How Corporate Sustainability Went from Optional to Essential

Steve Odland: Welcome to C-Suite Perspectives, a signature series by The Conference Board. I'm Steve Odland from The Conference Board and the host of this series. Today, we're going to talk about how companies are building and integrating corporate sustainability teams. Joining me today is Dr. Andrew Jones, principal researcher at the US Corporate Governance & Sustainability Center. 

Andrew, welcome. 

Andrew Jones: Thanks so much, Steve. Great to be here. 

Steve Odland: OK, so Andrew, when people talk about corporate sustainability, there's this avid group that, you know that they love it, this is their lives, and so forth. And then there's a bunch of other people that go, what are they talking about? Can we just kind of level-set here and talk about, what do we mean when we're talking about corporate sustainability? 

Andrew Jones:Yeah, definitely. I think you're so right to start off with some clarification because sustainability is a broad term, and it can mean very different things to different people and at different audiences. 

So, we're talking specifically about corporate sustainability. And I think we use this at The Conference Board in quite a broad way, but what we really mean is, I think, to put it quite simply: how companies are aligning their business, whether that's their strategies, their operations, their products, with environmental stewardship, with social responsibility, and with long-term economic performance to create value for shareholders, but for stakeholders and society as a whole. 

Soit'sa very broad definition, but it'sreally about just, I guess, being attuned to stakeholder expectations and these broader array of economic and social and economic impacts that surround a company because they're out there in society. 

Steve Odland: When the term sustainability and, beyond the term, when the whole subject matter began to really infiltrate executive teams and boards and, really, the awareness of companies. This was more of a do-good type of initiative. Oh, well, the greening of the Earth, and all that. It then evolved into the outputs of the COP conferences from the United Nations Committee of the Parties, and this whole carbon neutrality initiative, 2050 carbon neutrality. 

And so, it's evolved over time, and you hear about it talked in these very narrow pieces, but in fact, when we're talking about corporate sustainability today, it's much broader than that. I mean, we're talking about how do we integrate the strategy of the company so that we wastenot, that we use our resources in a very high stewardship manner. We save costs, we lower costs, so therefore we can lower pricing. And we don'tpollute, we don't do bad things. And we end up, hopefully, in a neutral situation. Soit's this whole long stream of things today. Talk about that evolution.  

Andrew Jones:Yeah. Happy to. And I think this is important because sustainability has, the broader concept and the practice has evolved a lot, and I think will continue to evolve. And it's worth saying, perhaps, at the outset that there is a long history here that long predates the terminology of sustainability or ESG. A long history of companies acting and operating in ways that are socially and environmentally responsible and respond to the concerns of the expectations of stakeholders. 

And I think today's much more sort of complex and broader sustainability and ESG strategy that built on the foundation of those longstanding practices. But obviously, as you'veindicated, Steve, in more recent years, it's really evolved quickly and professionalized and become institutionalized and much more ambitious in scope and much more integrated into the fabric of organizations. I think there's a few reasons why that is. 

I'llperhaps just quickly highlight a couple. I think first of all, and you alluded to this, there's I think broader societal awareness of key challenges, whether that's climate, water, workforce, well-being, diversity. I think awareness has grown a lot, and you notice there's been global moments and events and frameworks and policies, which in turn have created new expectations of, I think, of lots of people, including of business leadership, from multiple stakeholder groups, and those stakeholder groups do include investors and markets and communities, I think linked to that point. 

As a consequence, or perhaps in parallel, we've also seen in recent years a heightened recognition within companies that these issues can materially affect or improve business performance and in areas, whether it's risk management or efficiency, as you said, Steve, reducing waste or competitiveness or access to capital or driving innovation. I think that recognition has driven the integration of sustainability across enterprises. 

So the point being, there is a business driver here that goes along with this broader kind of moral or ethical argument that this is the right thing to do. And even more recently, we've also seen regulatory developments that have accelerated the professionalization of corporate sustainability, as well, that pushed it up the agenda.  

Steve Odland:Yeah. And when we started the 20th century, we were largely in the agrarian society, or we were in the process of evolving to a more industrial society. And so the agrarian society was one that was probably a lot less wasteful and so forth. It was the industrial age and revolution where, there became dumping of slag and mining, and outputs from factories, pollution in the air, and so forth. And this worsened through the world war periods when we were focused on other things. And it kind of culminated in on April 22, 1970, which was the very first Earth Day, when people said enough. 

