In our recent report on Integrated Sustainability we shared our thinking about how sustainability teams should be designed. It’s a challenge which many companies are facing as the regulatory landscape encourages them to expand their focus on ESG across their business. In this article we explore the topic further, sharing our experiences from working with clients about the pros and cons of different approaches to designing the right team for your business.
Setting the scene
Regulators globally are increasing their focus on how companies are managing ESG within their business. From mandatory disclosure requirements to reducing packaging waste, there’s a complex array of national and international regulations having an impact. To respond, companies are recognising the need to integrate sustainability more deeply into their operating model.
A key part of the change companies are going through is how to organise their teams. For most companies, sustainability has been managed by a small corporate team. The team is led by a member of the executive leadership as either a dedicated or duel role. Some may find this the best model for them, but many will realise that to respond to the regulatory shifts will require a rethink about team design.
Build the team that works
What’s important to keep in mind is that there is no single model which every company should subscribe to. Every business has its own context and the right design for you is the one which works best for that context. Attempting to force a certain model on the business when it isn’t appropriate will not only inhibit progress now, it will also to have a lasting affect on confidence across teams which will create uncertainty in the future.
That context for the business includes which aspects of sustainability the company is focused on. Double Materiality Assessments help to identify and prioritise the right topics and performing one is advisable before considering the design of the organisation. Once identified, it may be apparent that some ESG subjects are only relevant for some parts of the business, which will also have an impact on the design of the team. Being prepared to take a hybrid approach will be helpful.
Decision Making Authority
A key consideration when planning your org design is where the decision making authority will site. For most companies, this starts in the centre. A corporate leader is assigned the responsibility for sustainability and is empowered to make decisions on behalf of the company. As things become more integrated into business units, the authority will shift out towards business units (BU’s).
This isn’t a universal truth; some companies empower BU’s to make decisions from the start, but for the most part it is true. As ESG management becomes an integral part of corporate governance, it is likely the company will have to reconsider their approach, and a new level of autonomy will be required.
models to consider
There are five key models which we’ve identified which have the most value to companies. There are probably more and hybrid varieties of these which will also be useful, but we feel these serve the most purposes.
The Lone Ranger
No, not the masked hero from those black and white TV days, but they are often a hero. We are talking about the inaugural Chief Sustainability Officer (CSO). This is typically where companies begin allocating resources to working on sustainability. These are executive leaders, reporting to the CEO or one of their directs, and tasked with defining the companies initial approach to sustainability.
This person will often take on the task of baselining the companies footprint, developing an emissions reduction plan, and other business specific strategies for sustainability. They often do this alone, with limited resources and only a passing interest from business units. Despite this, they have driven change across thousands of businesses. Many companies are now on their second or third leader in this role, but we see this model being unlikely to continue for a number of reasons.
The CSO is usually empowered to make some key decisions, but often doesn’t have the authority to force change in business units. Therefore, their skill sets include the power of influence. Coercing business leaders to work with them to achieve results. Effective, but hard to scale and therefore limited in their impact for ESG matters other than the biggest headline topics.
heroes
At some point, the CSO is given their own resources. These often precious few specialists help to relieve the growing pressure on the CSO, adding some capability to deliver actions in response to growing external requirements related to sustainability.
This team will often include an emissions management expert, perhaps also someone with supply chain engagement experience, and some people with business specific ESG knowledge, such as water management where relevant. Together they give the CSO an increased capability to drive impact across the business.
The team are often quickly consumed though. External demands such as EU Taxonomy, TCFD, and the company’s annual report quickly fill their task lists. Senior executives increase their expectations on the team, but often fail to understand the already growing demands on their time. The team help to move the sustainability agenda forwards though, and put in place the first ESG information management approaches to feed into the tasks at hand.
The decision making authority is still sitting with the CSO and together the team are the forming of a new corporate function. It is rare that they report to BU’s, and therefore still rely on managing through influence.
Controllers
Increasing requirements to manage ESG matters at a BU level leads to a distribution of corporate resources into BU’s. These ESG controllers are allocated to work with operations teams in a similar way to how financial controllers are distributed from central finance.
These sustainability professionals bring with them expert skills to help each business unit take control of their material topics. For the first time, the contextualisation of ESG for a BU is coming into focus. The potential for much greater impact is significant.
