Sustainability legislation is mushrooming at a record pace. The growing regulatory reporting requirements are putting many businesses under strain, particularly during difficult economic times. So, who in the C-suite should take responsibility?
This year alone, the UK’s Financial Reporting Council – which regulates auditors, accountants and actuaries – plans to significantly tighten its environmental, social and governance (ESG) reporting rules for large companies, as contained in the UK Corporate Governance Code.
Momentum is also gathering behind a proposed ‘Better Business Act’ to replace section 172 of the Companies Act 2006. This could theoretically require private-sector organisations in the UK to take real ownership of their social and environmental impacts.
The EU, meanwhile, has a raft of new regulations either coming into force or looming on the horizon. Chief among these is the Corporate Sustainability Reporting Directive. From next year, most companies with operations in the EU will be required to publish regular reports on their sustainability activities, in line with a rolling timetable based on size.
So, who should be in charge?
The picture today appears quite mixed, with everyone from CEOs to CFOs, chief sustainability officers (CSOs) and even chief people officers taking the lead. Company secretaries and general counsel are also increasingly engaged in due diligence and information disclosure activities because of rising levels of litigation and greenwashing investigations.
Paul Crewe is executive director and CSO at sustainability consultancy Anthesis Group. He thinks that in an ideal world, reporting responsibility should lie with the CFO, something that is increasingly the case. “Financial data and ESG reporting are intrinsically linked … given the increase in mandatory reporting, the CFO’s role in taking an overall lead on ESG reporting is one that is increasing,” he says.
The CFO is also best placed to support investment in the organisation’s sustainability impact programmes. Where such investment is significant, responsibility for reporting often broadens to include responsibility for enabling the wider sustainability vision, Crewe adds.
But in his view, the “real marriage made in heaven” is when the CFO partners closely with the CEO. This was the setup when he served as the CSO of Sainsbury’s, where he reported in to both positions.
The CEO’s role in this instance was to set the broader sustainability vision, take overall accountability for the direction of travel and drive change. As CSO, Crewe’s focus was on engagement, communication and embedding the strategy throughout the organisation.
This included making the leadership team aware of emerging standards, new legislative requirements and market trends. But it also entailed supporting functional heads in working together and ensuring they were clear about the part they played in delivering the strategy.
The overlap between sustainability and people
Bupa has taken a somewhat different tack. Group CEO Iñaki Ereño laid out the private healthcare provider’s sustainability vision and kickstarted its adoption when he took the role in 2020. However, chief sustainability and people officer Nigel Sullivan takes day-to-day responsibility for the strategy, as well as chairing the company’s Sustainability Steering Committee (SSC).
The SSC reports in to both the chief executive’s and the board’s sustainability committees. Its role is to drive Bupa’s progress towards its ESG goals, while it also oversees all aspects of mandatory and voluntary ESG reporting.
Glyn Richards, who reports to Sullivan, is group director of sustainability. Part of the thinking behind adding sustainability to his boss’s brief in May 2021 was that “ESG isn’t really a separate subject – it’s about how we run the business,” Richards says.
He believes the company’s 85,000 employees play a major role in embedding ESG matters into the overall operations and culture. What’s more, because the majority are employed in customer-facing roles, they also act as advocates for sustainability beyond company boundaries.
“It’s hugely powerful in terms of behavioural and system change, so marrying the sustainability and people agenda makes sense,” Richards says. “It’s about making the entire business more sustainable.”
To help embed this change across the organisation, Bupa ensures that representatives of each of its market units sit on the SSC and not only implement and embed strategy locally but also report back quarterly on outcomes.
To support the company’s decarbonisation agenda, the group CFO – another key SSC member – manages a separate sustainable finance team. This handles carbon accounting and forecasts the carbon impacts of major business activities, including mergers and acquisitions.
How to win hearts and minds
Legal and professional services group Ampa achieved B Corp status at the start of this year, meaning it now has a legal obligation to consider the impact of business decisions on all stakeholders, including employees, customers and the environment.
Its head of sustainability oversees reporting on quarterly targets, which are set across the organisation’s three ESG streams of people, environment and communities. Other reporting requirements are overseen by functional heads, but all data is signed off by group CEO Sarah Walker-Smith and her COO.
Accountability for the overall “responsible business agenda”, meanwhile, falls to the wider board, explains Walker-Smith, who isn’t convinced that current reporting standards hit the mark.
“There’s statutory reporting, but I don’t think it goes far enough and it needs to be more joined up,” she says. “The measures we’ve set ourselves go further than that. The question of whether we’re being a responsible business is at the heart of our strategy.”
As a result, the group chooses not to use the term ‘ESG’, as that implies sustainability is an add-on rather than being “in the DNA of how we do business”, Walker-Smith says. “Winning hearts and minds” across the group is what makes the difference, she explains.
The ‘hearts’ element, for instance, involves communicating the company’s purpose in wanting to “drive change in the business for good”, Walker-Smith says. Meanwhile, the ‘minds’ aspect means understanding that to achieve commercial success in the medium- to long-term, you simply have to behave responsibly as a business.
“The war for talent is rife, customers are asking for it too, and increasingly stakeholders are expecting businesses to operate in this way. It’s clearly the direction of travel, so you might as well own it,” Walker-Smith concludes.