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WHO SHOULD BE THE CHIEF SUSTAINABILITY OFFICER? EXPERT ADVICE ON THE IDEAL PROFILE FOR THE CSO

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WHO SHOULD BE THE CHIEF SUSTAINABILITY OFFICER? EXPERT ADVICE ON THE IDEAL PROFILE FOR THE CSO January 2010

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EXECUTIVE SUMMARY Global firms like Cisco, The Dow Chemical Company and Orange have appointed senior execs to lead their organisations’ climate change and sustainability (CC&S) initiatives. Whilst the job titles vary the responsibilities are similar: improve sustainability governance, develop climate change strategy, launch climate change and sustainability products and implement policies that move the organisation on a global basis towards strategic sustainable business goals. This report explains why the Chief Sustainability Officer (CSO) is needed, defines the role of the CSO and provides a profile to guide the appointment of a CSO. For success, the CSO requires broad functional experience and a strong personal network within the firm based on at least 10 years of service. To help Boards identify suitable candidates for the CSO role Verdantix interviewed 33 industry experts working in the climate change and sustainability sector.

TABLE OF CONTENTS

FIGURES & RESOURCES

DEFINING THE ROLE OF THE CHIEF SUSTAINABILITY OFFICER

Figure 1. Chief Sustainability Officers Need Business Transformation Experience

Firms Face A Climate Change And Sustainability Management Deficit

Figure 2. CEO Checklist To Appoint The Ideal Chief Sustainability Officer

Fixing Sustainability Governance Gains Urgency In 2010

COMPANIES MENTIONED

The Chief Sustainability Officer Spearheads Business Transformation Who Is The Ideal Candidate For The Chief Sustainability Officer Role?

Allianz Insurance, British Airways, BT, CA, Carbon Systems, CH2M Hill, Chrysler, Cisco, Deloitte, The Dow Chemical Company, ECX, Fiat, Ford, General Electric, General Motors, Hara, IBM, IHS, Kroger, McKinsey & Company, Microsoft, Norman Broadbent, Orange, SAP, Shell, Siemens, Tesco, Toyota, Unilever, UTC.

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VERDANTIX — WHO SHOULD BE THE CHIEF SUSTAINABILITY OFFICER?

DEFINING THE ROLE OF THE CHIEF SUSTAINABILITY OFFICER Global firms like Cisco, The Dow Chemical Company and Orange have appointed senior individuals to lead their organisations’ climate change and sustainability (CC&S) initiatives. Whilst the job titles vary the responsibilities are similar: improve sustainability governance, develop climate change strategy, launch climate change and sustainability products and implement policies that move the organisation on a global basis towards strategic sustainable business goals. This report explains why the Chief Sustainability Officer (CSO) is needed, defines the role of the CSO and provides a profile to guide the appointment of a CSO.

Firms Face A Climate Change And Sustainability Management Deficit Hidden from view, a severe management deficit exists in the governance of climate change and sustainability risks and opportunities. Based on recently published Verdantix case studies we found that the management deficit results from: 

Proliferating climate change and sustainability initiatives. A combination of new regulations, managers motivated to change business practices to mitigate climate change and innovative vendors has resulted in a slew of un-coordinated CC&S initiatives across firms. Finance managers toy with carbon data analysis tools from vendors like Carbon Systems and Hara, fleet managers discuss electric car trial projects in locations like Denmark and Hawaii, plant managers dream up schemes to slash equipment energy consumption by 20% with suppliers like General Electric and UTC.

Stop-gap organisational changes that overload existing staff. The Great Recession from 2008 to 2009 slowed ambitious climate change plans cooked up by enthusiastic CEOs at the World Economic Forum meeting at Davos in January 2007. The result? Today’s orthodoxy on organisational design for sustainable business is to embed responsibility in lines of business using existing headcount. So CSR Directors select and implement complex software systems with little help from IT. Global energy managers in the US beg and borrow time from site managers in Brazil to collect energy and carbon data.

Lack of executive focus on sustainability risks and opportunities. Beyond the ranks of the world’s top 50 corporate sustainability leaders — firms like Allianz Insurance and Unilever — few execs spend time mulling the risks and rewards posed by carbon policy, waste regulations, water scarcity and public procurement criteria emphasizing sustainability. Insufficient interest from the C-Suite creates yawning competitive gaps. Look at the brand benefits achieved by General Electric’s ecoMagination programme in comparison to Siemens and Toyota’s lead on hybrid vehicles relative to Chrysler, Fiat and General Motors.

