The Role of Leadership Teams in Driving Progress on ESG and DEI
As companies increase their focus on environmental, social, and governance (ESG) issues, both the makeup and responsibilities of leadership teams are changing.
There’s been a rise in demand for executives to help drive and implement ESG initiatives, with roles like Chief Diversity Officers, Chief Impact Officers, and Chief Purpose Officers showing up more often on leadership teams of organizations across industries. But even though these functions are essential to a company’s approach to ESG and DEI, they are not solely responsible for progress on these issues. In fact, the success of a company’s commitments depends on the entire senior leadership team.
According to a recent report from Avetta, 79% of companies consider employee health and safety to be very important. And 63% say the same about reducing their environmental footprint. Statistics like these underscore the changing priorities of companies, especially those organizations focused on long-term growth amid changing stakeholder expectations.
To meet these new requirements, each member of the leadership team must understand the intersectionality of environmental, social, and governmental pillars and recognize the ways to help the company achieve its set goals.
Collaborating for ESG Progress
A successful ESG strategy recognizes that each pillar is inextricably linked. For instance, a company’s environmental focus will inevitably have a social impact as well. As Kindred member Laura Zizzo put it recently, “We don’t see climate as a subset of E in ESG. Climate is a lens to think through everything because there’s justice issues, there’s social issues. If we get climate change wrong, it leads to human suffering.”
In the same way, different functions within an organization are inextricably linked to the success of its ESG initiatives. Where corporate social responsibility (ESG’s precursor, if you will) may have been relegated to one function or leader to manage and maintain, ESG and DEI must be integrated into the core business strategy.
An inside-out approach will require the buy-in and participation of different areas of the business, including product, marketing and communications, HR, revenue, and operations. For instance, if you’re an e-commerce company with a goal to reduce your carbon footprint, achieving this goal may involve changes to how you source raw materials (operations), develop your products (product), and choose your shipping partners (operations). You’ll also need to think about how these changes impact your bottom line (revenue/finance), how you communicate changes to customers (customer success and marketing), and how you report on your new goal and progress.
While all departments will need to work together to meet the company’s set goals, there are a few key areas where participation of the leadership team is crucial.
Laying the foundations
When it comes to laying the foundation of an ESG program, your company will want to conduct a materiality assessment, which will help identify core issues that impact the business, industry, and key stakeholders. Then you should review operations, policies, and practices to see where you can make a positive impact.
While a Chief Sustainability Officer (or an external firm) may lead the charge, defining the company’s focus and tying it to your core values requires the input of the entire leadership team.
Leadership collaboration at this stage of the process is crucial as it ensures alignment at the top level. It also puts senior executives in a better position to communicate clearly with their teams. While a Chief Purpose Officer can help ensure employees feel connected to the corporate purpose, team leads and department heads can also keep the teams informed of what goals have been set, why these work for the company, and how each person’s role contributes to the overall goals.
The financial implications of an ESG focus is the thread that underlines a company’s approach to these issues. Taking action toward building a responsible business will require significant changes that will impact the company’s bottom line and long-term financial sustainability.
The Chief Financial Officer’s role has evolved to be a key player in developing a company’s sustainability strategy as they are uniquely placed to connect the dots between the investment and the bottom line. As ESG disclosures become more commonplace—as seen in the SEC’s recent climate-related disclosure proposal— the CFO is also well-positioned to handle these disclosures, particularly for material ESG topics that have financial implications. Plus, companies are also more likely to embed ESG into core management processes when the CFO is accountable for ESG metrics, per an Accenture study.
When you consider that a company’s ESG focus may necessitate changes to its product development, supply chain, and other lines of business, it’s impossible to underestimate the importance of including finance in the decision-making process.
Widening the lens beyond internal processes and practices reveals other specific areas where the c-suite helps drive ESG progress. The CMO and marketing leads bring a unique in-market perspective to the planning process. They can also help craft messages to share the company’s story with different relevant audiences and stakeholders.
As the company moves from intention to action, this function works in tandem with the rest of leadership to ensure the company’s story (including progress) is told in an authentic way that is true to the brand and avoids potential greenwashing.
ESG In Action: Enhancing Workplace DEI
What might leadership collaboration on ESG look like in practice? Let’s consider a company focused on improving diversity, equity, and inclusion. Some may see this goal as the primary responsibility of the Chief Diversity Officer or HR or, occasionally, a hiring manager. Addressing the talent pipeline is important, but to truly move the needle, you’ll need to consider more than just new hires.
A real commitment to improving workplace DEI starts with leadership alignment on the importance of this focus to the company. From there, the commitment must be reflected in the leadership of the company and internal promotion and compensation practices. Leadership must also be intentional about creating a culture of inclusion where all employees feel a sense of safety and belonging. Additionally, accountability measures, such as tying executive compensation to diversity metrics and transparency in reporting, must be present.
A focus on DEI should extend beyond the company’s internal practices to consider representation in marketing and communications, the impact of the company’s practices on the community it serves, the values of the partners and vendors it chooses, and how the company contributes positively to the society around it.
Each of these considerations requires the input of different lines of business, as well as their participation, in order to develop and execute a strategy that champions equity, diversity, and social impact.
As companies increasingly make commitments toward social responsibility, it’s important they approach their goals with the perspective that leadership involvement is linked to the success of said goals. Only through a process of collaboration coupled with a cognizance of their unique roles will leadership teams set the stage that leads to progress.