The controllers provide a level of consistency in approach. They report back to the CSO’s central function where the decision making authority still sits. There is potential to start the makings of a knowledge exchange across controllers, sharing the experiences they have within their BU’s. This will help to accelerate progress and increase impact, as best practices are exchanged and knowledge is increased as a result.
For the BU’s this is likely to be welcomed. The provision of central resources avoids the costs to the business, reducing the potential for friction. If managed correctly, this will be seen as a big positive by BU’s. There is a risk that they see this as sustainability happening to them, and a lack of a sense of agency. This is an obvious evolution of organisational design, but one which needs to be thought through and managed.
Collaboration
To respond to the lack of agency and to also transition the business into managing their own resources, the sustainability professionals are supplied by the BU. This helps to integrate ESG into their everyday activities and also builds accountability in the leaders of the BU.
A key benefit of this model is that it provides for the business to bring their own understanding of their context into consideration. This is critically important when taking action against the more nuanced ESG matters. By providing their own resources, with direct lines of management into BU leadership, the team will be closer to the business which will bring benefits.
It is important to maintain a strong connection outside of the BU too. By keeping at least some elements of decision authority in the centre, the BU resources are required to collaborate across boundaries. By fostering a community culture, this has significant benefits to building knowledge and sharing of best practices across silos.
BU Empowerment
The final model in our collection is perhaps the most advanced. The BU’s take on full responsibility for sustainability within their domain, providing all the resources and taking the decision making authority away from the centre.
This has the potential to drive significant impact in ESG matters relevant to each business and if managed well, will see the company excel in sustainability performance. There are risks though. Through decentralisation, there is potential for duplication of effort, inconsistency of approaches and silos of data. These may cause issues for annual integrated reporting at a minimum and potentially create regulatory risk in the extreme. There will be an increased burden on governance, risk and compliance (GRC) teams in this model.
Many of the risks can be mitigated by developing a clear operating blueprint for BU’s to follow in relation to ESG. The current regulatory landscape provides a set of requirements which will help to accelerate this work and may present an opportunity for companies to transition to this model more quickly than they anticipated.
The CSO still remains, but has abdicated decision making for the majority of matters to BU’s. The leadership the CSO provides remains in the centre, ensuring the corporate sustainability objectives are being achieved by the approach taken by BU’s. They form the single point of convergence of operational information and progress, giving them a vantage point to make strategic changes when required. The CSO also provides arbitration when difficult decisions need to be made and can collaborate with compliance teams to help translate emerging regulations into consumable language.
This is a model which most businesses will strive towards. It suggests a level of maturity many are pursuing and an adoption of sustainability into business as usual. There are risks if this action is taken too soon though which need to be considered.
Pros & Cons
Each of these models have their merits and down sides.
| Model | Pros | Cons |
|---|---|---|
| Lone Ranger | - Clear ownership - Strategic focus | - Macro focus limits ability to act at BU level - Limited execution capability - relies on managing through influence |
| Heroes | - Centralised information management - Establishes corporate ESG function - Respond consistently to external reporting needs | - Limited scale of impact - False hope in expectations - Focus on external requirements |
| Controllers | - Direct engagement with BU's - Consistency in approach - Rapid sharing of knowledge - Low friction of adoption | - BU's not incentivised to act - Limited BU agency in decision making - Cost to the centre may be unsustainable |
| Collaborate | - BU's have skin in the game - Strong support from centre - BU context starts to have primacy - Community building will accelerate progress | - Potential for silos to form - Tensions may form between centralised use of BU resources - |
| Empowerment | - BU's fully responsible for sustainability - Actions address specific contexts - Knowledge sharing across the community will amplify impact | - Potential for divergence in methods causing inconsistencies - Risk of silos forming high - Adopting the model too quickly will introduce regulatory risks - Variability in commitment from BU's due to conflicting priorities |
How can Jordisk help
Our work with a broad range of clients has helped us to understand the pros and cons of each of these models. By working with us, we can help you benefit from the experience of others to shape the right organisational design for your company. The regulatory expectations ahead will place demands on your organisation to coordinate efficiently and effectively. With our help, you can avoid risks and accelerate progress towards making sustainability business as usual. Get in touch to speak with one of our team.