Immature understanding of the scale of changes required. As CEOs pick through the wreckage of failed banks, costly credit lines, indebted consumers and falling business investment it’s no surprise that grappling with the long-term impact of climate change rarely — if ever — appears on the agenda of the Board of Directors. But this strategic void perpetuates a piecemeal approach to a complex set of challenges which will, over the next 10 years, disrupt entire value chains such as automotive and aviation.

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VERDANTIX — WHO SHOULD BE THE CHIEF SUSTAINABILITY OFFICER?

Fixing Sustainability Governance Gains Urgency In 2010 Firms face a management deficit on climate change and broader sustainability issues because many managers pursue unco-ordinated goals and few executives spend time focusing on potential risks and opportunities from the transition to a low carbon economy. Now is the time to re-examine climate change and sustainability governance because: 

Time is running out to prepare for a transformation by 2020. Around the world, energy and climate policies target economy-wide GHG emission reductions of 5% to 20% by 2020. Defensive PR stunts offering to reduce emissions by 2050, put forward by firms like British Airways as recently as September 2009, now have no credibility (see Verdantix British Airways Operates Defensive Climate Change Plan). Creating a low carbon business model will take decades: US grocery chain Kroger took 20 years to switch its store portfolio from small 1950s-style stores to out-of-town super-stores.

Sustainable product and service innovation offers hope for topline growth. In 2009 global GDP fell by 0.9%. Developed economies contracted by 4% to 6%. To maintain profitability firms like Ford, IBM and Shell cut jobs and investment in 2009. After 6 consecutive quarters of cost cutting, profits need to be rebuilt from revenue growth as untapped operational efficiencies dwindle. Innovators like Cisco and Orange appointed Chief Sustainability Officers to exploit climate change and sustainability growth markets — like telepresence — aligned with customers’ sustainability plans.

National climate change regulations raise compliance risks in 2010. The National Greenhouse & Energy Reporting System (NGERS) in Australia, the US Environmental Protection Agency’s GHG reporting rule and the UK’s Carbon Reduction Commitment (CRC) Energy Efficiency Scheme apply to thousands of companies in 2010. Company directors are liable for the compliance data reported to the government and most organisations still manage their energy and carbon data using Microsoft Excel. Risks from inaccurate carbon reporting exist today and will multiply in the future.

Competitive pressures make sustainability leadership a must have. Verdantix Green Quadrant® studies that compare comparable providers of products or services locate firms like BT, CH2M Hill, Deloitte, ECX, Hara, IHS and McKinsey & Company in the Leaders Quadrant. Why? Their Boards have responded to competitive dynamics by appointing a senior exec to lead climate change and sustainability programmes and back them with sufficient funds to drive competitive advantage. Firms with less developed CC&S strategies, according to the Green Quadrant studies, like Bain, BCG and Verizon urgently need to invest in stronger global sustainability governance and leadership.

The Chief Sustainability Officer Spearheads Business Transformation Stop-gap organisational responses to climate change are not sufficient to implement complex sustainable business strategies. Powerful market trends which increase risks and highlight opportunities exacerbate this management deficit. Firms need to switch from tactical Verdantix Ltd © 2007-2010. Reproduction Prohibited.

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VERDANTIX — WHO SHOULD BE THE CHIEF SUSTAINABILITY OFFICER? Figure 1. Chief Sustainability Officers Need Business Transformation Experience How important are the following types of functional experience for the CSO?

Business Transformation

48%

General Management

27 %

Product/Service Innovation

21%

Energy

21%

Environment Health & Safety

Information Technology 3%

18%

55%

27%

36%

45%

33%

Extremely important

6%

42%

39%

6%

55%

18%

48% Important

3%

27%

45%

9%

6%

9%

52%

18%

Corporate Social Responsibility

Manufacturing & Operations

42%

Moderately important

6%

30% Unimportant

Source: Verdantix

Totally unimportant n=33

responses to a strategic programme and appoint a senior executive who: 

Defines a 5 to 10 year sustainability strategy with the Executive Team. CSOs at firms like The Dow Chemical Company and SAP formulated multi-year plans and socialised strategy with Board members. This establishes the missing interface between funding priorities and the pool of business cases circulating in functional areas like IT and supply chain.

