Reprinted from GreenBuzz, a free weekly newsletter. Subscribe here.
Remember when the profession of sustainability was largely a backwater activity inside companies, seemingly unrelated to the business of productivity and profits? Remember when sustainability flew under the radar — when hardly anyone understood or even cared about what sustainability folks were doing?
Those are the good old days. Sustainability — and its finance-oriented cousin, ESG — are now mainstream, which means they are more widely seen and understood — and misunderstood. As they gain altitude and influence, they are roiling the status quo, spurring transformations in companies, supply chains and markets, which may be sorely needed but which aren’t universally appreciated. Far from it.
Simply put, sustainability is forcing companies and their investors to change. And when it comes to “change,” people tend to love the noun (the idea of change) but hate the verb (actually changing).
Those days of operating under the radar are over. On its face, that may seem a good thing: More people, both inside and outside companies, are aware of today’s environmental and social challenges, and of the myriad ways companies can address them. They may even appreciate that these are no longer nice-to-do activities but core to reducing risk, ensuring resilience, attracting talent and seizing new opportunities.
Finally, people understand what you do and why you do it.
Be careful what you wish for.
Sustainability is slowly but surely engendering the changes we want to see in the world. And some of those changes are big, even revolutionary. They stand to upend the status quo in significant ways and will create new winners and losers, with trillions of dollars up for grabs. Suffice the say, the would-be losers are none too happy about this.
So, sustainability professionals are under the spotlight and microscope. They are being confronted by a small but growing armada of politicians, business leaders, activists, regulators and media who seem to have sustainability and ESG in their crosshairs. Suddenly, corporate sustainability is a target: It is variously seen as needlessly meddlesome, a kowtow to the political left, a distraction from the business of business, and everything from misleading to outright fraud.
Indeed, it’s getting ugly out there. And that may be a blessing in disguise.
The pushback is forcing a much-needed reckoning. If you peel back the rancor and rhetoric, at essence critics are asking questions worth pondering. Among them:
- Do investors need to worry about climate risk or is it already baked into stock valuation? If it is, why create onerous new layers of disclosure?
- Are ESG funds touted by investment firms really leading to material change or are they mostly a marketing ploy? Are the companies in those funds truly exemplars?
- How much leeway is there for companies that commit to sustainability goals to be less than perfect without being called out as greenwashers?
- At what point do company declarations about their “purpose” in society become meaningless — or even silly?
- How much are company net-zero pronouncements based on strategies and accounting methods that are shoddy, if not shady?
- Can financial institutions deny funding to an entire industrial sector based on their sustainability profile?
- How much should companies advocate for progressive political issues, such as Black Lives Matter, refugee rights, gender equality, LGBTQ rights and climate change — even if their employees or customers demand it — without being tarred with the epithet “woke”?
Markets and misdirection
Each of these questions may be worthy of its own discussion (or opinion column), and some may be more easily answered than others. For example, despite one high-profile banking executive’s recent rant about “nut jobs” exaggerating the risk of the climate crisis on stock valuations, we’re already seeing business models hit by climate risk. A Dutch court’s order last year that Shell cut its emissions is likely just one of many examples to follow.
Some pushback is a misdirection of sorts. The focus on the potential impact of climate risk on investments over time belies the real-world, real-time destruction of lives and livelihoods resulting from more intense storms, droughts and wildfires. It largely ignores the impacts of climate change already affecting biodiversity and the natural systems that support fully half of global GDP. They don’t necessarily take into account the potential impacts to businesses and economies from mass migration, resource wars, future pandemics and other societal calamities that many predict will be outcomes of a rapidly changing climate.
In other words, financiers don’t seem concerned about things finance can’t easily control. It’s the latest version of the specious conservative argument:
Markets will solve any problem. Markets can’t solve climate change. Therefore, climate change isn’t really a problem.
Yes, there are some bad actors out there and they deserve criticism, if not censure, for exploiting today’s interest in sustainability in misleading ways. For example, the CEO of DWS, one of Europe’s largest asset managers, resigned after his firm was raided by 50 (!) German police, triggered by media reports that DWS overstated the sustainability-related aspects of financial products along with evidence leading to suspicion of “prospectus fraud,” according to German authorities. That legal action seems a good thing, part of the growing scrutiny by regulators and others of exaggerated corporate marketing claims around sustainability and ESG investing.
We absolutely need to root out those bad apples. But they don’t necessarily spoil the entire bunch of companies seeking to find their way amid this changing and perilous landscape.
How should sustainability professionals think about all this? Should you be encouraged or discouraged by the growing pushback? Should it change how you think or operate? Or is this all merely a distraction in our hyper-politicized world?
Probably a little of each.
This is a critical moment for corporate sustainability and ESG. They are having an impact, although not nearly big enough or fast enough. Some companies are overreaching, but mostly in ways more sloppy than sinister. The entire field may be due for a comeuppance, although not an eradication.
What we do from here matters more than ever. And it’s being watched more closely than ever. That’s a combustible mix, to be sure, but it is also the reality check sustainability needs for its next, critical chapter.
Thanks for reading. You can find my past articles here. Also, I invite you to follow me on Twitter and LinkedIn, subscribe to my Monday morning newsletter, GreenBuzz, from which this was reprinted, and listen to GreenBiz 350, my weekly podcast, co-hosted with Heather Clancy.
June 6, 2022 at 03:15PM