Who owns ESG - Sustainability, finance, legal, marketing?
Your company has decided to launch an ESG program. Hooray! The first and most important step has been taken. What comes next? You must designate a leader with ultimate responsibility for the success of the ESG program.
ESG encompasses a wide range of factors related to a company's environmental impact, social responsibility, and governance practices. It is inherently cross-functional. Often it is not clear who should take the reigns. Before jumping into which department, consider the qualities and attributes of each leader.
Passion – ESG demands that leaders build new expertise, redefine success, and inspire others. A leader must be passionate about improving the company’s ESG performance to succeed.
Collaborative Approach: ESG is not a siloed effort. it requires support and collaboration from every department within the organization. The leader should be adept at fostering cross-functional cooperation.
Compliance Acumen: Many new ESG regulations will be coming into effect over the next 2 years. The leader must be able to guide the company in establishing new compliance standards.
Initiative: The leader should be forward-thinking and open to innovation, seeking opportunities for sustainable growth and development. ESG isn’t just a cost – it is an opportunity to grow business in new ways.
Hopefully, your company has several leaders that fit this description. Once you identify them, you can move on to the next step of considering which department is best positioned for success. There isn’t a single right answer to this question. A lot depends on the needs of your company and the roles each department plays in the organization. That said, certain departments are commonly considered.
Sustainability
More and more companies are adding Chief Sustainability Officer (CSO) roles that report to the CEO. If your organization already has a CSO, that person may be a natural choice for leading ESG. But remember that sustainability and ESG are not the same. Sustainability is often strongly focused on reducing environmental impact and improving social performance. These things are necessary but not sufficient for an ESG program. ESG has a strong compliance and risk management component. If the CSO is responsible for ESG, ensure the person has strong support in these areas.
Finance
CFOs are usually responsible for much of a company’s reporting. ESG has heavy reporting requirements – particularly in public companies. There is also a risk management component that would be familiar to CFOs. Incorporating ESG into the finance department is a common approach that can yield success. However, it's important to note that CFOs often focus heavily on costs. When ESG is in finance, integrate partners who can identify opportunities for increased sales and product development stemming from ESG initiatives.
Legal
With the proliferation of regulations, an increasing number of CLOs are taking responsibility for ESG. CLOs have deep expertise in compliance and risk management, they are masters of cross-functional collaboration, and they often serve as a moral compass - passionate about doing the right thing. Subject matter expertise may be a challenge. If the legal department takes on ESG, it will need strong support on sustainability – particularly when it comes to climate change.
Strategy
ESG initiatives can open doors to new business opportunities for many companies. Placing ESG within the strategy department can ensure its integration at the core of the business. The challenge with this structure is that strategy teams have less experience with compliance and risk management, and they are small. Success with this structure requires a strategy leader willing to integrate a compliance mindset and substantial support from other departments.
Human Relations
A few years ago, it was common for HR to lead corporate social responsibility (CSR) initiatives – a forerunner to ESG. CSR was strongly connected with employee engagement. However, ESG today encompasses a broader array of stakeholders and demands. As a result, HR may no longer be the optimal department for ESG leadership.
Marketing
In today’s environment, CMO’s are not a good choice for ESG leadership. Marketing has a strong emphasis on external communications. While companies should report on their ESG programs publicly and transparently, leading ESG objectives with communications objectives is a slippery slope. Placing ESG in marketing opens up the company to allegations of greenwashing – a practice that damages a company's reputation.
Whether you have a sustainability department with deep environmental and social expertise, a finance department keen on risk management, a legal team with compliance and regulatory expertise, a strategy department focused on growth, or another qualified team, the key is to choose a leader who can unite your organization in its ESG journey. By making informed decisions and taking proactive steps, your company can contribute to a more sustainable and responsible future while improving business results.