Implements a multi-year sustainable business transformation programme. Before being appointed, the CSOs we spoke with indicated that they only took on the role after establishing that budgets and authority went with the responsibility and accountability for CC&S activities. The CSO’s programme must get CEO backing to succeed.

Identifies significant revenue opportunities requiring C-Level investment. For the CSO’s programme to gain traction within the firm, there is a need to identify revenue generating opportunities. Witness SAP’s acquisition of Clear Standards soon after the Board decision at the end of 2008 to pursue sustainability as a strategic priority.

Creates firm-wide sustainability data management and metrics. Carbon, energy, water, waste and biodiversity data are rarely sufficiently detailed, accurate or consistent to set targets and make operational improvements. CSOs with more authority than their CSR colleagues launch global data collection, reporting and metrics initiatives.

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VERDANTIX — WHO SHOULD BE THE CHIEF SUSTAINABILITY OFFICER? 

Ensures the firm achieves energy efficiency and carbon reduction goals. Carbon management — internalising the cost of carbon and identifying least cost reduction options — is a focus for the CSO. CSOs invest in energy and carbon software and set reduction goals (see Verdantix Green Quadrant: Carbon Management Software).

Engages with policy-makers to align with energy and climate regulations. Regulatory decisions such as the January 2010 reductions in feed-in tariffs in Germany and the failure to agree on a second commitment period for the UN Clean Development Mechanism at the Copenhagen negotiations devastate business plans overnight. CSOs align strategy with forthcoming policy and regulatory decisions.

To succeed in this new and challenging role, the Chief Sustainability Officer requires broad functional experience and a strong personal network within the firm based on at least 10 years of service. To understand more about the background for success in this role, Verdantix interviewed 33 industry experts working in the climate change and sustainability sector. We heard that successful Chief Sustainability Officers require (see Figure 1): 

Business transformation experience to manage complexity. CSOs operate on the fringe of the executive committee, often reporting to the CEO or COO. Their primary mission is to formulate a multi-year business transformation plan and implement it over their 35 year tenure in the CSO role. Understanding the scale and complexity of the challenge is key. CSOs likely have experience in post-merger integration or restructuring.

General management background to ensure execution. Influencing multiple C-Suite execs and Business Unit leaders to agree to CC&S change plans is no easy task and requires 10 years of general management experience in the same firm. CSOs need to know what makes the key decision-makers tick and align the climate change and sustainability programme with big personalities and existing priorities.

Innovation expertise to evangelise disruptive change. A CC&S transformation programme composed entirely of operational efficiencies and compliance will not mobilise the organisation to change. CSOs need to work with product, marketing and sales leaders to design, launch and succeed with new CC&S offerings.

Industry experts also prioritised three areas of domain expertise: 

Corporate social responsibility for reporting and communications. CSOs build on the pre-existing work of CSR professionals who typically played a corporate marketing role with a focus on sustainability issues. Communicating sustainability performance to stakeholders such as the Carbon Disclosure Project, WWF, SRI investors and employee groups is the most relevant expertise.

Energy management to deliver efficiency gains and CO₂ reductions. According to our panel of 33 industry experts an understanding of energy management is essential for the CSO. This supports initiatives to identify and report back on energy cost savings and to ensure data collection for GHG reporting and brand communications. UK retailer Tesco licensed CA’s ecoSoftware for this purpose (see Verdantix Why Tesco Needs Carbon

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VERDANTIX — WHO SHOULD BE THE CHIEF SUSTAINABILITY OFFICER? Figure 2. CEO Checklist To Appoint The Ideal Chief Sustainability Officer CAPABILITY

