Why Financial Institutions Are Looking In-House For ESG
For financial institutions, ESG is a topic that has dominated the corporate agenda in recent years. With internal and external stakeholders making decisions based on the perceived action of firms towards their environmental, social, and governance commitments, it has become a key strategic, regulatory, and moral obligation. It’s little wonder then, that financial institutions are seeking out individuals with the specific skills needed to lead in this transformation.
The rise of the CSO
As part of our mission to help financial institutions and fintechs adapt to today’s requirements, we at TISAtech partnered with our ESG ratings partner The Disruption House to survey decision-makers across UK financial institutions and found that 76% of them were looking to make a permanent in-house hire to lead their ESG activity. For many, this will mean the appointment of what is becoming a mainstay in financial C-suites across the world- the Chief Sustainability Officer, or CSO.
According to Deloitte, the CSO’s role is threefold- they help organisations make sense of the wider environment, they determine how their business strategy can align with societal and regulatory trends, and they communicate and implement these changes throughout the firm. The CSO is needed when the external environment is changing faster than the internal, minimising future risk and disruption, and ensuring a future ‘licence to operate’.
For many firms, these considerations are still within the CEO’s remit. Therefore, the appointment of a CSO is more than a publicity stunt. When empowered, the addition of a specialist for whom ESG is their sole focus ensures these initiatives are prioritised- even with the best intentions, the CEO only has so much capacity.
A particular set of skills
As the importance of ESG has risen, so too has the calibre of candidates and the competition for their services. The Financial Times notes that whilst deep climate expertise used to be the main criteria for the role, modern CSOs are now also expected to possess elite strategic business thinking and technical skills. They now must be able to handle the legal, strategic, and operational implications of their recommendations, whilst retaining the credibility and expertise of one genuinely passionate about sustainability.
This specific expertise sets them apart from the rest of the C-suite and is crucial if they are to effectively ‘make sense’ of the landscape, sell a vision, and drive meaningful cultural change. The growing responsibility of the role is evidenced by research from PwC, with 2020-21 seeing the appointment of more CSOs than in the previous 8 years combined.
This combination of core C-suite skills and genuine sustainability credentials is rare. As a new, fast-growing discipline, there is a wider ESG talent shortage, and in Asia, research shows that ‘Head of Sustainability’ roles remain the toughest to fill, with most candidates having communications backgrounds. With time this will change, as a new generation of young leaders develop into the CSOs of tomorrow- but for now, top candidates remain a rare (and expensive!) breed.
Alternatives to the CSO
Despite the clear benefits, appointing a CSO requires careful thought. There are considerations to make before deciding if it’s the right move for your company. Firstly, smaller and mid-size firms should consider alternatives. Cost-effective ‘ESG tech’ tools can help growing businesses manage risk and improve on ESG in a far more cost-effective manner than competing for expensive talent or hiring specialist consultants.
This is especially true considering that ESG regulation such as SFDR does not apply to smaller firms, whilst young companies are less at risk of activist takeovers. For these firms, it is most important to understand how you can position yourself for the future, and improve your ESG organically by looking into SaaS ratings providers and tools.
But for the largest financial institutions, the trend is clear- the CSO is here to stay. With net zero increasingly non-negotiable, the calibre of transformative candidates, and the competition for their services will only rise.
About the author: Gary Bond is the CEO of TISAtech. He has held numerous roles across fintech and financial services, including as CIO and head of European change for Fidelity International, as well as senior positions in venture capital firms. At TISAtech, Gary works to accelerate the adoption of fintech innovation in financial services by benchmarking, improving, and connecting fintechs with the financial institutions that most need their solutions.