It was kind of the first big celebration of,we've got to do something different about it. I remember it well because I marched personally in that very first Earth Day. I didn'taccomplish much on that day, but it's frozen in my mind. And I feel like, with two steps forward, one step backwards, we've made a lot of progress since that very first thing, but we still are not where we need to be in our sustainability path. 

Andrew Jones: I think it's a really nice example and I think you're so right that, I guess if you look back and particularly looking back to your example of Earth Day in 1970 and what followed, I guess in the decades that followed, you did see the rise and development of a global environmentalist movement, right? And that movement took on different aspects and worked in different ways and had some successes and some failings. 

And I think you're right that we have to remember that there has been a lot of progress in recent years, and there is a lot to celebrate. I think of the way there's been such concerted action, if we use climate for example, on reducing emissions and reducing air pollution and improving water quality and being more able to even track and measure some of these things. 

But as you said, seethere's still some way to go. There's still perhaps some, we are reaching perhaps even the real moment now where we've done some of the easier, low-hanging fruit when it comes to decarbonization. And now some of the more challenging and intractable and complex work needs to happen, including in some very hard-to-abate places and sectors and geographies. But we've come a long way, as well.  

Steve Odland:Yeah. And the whole focus from a corporation standpoint has evolved, as well. Honestly, in the, I guess the '90s and the aughts, companies started hiring their very first corporate sustainability people. And honestly, it was more virtuous signaling than anything material. It was one staff person you plugged in somewhere and said, you do the reporting or start gathering information. That has really evolved today. And the corporate function, the sustainability function is now an integrated function into the businesses. 

So talk about where we are today, and then talk about where you see that evolving going forward.  

Andrew Jones: I think you're right, that it's come a long way in a short space of time. The corporate sustainability function, it has really, I think, become very established and mainstream, particularly at larger US publicly traded firms, where it's commonplace to have a sustainability team that is typically led by a chief sustainability officer or equivalent, supported by dedicated professionals who span technical expertise, but also compliance, regulatory reporting, law, financial aspects. And that's really evolved a lot. And we've heard from our surveys and from our companies that there's a lot of, yeah, I guess established practices, and the function is quite institutionalized, really. 

We've done a lot of work on breaking that down a little bit and digging a bit deeper and looking at some of the interesting trends. And there's some interesting ways in which companies are structuring these teams. And we've looked a little bit at the models that they use to position them, and we've had to break this down into three areas, where some companies pursue a very centralized model, right? So the function is centralized. You have one central team managing sustainability across the organization. We found in our recent survey thatwas about 20% of companies. So very central, provides a lot of clarity of ownership, but can be a bit distant from the business.  

The opposite of that is what we might call a distributed approach, where you don't really have a central team, you just have responsibilities distributed across the business units, and each one has its own piece of the agenda, which can be effective, but also perhaps lacks consistency. 

What we found in practice is that the majority of companies, actually more than 70%, are doing a mix of both. They have a central team that sets the strategy and handles reporting, but then they have liaisons within departments and business units that help integrate into the day-to-day operations. 

And I guess the real point here is that companies are starting to pursue an approach that's very agile. Really, the emphasis is on driving sustainability into the fabric of the business and having consistency across business units. So this is very much the direction of travel, and I think we'll see that direction continue. And I think it'swell-suited to, particularly, big multinational firms that operate across a lot of geographies and units and functions. And well-attuned to where the function is going.  

Steve Odland: And for our listeners, you can read Dr. Jones' paper at our website, TCB.org, and then just click on the Governance & Sustainability Center, and you'll find his paper there, which goes through a lot of these numbers. 

Now, in your paper, you're not recommending a bestpractice or this is the right way to do things because what you pointed out is there are a lot of different ways to come at it, and every company's a little different. Every industry's a little different. They'reorganized, some companies are organized in a centralized faction. Some are organized in a decentralized fashion. Companies have to find the right way to organize their sustainability efforts to be consistent with how they're running the rest of their business.  