EXAMPLE BEHAVIOURS -

Problem-Solving & Decision-Making Skills

-

-

Strategic Thinking Skills

-

-

Networking and Influencing Skills

-

Financial Results Focus

-

Change Management Skills

-

Crystallises key points from a mass of disparate information to make sense of complex situations Spots the real issues quickly (e.g. implications of Copenhagen agreement for own industry and business) Works effectively in relatively unstructured environments Possesses a broad based business knowledge (e.g. can contrib ute effectively to investment committee decisions) Acts according to commercial criteria (e.g. rather than as an evangelist for green/sustainability issues) Creates a vision for a Sustainability business strategy Maintains a big picture perspective through wider networks Scans a broad section of information sources to gather information for strategic input Seeks out best practice from other organisations in the areas of Sustainability and applies this to the business (e.g. in generating new revenue opportunities) Can shuttle between a focus on strategy and the operational implications of the strategic direction taken Builds extended networks of influence to shape agendas Communicates with gravitas; credible player at board level Skilled at stakeholder management (e.g. shareholders) Uses complex and multi-layered influencing strategies (e.g. understanding motives of others) to bring about sustainable change Knows the key influencers in own organisation and external networks and levers these relationships to get things done Presents the business case for sustainability effectively at C-Level Sets challenging goals for the business that reflect strategic imperatives (e.g. energy efficiency, enhanced brand reputation) Achieves goals overtime; resists any pressure to be deflected from this attainment Models a personal drive, commitment and energy to embed the issue of Sustainability into the culture of the organisation Perseveres in the face of setbacks to drive through business goals

Creates the readiness for change, sets out discrepancies between current (undesirable) state of affairs and the future desirable state Develops political support for the Sustainability agenda Manages the transition of change (e.g. through commitment planning and activity planning) Sustains momentum post change (e.g. provides resources for change and reinforces new and different behaviours) Takes account of a range of issues (e.g. technical, regulatory and cultural) when managing change

Source: Verdantix, Norman Broadbent Verdantix Ltd Š 2007-2010. Reproduction Prohibited.

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VERDANTIX — WHO SHOULD BE THE CHIEF SUSTAINABILITY OFFICER? Management Software). 

Manufacturing expertise to enhance natural resource efficiency. The role of the CSO extends beyond energy and carbon management into all areas of natural resource consumption. In geographies such as Australia and California, reporting water information relating to quality, quantity, cost and use is an essential part of the CSO role. Tightening regulations will continue to expand the remit.

Who Is The Ideal Candidate For The Chief Sustainability Officer Role? Experts concur on the need for CSOs to be first and foremost highly capable general managers backed up by domain expertise in CSR, energy and manufacturing. Verdantix worked with the global executive search firm Norman Broadbent to provide more insight into the ideal CSO profile (see Figure 2). Key capabilities and example behaviours are: 

Thinking skills to manage complexity. The CSO needs to crystallise key points from a mass of disparate information, work effectively in unstructured environments and be familiar with the various corporate decision-making fora.

Strategic thinking to establish a vision. The ideal CSO maintains a big picture with broad networks, seeks out best practice from other organisations and effectively shuttles between strategic goals and operational metrics.

Networking and influencing to shape beliefs. Since the CSO does not have a functional power base, he or she needs to leverage networks to influence thinking, manage many stakeholder groups and build credibility with key influencers.

Commercial results focus to maintain momentum. CSOs need to demonstrate early successes such as energy cost savings and brand enhancement. This requires strong egostrength to persevere in the face of scepticism and a lack of established processes.

Change management to achieve goals. To launch the CC&S transformation programme the CSO must create the readiness for change by setting out discrepancies between the current state and desired state of sustainability performance and manage the transition.

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Sustainability And Climate Change Business Research Verdantix is the leading provider of business research and strategic analysis to help firms change profitably with the climate. Clients access our research through individual reports, annual subscriptions and multi-client engagements.

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Research Plus The Verdantix research agenda is defined collaboratively with our subscription clients. We call this collaborative approach Research Plus. This element of our service ensures we align our research activities with client needs. Through experience we know that clients find it hard to articulate what they don’t know today. It’s also a challenge for clients to explain what they will need to know tomorrow. Our Knowledge Needs Tool stimulates thinking, identifies knowledge gaps and prioritizes research projects. The tool is based on Verdantix research into the drivers behind climate change and sustainability risks and opportunities.

Why Choose Verdantix Unique. Verdantix offers a unique knowledge service for individuals in charge of climate change or sustainability strategy, innovation, projects, products and services. Cost effective. Our subscription research model shares costs across multiple firms resulting in a much lower price point than consulting. Connected. We have privileged access to thousands of decision-makers in companies, service providers, academia, governments and financial markets. Quality. Our research is based on robust methodologies such as the Green Quadrant and Smart Vendors developed by experienced research professionals. Commercial. The Verdantix knowledge service focuses on providing commercial insights to help P&L owners deliver financial results and win support in budget negotiations.

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