The ESG Revolution: Why Finance is Tripling Sustainability Roles.

The proportion of financial institutions that have hired Chief Sustainability Officers (CSOs) has increased threefold since 2020, and 45% of institutions currently have a single executive in charge of Environmental, Social, and Governance (ESG) activities, according to a new report from Deloitte and the Institute of International Finance. That is a radical jump from the 15% of four years ago, a measure of the way ESG factors have transitioned from compliance-oriented to embedded within business strategy.

Even with such rapid growth, most businesses are yet to integrate ESG into their business models. While financial institutions place greater emphasis on sustainability, they still face challenges integrating ESG programs into financial objectives, measuring their impacts, and addressing talent gaps.

CSO Role Expands Beyond Compliance
The report, which was based on over 80 interviews of 70 sustainability professionals at financial institutions, observed that the CSO function had taken a dramatic change. While in the past they were involved in compliance and ESG reporting, now they are working in a strategic role with business model integration with sustainability, overseeing environmental risk management, and advocating long-term corporate objectives.

Among the banks, 85% of asset managers and insurers already desire their CSO to be responsible for ownership of the entire ESG agenda whereas only 44% of banks do so. This shows how increasingly crucial the sustainability factors are for insurance companies and investment management where the ESG risk has immediate material implications on bottom lines.

CSOs increasingly participate in corporate governance, assisting companies in attaining global sustainability standards such as the United Nations Sustainable Development Goals (SDGs). They also play crucial roles in deciding on environmental risk management for megaprojects, compelling corporations to maintain climate promises and investor expectations.

Challenges in ESG Integration
Though ESG is increasingly popular, most companies lack the ability to integrate sustainability into their business in a holistic way. The report identifies some key challenges, such as:

Talent shortages: There are not enough trained professionals with experience in ESG strategy and reporting.
Hard measurement of ESG performance: Most companies lack shared tools to measure sustainability performance.
Harmonization of ESG with financial needs: Firms are compelled to repay short-term capital while making long-term sustainability commitments.
As ESG reporting becomes ever more central to financial disclosure, the CSO function converges with that of the Chief Financial Officer (CFO) ever more closely. Financial reporting requirements are increasingly including ESG-related opportunities and risks in their standards at an accelerating rate, needing a partnership between CSOs and CFOs to bring financial and sustainability performance into tighter alignment.

The Future of the CSO Role
Despite the shortcomings, 99% of respondents to the survey believe that the CSO position will be increasingly important in two years' time, and 70% are certain that it will continue as a standalone position for at least five years. Some industry observers do foresee, however, that once ESG is firmly ingrained on the corporate agenda, the CSO position will be reconfigured into other top-tier positions like Chief Financial Officer (CFO) or Chief Executive Officer (CEO).

One possible future development of the role is the "Chief Value Officer" (CVO) idea, in which sustainability and financial measures are combined into one framework. This change would have the potential to transform the measurement of companies, from the historical financial measures to the addition of environmental and social impact measures.

The report concludes that the eventual success of a CSO would be when their services are no longer required—i.e., sustainability is not an additional function anymore but an intrinsic part of all departments and decision-making mechanisms.

Conclusion
The fast-growing number of CSO hires demonstrates the extent to which banks are shifting away from compliance-driven regulatory requirements and toward ESG as a business necessity. Though most companies continue to grapple with full integration, the growing convergence of sustainability and financial planning is positioning CSOs as centerpieces of corporate leadership.

As sustainability becomes more important in investment choices, risk management, and regulatory standards, companies need to develop ESG capabilities and elevate cooperation between finance, sustainability, and governance teams. Companies that successfully embed ESG into strategy will not only meet regulatory requirements but also get a competitive advantage in persuading investors, customers, and stakeholders who care about sustainable business practices.

Source: Deloitte and Institute of International Finance.