Andrew Jones:You're so right. And yes, we're not here to rank and to advocate. We very much capture data and report what we hear from our member companies, which includes some huge industry leaders. What I will say is that having done this work over a few years, we'vedefinitely seen a direction towards more of that hybrid model. And soI think more companies are moving in that way, at least when it comes to how they position their sustainability team. 

And I think there's a few reasons why that is, and I think itperhaps just is an effective approach of juggling, on the one hand, having that central team of technical experts who understand the content and report out and capture the data. But also recognizing that if sustainability is going to advance and is really going to weave into the business, it's got to find ways to, I guess, bring other departments and other functions and business units on board. 

And I think a hub-and-spoke approach, as it's sometimes called, is proving quite effective for a lot of companies. But that may change in years to come. And you're so right, Steve, that every company has to find what works for it and its model and its industry.  

Steve Odland: Well at its core, you have to have a consistent approach in how you collect the data and report the data. And there are disclosure laws and requirements of this. And there are constituent demands on this. Customers, employees, owners, communities, all want to see these things. And there are international frameworks, and all of that we've talked about before. So therefore, some centralized approach, at least in the collection of data and reporting of data, seems important. 

But when you get down to OK, then how are you going to affect that in a particular division, product line, manufacturing facility? Well, there is where you have to then take the corporate strategy, but then bring it down to where the rubber meets the road and implement whatever practices are required to meet the objectives. And hence, this hybrid model is where people are going because of the way this all plays out.  

Andrew Jones: I think you've really hit it on the head there. I think that's why, and it's proving, I think many companies are finding it an effective way to, yeah, on the one hand, ensure standardized reporting and compliance and data collection and strategy, but driving it into these corners of the business and into the different fabric of the business and having liaisons in each unit tailoring and implementing locally. 

And I think it also perhaps helps foster a culture where sustainability is everyone's responsibility, right? It's not just the responsibility of, as you said, perhaps back in the day, it was a couple of people, and they were siloed. It's very much setting the tone that sustainability is everyone's responsibility, and there's business reasons why we do it. 

Steve Odland: Well, I mean, to use your example, if you get pressure from environmentalists and honestly, just common sense that you want sustainable forestry, you don't want to clear-cut our rainforest. Well then, if you're using paper or paper products or pulp or something, if you've got boxes that you ship stuff, you need to know where that stuff's coming from in order to support the initiative. 

Well, that means that it's not just a corporate reporting function. You need to have supply chain people, purchasing people, and so forth that go back up through tier 1, 2, 3, all the things that you've written about and talked about. So hence, the whole sustainability function needs to be disaggregated to the implementation points throughout companies.  

Andrew Jones:You're so right. And I think, to use your example of how these different areas need to be brought on board and integrated in a consistent way, that also raises big questions around organizational culture and cross-functional collaboration. Do we have the right mechanisms and vehicles or processes to facilitate and encourage that? So it raises a lot of interesting questions more broadly about organizational design and organizational culture and really, what are we all trying to get out of investment in sustainability and the end goal. 

But these models are clearly quite, I think, have evolved to serve these purposes and seem a useful way of driving that in practice. And also while at the same time not creating whole new bureaucracies, which I think we all agree nobody wants. So yeah, it raises really interesting questions and quite challenging imperatives for sustainability professionals to navigate. 

Steve Odland:We're talking about how companies are building and integrating corporate sustainability teams. We're going to take a short break, be right back. 

Welcome back to C-Suite Perspectives. I'm your host, Steve Odland, from The Conference Board, and I'm joined by Dr. Andrew Jones, principal researcher at the Governance & Sustainability Center of The Conference Board. 

OK, Andrew. Before the break, we were talking about how teams are decentralizing or creating this hybrid model with some centralized oversight and coordination of this, but really decentralized and distributed teams. You called it a hub-and-spoke method of this, but it's not just it goes beyond that. You're seeing, and you've reported in your paper, that you're seeing sustainability folks in finance, in procurement, in operations, really, distributed widely through the company. Why is that?  

Andrew Jones: Yeah, it's a really interesting trend to watch and I think perhaps to answer why Steve, I think it just reflects perhaps the recognition that sustainability commitments and investments and projects only deliver real lasting value when they are influencing the day-to-day decisions in these core functions, right? Whether it's finance, operations, procurement, HR.  

