When Richard Manley, chief sustainability officer at the Canada Pension Plan Investment Board, joined the organization as managing director and head of sustainable investing in 2019, global financial markets were slowly dialling up the focus and integration of environmental, social and governance factors into investment strategies.

Over the last three years — amid the ongoing coronavirus pandemic, increasing awareness around climate change and the rise of social justice movements — that focus has only grown, shining a spotlight on the CSO role.

“Great companies today are not just financially sound and operationally excellent — they really do appreciate that the dynamics that have been created by seeking to meet the needs of eight billion people in a globally connected environment are creating externalities and tipping points associated with some elements of business as usual that are rapidly changing consumer expectations and regulatory expectations,” he says.

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By the numbers

30% — The percentage of public companies that have a formal CSO role

394 — The number of public companies that added a CSO between 2020 and 2021, compared to 414 that added the role between 2011 and 2019

28% — The percentage of CSOs at the executive level in 2021, up from 9% in 2016

Source: Pricewaterhouse-Coopers report, April 2022

Manley leads the team responsible for refining and enacting a strategic roadmap to help the CPPIB navigate the global transition away from fossil fuels. He notes investees that effectively anticipate and mitigate sustainability risk while capitalizing on the related opportunities are likely to make more informed business decisions and yield superior business outcomes over the long term.

“When we take that orientation from the boardroom into the investment committee, we are firmly of the view that, as investors, we are able to identify the companies that are managing their business in that way [and] we should be able to deliver a superior investment return for our contributors and beneficiaries.”

Connecting sustainability to business strategy

Outside of institutional investors, CSOs are most likely to be found at organizations that directly deal with sustainability issues, such as companies in the energy and natural resources sectors, says Dustyn Lanz, a senior advisor with ESG Global Advisors Inc.

Two of Canada’s big banks — the Bank of Montreal and Scotiabank — also have a CSO, he adds. “The [responsibilities of the role] vary widely depending on what [the company’s] leadership wants from the role. If the leadership wants a strategic leader, then they’re going to hire somebody responsible for developing a sustainability strategy and integrating it into the business. If leadership wants an external-facing type of candidate for the job, they’re going to hire an ambassador to represent the company in external or public settings, for example, by engaging with governments and NGOs.”

Read: Clear, consistent guidelines required for integrating sustainability in investment decisions in Canada: report

The effectiveness of a CSO depends largely on their ability to influence organizational strategy. Conversely, if the CSO is a few steps removed from leadership, it raises questions about how seriously the company views sustainability. “If the CSO reports to the chief executive officer or has a line to the board through a corporate secretary, for example, then that CSO also has the ability to influence strategic decisions at the top of the house,” says Lanz. “I would say that’s the ideal situation with the greatest chance of connecting sustainability to business strategy.”

Last year, both the Canadian Securities Administrators and the U.S. Securities and Exchange Commission proposed requirements for publicly-traded companies to disclose climate-related information. In light of these proposals, Lanz expects the role of the CSO will become increasingly important in the coming years. “The companies that are linking the CSO to the top of the house are going to be best positioned to ride that tidal wave of transparency that’s coming.”

Manley agrees. “It’s clear that we don’t necessarily have all the regulation that [regulators] intend to pursue to deliver that outcome, but they are setting the tone now — that businesses that seek to continue to operate and thrive in the largest economies in the world need to seek to decarbonize their businesses comprehensively over the next three decades.”

Blake Wolfe is the managing editor of Benefits Canada.