 sustainability professionals conducted by the HR firm Acre, a third of respondents expressed dissatisfaction with the resources for carrying out their work, such as staffing and budget.
Interpretations of the same phenomenon diverge. One side holds that once ESG working-level tasks are automated, the dedicated unit can move beyond simple compilation and spend its time on strategy and KPI design. The other side holds that as working-level functions are absorbed into each department, the grounds for the existence of the dedicated unit itself weaken. The former reads an upgrading of the organization, and the latter a dismantling of the organization, out of the same flow of automation and integration.
A three-stage methodology was presented as the procedure for putting an operating system in place. The order is to map GRI, SASB, ESRS and KSSB together with the indicators of outside rating agencies and organize the standards, then build an operating unit to handle data collection and verification, and then link disclosure, ratings and KPIs. One solution vendor said that when its product is adopted, the ESG data collection and verification period is shortened from more than three months to one month, but this is the vendor's own claim, and no case of an adopting company was presented with it.
Data linking what form of ESG governance the companies with top returns maintain, or whether they have a dedicated CSO, has not appeared. Performance indicators and organizational indicators are each sitting separately. This debate, taken up by the sustainability outlet Trellis on January 12 (local time), continues into a discussion at the GreenBiz 26 conference next month on the theme of whether the CSO is still valid. The answer that comes out of that discussion appears likely to serve as the baseline for gauging the next form of the org chart.
