As the pressure grows on corporations to become more environmentally and socially responsible, so too do the responsibilities of today’s chief sustainability officer.
No longer focused narrowly on compliance and risk associated with a company’s environmental impact, chief sustainability officers now reach out to all constituencies—management, shareholders, customers, and employees—and convey the benefits of environmental sustainability to all.
“I cut across a lot of different functional areas,” says Rick Ramirez, vice president of sustainability and environmental affairs at carpet manufacturer Shaw Industries. “What you see today [in sustainability] is a broad-based initiative. It touches on corporate governance; it touches on our operational footprint; it touches on the design of our products. You’ve got to be able to develop relationships and speak the language of people in finance, human resources, business management, and operations.”
“The chief sustainability officer role is to make sure there’s coordination and make sure there’s a strategy,” says Andrea Moffat, director of the Corporate Program at Ceres, a coalition of investors, environmental groups, and public interest groups. “The biggest challenge is that you have to be very multifaceted and have a broad understanding of the business and the range of issues that are important now—and also be somewhat of a visionary.”
Integral to the sustainability chief’s job is the ability to make the business case for sustainability to senior executives and shareholders, as well as customers and employees.
“There are a lot of companies that are saying they’re green. The green-washing seems to be of tsunami proportions of late,” says Ramirez, who joined Shaw last summer and oversees more than 100 sustainability-related initiatives, collectively called the Green Edge. “What we were trying to say with the Green Edge is: Hold us accountable.”
Sustainability and compliance are closely linked at his company, Ramirez says, but the details of regulation are left to the compliance chief; he focuses largely on opportunities.
An ‘Evolving Role’
There are as many organizational structures for sustainability initiatives as there are titles for those leading them. Sometimes such efforts fall under the compliance officer’s purview. Others go under the chief financial or chief risk officer’s realm or under someone else entirely.
“There isn’t really a ‘typical’ in this area, in terms of a chief sustainability officer or a chief green officer. I think it’s a very early and evolving role for companies,” says John Davies, vice president of the Sustainability Forum at AMR Research.
“There’s a growing consensus that companies that take care of [sustainability] issues in a thoughtful and proactive manner are also some of the best managed companies.”
— Richard Pearl,
Increasingly, the position is filled by a senior-level manager with the skills and expertise to create and oversee strategies to maximize opportunities. At State Street Corp., for example, the sustainability program is headed by Richard Pearl, vice president and corporate social responsibility officer.
Pearl heads State Street’s community affairs division, and his group reports to the corporate risk department. Recognizing that environmental awareness is a growing matter and climate change-related regulation could be only a few years away, however, Pearl says sustainability efforts could migrate to another area of the company.
Pearl says State Street’s customers do ask how the company addresses environmental issues, and entire sections in business proposals are dedicated to sustainability. And that is a change to reflect modern times: Historically, Pearl says, the 216-year-old firm approached sustainability from the standpoint of reputation protection. Now it sees it as a more direct benefit to the bottom line.
“There’s a growing consensus that companies that take care of these issues in a thoughtful and proactive manner are also some of the best managed companies,” Pearl says. “Increasingly we’ve seen that, in fact, there’s a stronger business case” for sustainability.
Last year, the financial services firm formalized its sustainability initiatives—which fall under the broader umbrella of corporate responsibility—by launching a working group made up of staff from across the company, including human resources, sourcing, marketing, legal, and real estate, as well as remote offices. Taking it a step further, this year State Street launched an executive vice president-level sustainability committee.
“I look at that as a signal from the top that the work that has been done over the last five or six years is really important to the company,” Pearl says. “Now it has received top-level exposure.”
Connecting the Dots
For a sustainability program to be effective, measurable objectives have to be established with a view to the bottom line, according to Davies.
“A lot of people hear about sustainability, and they think it’s this soft role,” he says. “Where it’s successful, it’s driven by very precise metrics. You’re looking for someone who’s going to approach it from the business perspective and can explain it from the business benefit perspective.”
Part of Ramirez’s job at Shaw is to identify those metrics that provide the key indicators of performance. At the top of his list are energy use and waste production, he says. At one of the company’s manufacturing plants, waste from carpet and wood is converted to steam energy, saving more than 2.5 million gallons of fuel oil annually and diverting 21,000 tons of waste from landfills. At another plant, Shaw recycles “Nylon 6” carpets into raw material used to make new carpets. The company takes back 100 million pounds of Nylon 6 carpet annually.
As a company, Shaw is assessing how much energy and resources are used in making carpet to better measure the bottom line of its recycling operations. Preliminary results suggest that production from recycled material versus fresh raw material is competitive in fuel use, Ramirez says—and with rising oil prices, the economic benefit will become increasingly apparent, he adds.
“All of this has to do with creating value for our company,” Ramirez says. “One of the things we’re doing is capturing the cost avoidance that comes with sustainability initiatives. The best way to make the business case is to show the bottom-line impact on cost reduction.”
The Price of Carbon
Behind the expanding scope of the sustainability chief’s role are factors such as climate change and rising fuel prices. Many experts expect the United States to adopt a trading system for carbon emissions in coming years, which more and more companies view as both burden and opportunity.
Davies, who brings together sustainability managers from diverse industries, has found that while every company approaches sustainability in its own way, one theme across sectors is the need to address greenhouse gas emissions and the cost of carbon.
“What are going to be the business drivers when there’s a price on carbon?” Davies asks. “The price of carbon will then be a component in a company’s ROI.”
Davies also predicts that compliance and risk officers will take on more responsibilities in sustainability as new carbon-trading regulations emerge. “They will start to ask: Can I get a revenue boost out of this? Will there be new markets that open up?” he says.
Ramirez is asking similar questions at Shaw. The company is getting a jump on future regulatory requirements by conducting an inventory of its greenhouse gas emissions, which it expects to complete later this year, he says.
“With likely legislation, we’ll be in a position to understand what benefits we have under a cap-and-trade scheme that is likely to emerge,” Ramirez says. “Hardly a day goes by where you don’t see articles around energy, and tied to that very closely is the Holy Grail these days, which is greenhouse gases.”