Corporate sustainability is in trouble. We are in what my colleague and sustainability thought leader John Elkington calls a “sustainability recession.” I think of it as a malaise, and it’s like walking through molasses.
Sustainability, as well as the related but different ideas of environment, society and governance (ESG) and diversity, equity and inclusion (DEI), had become something no large company could ignore. Even during the pandemic, these concepts gained traction, with multinationals setting ambitious carbon targets and launching major initiatives to reduce inequality.
But something has gone wrong, and most companies have stopped talking about their sustainability work – something so common it has a name: Greenhushing. Stories of backsliding are piling up. So far this year, some big banks have backtracked on their sector-specific climate commitments, many companies and countries are failing to meet their targets, and some high-profile leaders have laid off their sustainability staff. Sustainability is still on the agenda, but it has clearly fallen out of favour.
Aside from the obvious macroeconomic trends that have grabbed attention (such as a once-in-a-century pandemic, a new war in Europe and unprecedented disruptions to supply chains), there are deeper reasons for the slowdown.
Increased regulatory and reporting requirements. This has increased the attention of some companies, but ironically, it has slowed down action. It’s absorbing so much time and energy that companies can’t do as much real work. And it’s causing a rush to the center: companies that had done very little now have to at least get up to speed on measurement and reporting. But for companies that were already doing more, there’s now a good excuse for managers to focus primarily on reporting. They can check the box and say, “Look, we’re doing this sustainability thing.”
The rise of AI. It turned out that sustainability wasn’t easy, so when a big, shiny new thing like AI came along, which is a black hole of attention and investment, sustainability took a backseat.
Sustainability became a political issue. In the United States, state and local politicians have tried (and mostly failed) to stop investors from putting money into “ESG funds.” It’s part of an attack that’s come almost entirely from the right. Companies found themselves facing a furious backlash for doing things they believed made business sense and fit their values, like championing LGBTQ+ rights (see Disney) or daring to sell To the gay and trans communities (see Target and Bud Light). Whether these companies handled this situation well is a larger debate, but either way, they have been important canaries in the coal mines of the culture war.
Of course, it’s possible that most of the retraction is for show, a reverse way of showing investors that companies are serious about making money. Companies could be quietly continuing their efforts. It’s probably too early to tell whether there’s been a real slowdown in action and results. Laying off sustainability staff isn’t a great leading indicator, but it’s also possible that for some companies, some of the core work is embedded in the organization and moving forward.
For example, decarbonizing operations and transitioning to more sustainable products are multi-year efforts, and many are difficult to stop. Companies are signing decade-long power purchase agreements for cheaper renewable energy, or shifting manufacturing and R&D toward the clean economy (see the auto industry). The capital is already gone. And on the topic of DEI, changing the demographic mix of leaders and the board has its own momentum.
That said, let’s admit that corporate sustainability is not enjoying a moment of glory, but it will return, and with a vengeance, for a few fundamental reasons. The most important is that, contrary to what commentators and politicians may say, sustainability drivers have No It has been mostly political or progressive. The problems that businesses and governments are responding to are very real and increasingly serious.
In short, we are not acting on climate change to please Greenpeace, but because it is a real and growing threat. In a nutshell: There is climate changeIt is threatening humanity and costing businesses and economies a lot of money: a new study by Germany’s Potsdam Institute estimates that global GDP will take a hit of 19%, or $38 trillion annually, by 2049. This translates into severe costs for businesses and communities.
Moreover, climate work will return (or continue) because taking action is radically cheaper. There is a misconception about the clean economy. It is not an environmental movement; it is a market and technological shift. As clean tech advocate Ramez Naan points out in his TED talk, solar, wind, batteries, and more are not commodities whose price fluctuates; Technologies and its cost is decreasing, like technology.” Clean technology is fundamentally headed in one direction: to be cheaper.
Today, it is much more profitable to do something about the climate than to watch it happen (not for everyone, of course: fossil fuel companies will either become renewable energy and carbon sequestration companies, or go the way of horses and carriages and Blockbuster).
And what about the other political aspect, diversity and inclusion? It is also based on a fundamental reality: the world is becoming more diverse. In the United States, the population of people under 20 is at a tipping point: white people are a plurality, not a majority. Look at your Gen Z children and their new coworkers. They are noticeably more diverse in terms of demographics, sexuality, gender, and more. What kind of company do you have? No Are you trying to attract new talent or create products and services for young and growing customer bases? A company that has no intention of staying in business for long.
Some of the more advanced topics on the sustainability agenda, such as living wages, may require more time now, but you never know how these topics will fade in and out of society’s consciousness. The AI revolution is causing tech leaders to talk more about wages and advocate for a “universal basic income,” which is about as advanced as sustainability gets (and radically progressive).
Companies will also get back on track with sustainability because they have to. Regulations aren’t going away. A recent Accenture survey found that 90% of global CFOs expect ESG issues to be a priority in the next five years. And investors aren’t letting it go. BNP Paribas recently said it will require companies it invests in to include climate action in executive compensation metrics. But that’s the stick. The carrot is even bigger. Getting back on the sustainability horse is the right thing to do. and It’s good for business. Much of the sustainability agenda pays off in the short and medium term and is, by definition, good for the long term. There’s not much business to be done on a dead planet with sick people.
I’ve been working in sustainability for so long that I’ve seen several waves of change, each one renewing itself at a higher and more intense level. Smart companies will continue to navigate these shifting sands and prepare for the next wave.
In The terminatorJust seconds after Arnold Schwarzenegger said his famous line “I’ll be back,” he crashed into a building. Sustainability is making a comeback, maybe in an electric vehicle this time, so you might not hear it coming, but you might want to get on board.
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