Otherwise, I think sustainability risks being siloed or even a kind of standalone communications exercise. Sowe're seeing continued trends into the integration of sustainability into the business. And actually we did some interesting work on this. Our recent report really sets out some interesting survey data when our surveyed audience, which is a very senior ESG and sustainability audience, told us that they are really currently most integrated with legal, procurement, with operations and communications.  

I think this reflects where environmental and social issues have perhaps been most visible and most measurable in recent years. Whether it's in regulations, it's in communications and reports, it's in supply chains, it's in facilities.But at the same time, they told us, still relatively nascent in key areas like finance, innovation, risk management, which I think indicates real potential to embed sustainability deeper into some really core areas of the business, right? Where it's product design, talent management, capital allocation. 

The good news is that the same audience also told us that these are some of the areas they really expect to see embedding over the next two years. And there's been a lot of very deliberate and intentional focus, in particular, in finance. 

Steve Odland:Yeah. And there needs to be far more sustainability integration in R&D functions because that's where you're defining what the products are going to look like, how the manufacturing is done, all the engineering behind that. And you've got to engineer in sustainability into the product as you're designing it and commercializing it. So that's another whole area. 

It strikes me, Andrew, that this whole area of sustainability and how people organize their teams and so forth has followed the trends of human capital organization and finance organization, where maybe at one time it was a centralized corporate function, but while there is some level of corporate oversight, you're seeing distributed teams. Soyou've got a finance person on smaller teams, on smaller business units in order to help guide that business unit. Or human capital folks down more deeply into the business unit. 

And it's not that they just work independently, they work with the business unit heads, but they're coordinated more centrally. And so it strikes me that sustainability and its evolution of how it's managed is following the exact same processes.  

Andrew Jones: Yeah, I completely agree. I think it's a really nicely, nicely put example. I agree. And perhaps Steve, maybe that shows us that perhaps this is a natural evolution, as issues move up the agenda, and they mature and awareness grows, and you do that foundational work of building a function and building an agenda and building buy-in and getting oversight. 

Now that then naturally matures, and the focus moves towards sort of integration and distillation and percolating and weaving these areas of expertise across the business. Not for no reason, but because these are business priorities, and it drives and advances the business and enables the business to be more competitive. 

To use your example, whether you have finance professionals distributed around or you have even capital professionals distributed. And the same thing's happening to sustainability, and we're seeing sustainability, either sustainability folks popping up in other functions or alternatively, experts in other functions upskilling in sustainability. And it's bringing everything closer together. 

Steve Odland: That's a really important point that you just made, because a lot of companies fight this a little bit. Cause they say, look, we can't afford this overhead. All these additional heads distributed throughout the organization. 

What you just said is upskill your existing folks. So you find the people who are most apropos to the business unit. And again, every company is different, but you teach them what's relevant about sustainability, and you enable them to not only do what they were doing before, but also add this as part of their job. 

Andrew Jones:Yeah. Yeah. And I think this,it'san important point, cause obviously, there's reasons why to do that from, I guess, an efficiency standpoint and a resources standpoint, a headcount standpoint. I think also upskilling and training employees who already understand the company systems and culture can be often more effective than hiring new outside specialists who are great but perhaps are unfamiliar with the organizational context. 

And we did pose some of these questions in our recent research, Steve, and we found some really interesting findings. We actually looked into where sustainability heads felt that they had the big talent gaps or expertise gaps in their teams. And they pretty much all told us, it wasn't around the specifics of carbon accounting and water and biodiversity.They've got those covered.  

The big gaps are around financial modeling and business acumen. They're around change management and driving organizational shifts. They're around hardcore data analysis. I guess the question is, yeah, should sustainability teams be hiring new people to do that? Probably not. I think it's much more effective to leverage what you already have within the firm and upskill those individuals in sustainability, and upskill your own team in some of these broader kind of foundational enablers. 

So I think it'sa really interesting challenge looking at where the talent gaps are and also how you really weave together sustainability with these broader areas of the firm.  

Steve Odland: But this also means that our education systems need to evolve, because we were producing sustainability folks coming out of arts and letters kind of programs. They typically had a degree in whatever. I mean, just some liberal arts degree. It's evolved a little bit to be more scientific, but there needs to be a business approach. There should be a program in business schools because that's where the applied sustainability comes in. 

