Dive Brief:

• Sustainability officers at large corporations are balancing innovation with heavier compliance responsibilities amid new regulation and reporting requirements, according to a new report from research firm Trellis, formerly GreenBiz.
• The report found that sustainability teams in large corporations continue to grow, with 74% of survey respondents reporting increased staffing over the past two years. At the same time, the analysis also pointed to a slowdown in budget growth, with just over half of respondents (54%) surveyed in 2023 reporting an increase in sustainability budgets, down from 74% in 2022. 
• Direct CEO engagement on sustainability issues also registered a decline, with the proportion of CEOs “very engaged” in sustainability programs falling 9 percentage points since 2022, Trellis said.

Dive Insight:

The biennial report is the result of a 2023 survey of 1,185 sustainability professionals across industries, 75% of whom were employed by large organizations with revenue exceeding $1 billion and 84% of whom belong to large organizations in the U.S. The greatest number of respondents were managers or senior managers, followed by director or senior director levels.

“The [sustainability] profession is at a crossroads,” Trellis Group’s President of Networks John Davies wrote in the report, referring to the impact of increasing regulation and compliance obligations for companies. “The question for the profession is whether these jobs will be focused on meeting the minimum requirements of compliance or strategically focused on reducing a company’s negative impacts and increasing its positive ones.”

Growing regulatory oversight

The report characterized the tide of regulation as “unprecedented,” in light of recent laws and regulations that mandate the disclosure of sustainability information. These include regulations from the European Union and California and the Securities and Exchange Commission’s climate-risk disclosure rule, which is currently stayed in face of legal challenges.

Companies that participated in Trellis’ survey reported headcount increases in departments considered “critical to sustainability efforts,” with some 74% of respondents reporting increased staffing. The healthcare sector saw the most growth in sustainability teams, with 88% of respondents from the industry reporting the addition of employees focused on ESG. 

Meanwhile, general counsels and CFOs are taking a more active role in sustainability reporting.

“The increase in pending regulations has caused several companies to shift their reporting structures to the general counsel’s office,” the report noted. Trellis’ survey also found that the proportion of respondents that reported to the general counsel’s office had doubled compared to two years before.

Additionally, the report pointed to the emergence of a new role titled “ESG controller” that is shaping up to play a pivotal part in overseeing data systems and processes tied to sustainability-related disclosures. ESG controllers are part of more than half of Fortune 100 companies, Trellis reported last March. At the time, 20% of respondents surveyed said their organization had created an ESG controller function.

Changes to the sustainability function within organizations

The growing body of regulation — and consequent shift in responsibility delegation and staffing across a company for ESG reporting — means compliance is a larger part of the sustainability function across organizations. There are concerns that the shift toward regulatory compliance may prompt some first movers to scale back sustainability ambitions out of a fear of being held legally accountable for them, and avoid the consequences of not meeting some objectives. 

The result may be increased “greenhushing,” the report said, in reference to a deliberate “downplaying or under-communicating environmental or sustainability commitments and performance.” Some 14% of survey respondents said their organizations had scaled back use of terms like “green” and “ESG” in their public communications while 4% had eliminated them entirely.

Among industry stakeholders, some say a heightened emphasis on risk mitigation need not threaten innovation in the field.

“Compliance is not replacing innovation but complementing it,” William Theisen, CEO of climate consultancy EcoAct North America, told ESG Dive. “Companies are using the data collected for reporting purposes to drive transformation and align their business strategies with long-term sustainability goals.”

Others suggest the increase in compliance responsibilities within the corporate sustainability function is more about establishing a common set of standards.

“It is establishing a common language and understanding that everyone — companies, investors, and stakeholders — can anchor [towards],” KPMG’s U.S. Sustainability Leader Maura Hodge told ESG Dive. “The key is to ensure that compliance activities are efficiently managed and automated, thereby freeing up resources and time for forward-thinking and innovative programs.”

The CEO-sustainability leader relationship

The report found that sustainability leaders are rising quickly within organizations, with an increasing number reporting directly to the CEO. Nearly a third (30%) of high-ranking sustainability executives said they reported directly to the CEO, up from 22% two years ago. 

Concurrently, the proportion of CEOs reported to be “very engaged” in their company’s sustainability program dropped 9 percentage points since 2022, when 20% of CEOs surveyed said they were very involved with their respective company’s sustainability initiatives. This change represents the evolution of sustainability programs rather than a de-prioritization, suggests Hodge.

“The 9-point drop in CEO engagement in sustainability initiatives since 2022 reflects the maturation of these programs rather than a diminishing importance,” Hodge said. “As sustainability becomes more operationalized, it is naturally transitioning from a CEO-driven initiative to an integrated business function.”