Corporate Governance

Shearman & Sterling LLP 17 | The Rise of the ESG Officer Importantly, only one of the Top 100 Companies appears to have a single CESGO responsible for overseeing all three topics — "E", "S" and "G." For other companies with dedicated officers in the ESG space, roles appear tailored to the "E" of ESG, covering environmental-related responsibilities and sustainability, or the "S" with diversity, equity and inclusion. But executive officer disclosure in the Top 100 Companies does not tell the whole story of change in this area. According to a PwC survey 4 that analyzed public company Chief Sustainability Officers (CSOs), while 28% of CSOs are members of the C-Suite, roughly half of all CSOs are two or more hierarchy levels below the C-Suite. Specific examples of ESG-related management changes below the C-Suite include Honeywell's disclosure that it appointed a separate Chief Sustainability Officer, a Chief Inclusion and Diversity Officer and a General Counsel of ESG, with reporting for these roles split between Honeywell's General Counsel and its Corporate Governance and Responsibility board committee. Companies are addressing stakeholder expectations regarding the expertise and oversight of ESG at the board of director governance level (see the chart on "Board Oversight of ESG") seemingly more rapidly than companies are adding an executive to report to the board specifically on these issues. As the need for ESG data collection, analysis, disclosure and reporting to the board continues to increase, companies may find that existing "hub-and-spoke" structures for ESG management in which multidisciplinary teams provide guidance through a Chief Human Resources Officer or General Counsel is insufficient. The existing model has limitations with respect to subject matter expertise, but also strains resources for those executive officers whose mandates are being further stretched to accommodate this important area of management and board reporting. Board Oversight of ESG Based on 2022 disclosure by the Top 100 Companies, 23 of these companies have a board committee that references ESG, sustainability, corporate/public responsibility or culture in its name, 38 companies have nominating and governance committees that oversee ESG matters, two companies do not identify a committee responsible for overseeing ESG or diversity, equity and inclusion, and one company has its entire board oversee ESG matters. The majority of companies allocate oversight of ESG matters across multiple committees. 4 Strategy& (powered by PwC), "Empowered Chief Sustainability Officers," https://www.strategyand.pwc.com/de/en/cso2022.html (2022).

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