Cause in the old days, this was all about playing defense. You plugged in a sustainability person because you wanted to make sure that you de-risked and didn't have attacks on the company. The whole mindset has changed. We have evolved completely, and we'renow being proactive. We're building it in so that we engineer our products, so that we work our way back up through the supply chain so that there's the technical aspects of it, the engineering, on and on and on. But that requires different skill sets, all the way back up through academia. 

Andrew Jones: This is a very different kind of, I guess it'sbusiness acumen. It'sorganizational acumen. It's also being able to influence, right? Influence without authority, manage organizational change, have that strategic vision. And it is so interesting because we've heard from a lot of our sustainability leaders that we work with, they quite often report that this, and it's a rare mix, isn't it? But this mix of having technical expertise on the one hand, but also having the business and interpersonal expertise, that's often lacking in recent graduates and, and specialists. 

And I think there's a real appetite for more, to be able to find, uncover, and develop talent, sustainability talent in this direction, because these are the kind of skills that are ultimately going to help drive, change across the enterprise in the years to come. 

Andrew Jones: And what's the role of the board of directors in all of this?  

I think when it comes to sustainability, specifically, I think the board clearly has a really important role, right? The board, it sets the agenda, the board sets expectations. I think the boardhas to have very clear oversight and accountability, whether that's where it sits in a certain committee or a cross-functional steering committee and reporting lines up. The board has an important roleof governing sustainability and ensuring buy-in from the very top. 

I think when it comes down to these more specific issues around talent and gaps and the direction of the sustainability function and its integration across the enterprise, I think the board can really help support by, again, setting clear expectations, supporting, perhaps, those upskilling initiatives. 

And also, I think, also supporting the development of cross-functional steering committees. We found in our research there is one consistent strategy that helps really drive sustainability and integration, and it's having a well-resourced and credible steering committee, whether that's at the C-Suite level or below the C-Suite level. 

Steve Odland:We've talked about, Andrew, the evolution of sustainability over the past couple of decades. Where do you think it's going over the next decade?  

Andrew Jones: Great question. I think sustainability, just like business in general, will naturally evolve, and it will be shaped by broader trends and developments. But looking ahead, I do think the function and practice will continue to evolve in ways that collectively will shape a more disciplined, mature, and pragmatic discipline. And I really point to, I think, a few trends there.  

I think we will continue to see a rise in more regulated reporting. That we'll see sustainability information and data treated with a similar kind of rigorous financial metrics, with third-party assurance. That'sa big change in the space that has all kinds of implications. Perhaps moreexcitingly. I think we'll continue to see the integration of sustainability into the business, as we discussed today, and become less siloed and I think perhaps become more business as usual. The line between sustainability and everything else may become more blurred, as for all the reasons we spoke. 

And I think perhaps just more generally, looking beyond compliance and risk, just more actively driving tangible business value. And I think this speaks to one of your points earlier, Steve. I think this is perhaps where the real potential for sustainability is: to really get embedded into R&D and innovation and product design and really influence and inform how a company pursues innovation and market differentiation and new segment. 

I think that's where sustainability ultimately, it's there to some extent, but really needs to end up and really needs to evolve. And I think there's some really, obviously a lot of companies are doing some really exciting stuff in that space, and I think we'll continue to see that over the next few years. 

Steve Odland: Any final thoughts, Andrew, related to your paper? 

Andrew Jones:I'd just say, Steve, I think ultimately, when it comes to sustainability and how companies think about sustainability and approach sustainability and structure sustainability, I think the most effective companies are going to be those who don't just comply with compliance obligations. 

I think there'll be the ones who really leverage sustainability, and are innovative in their thinking, innovative in their structuring, and leverage it as a platform for innovation. And ultimately, sustainable growth, because that's what this is really about, right, at the end of the day. 

Steve Odland: All right, we'll leave it there. Dr. Andrew Jones, thanks for being with us today. 

Andrew Jones: Thanks so much, Steve. Always a pleasure. 

Steve Odland: And thanks to all of you for listening to C-Suite Perspectives. I'm Steve Odland, and this series has been brought to you by The Conference Board.