The Rise of ESG 2.0 Leadership

The Deal: Your recent whitepaper in the Harvard Law School Forum on Corporate Governance talked about so-called ESG 1.0 roles, which were formed somewhat hastily out of necessity. And now we're seeing companies put much more thought into hiring for what you call ESG 2.0 roles, which have several new characteristics from their predecessors. As ESG leadership becomes more ingrained in the fabric of corporations, what further adaptations do you think we're going to see? Will there be a ESG 3.0 role in the future? 

Kurt Harrison: I'm sure that ESG 3.0 will be here soon, and we hope to be at the forefront of that as we have been from the 1.0 to 2.0 transition. The genesis of all of this was three to five years ago when CEOs became tired of being asked questions about ESG they couldn't answer. These CEOs said, “Can we just appoint someone internally to deal with all these ESG questions?” And so they picked someone, usually out of Legal, Compliance or Marketing, and said, “Okay, you're the ESG person, build a basic fundamental credibility, create a simple framework and deal with these investor questions.” And that worked for a year or so. But in 2020, that no longer worked.

In 2021, your ESG leader needs to synthesize both a hands-on domain expertise within ESG, as well as a business and commercial acumen. They have to be equally credible from a business perspective as they are within ESG. The evolution has witnessed these roles move from mid-level functional roles to executive-level business value creation roles who can truly drive the integration of an enterprise-wide ESG policy and framework across an organization. It has to be instilled in the DNA of the organization, the culture of the firm, and it has to be a fundamental business priority and strategy for it all to come together successfully.

The Deal: In the paper you also talked about where companies were within their sustainability efforts and their lifecycle and how that mattered to the bottom line. Do you see any industry, geographical or other trends playing out here? 

Kurt Harrison:  Geographically, Europe is way ahead and probably it will always be way ahead. It's been legislated in various EU countries. It's a normal part of their business DNA. As a result, we don't see as much demand from our European clients for ESG leadership because they already have them. The US is behind now, but it’s catching up and it's catching up aggressively. So that’s where a lot of the demand is coming from for companies to really onboard ESG leadership. 

The other part of this is that when Larry Fink’s CEO letter comes out and companies see that and the CEO says, “Wow, we’d better create an ESG measurement and reporting framework or BlackRock, State Street and Vanguard could divest of our stock.” So, they hire the person to drive that. 

Most organizations, even here in the US, have pockets of individuals working on ESG and sustainability right now. But many of them don't have the one person who owns it, who's leading it, who's connecting the dots about what's being done internally and creating a much more structured and systematic enterprise-wide ESG program and truly integrating it across the organization and communicating it to the investors.