Is Sustainability Slipping Down the Corporate Agenda?

As governments formulate new policies and draft regulations to urgently shape the transition to a net-zero, nature-positive world, organisations, communities and individuals are facing a cocktail of other, potentially existential, challenges, including geopolitical tensions, energy insecurity and a biting cost-of-living crisis.
Diane Nowell
Apr 19, 2023

Sustainability is no longer a footnote on the corporate agenda. Thanks to decades-long discussions about the responsibilities of boards, not just to their shareholders but to a much broader population of stakeholders, the pressure for ethical reform has created fresh opportunities for businesses looking to thrive in an altered world.

But, even though ESG (environment, social, governance) has been embraced as a key performance metric for investors – thanks, in part, to abundant evidence that it creates added value over time – its implementation demands focus. In order to transform businesses over the long term, sustainable practices must be centred at the core of corporate strategy, often requiring organisations to make sweeping ideological and operational changes.

And, given the precarious landscape, it’s easy for good intentions to become diluted. So, is sustainability losing ground to current social and economic events – and how can businesses maintain their environmental commitments amid competing priorities?

ESG is still riding high

Freddie Evans is CEO and co-founder of Minimum, an data-tracking platform working with large enterprises like Octopus Group and Radisson to reduce emissions.

Freddie believes that the importance of sustainability to the board is more likely to increase than to decline, as the scale of ESG risks escalates in turbulent times. Failure to address these risks can result in negative consequences for a company’s reputation, operational efficiency, and financial performance, as companies face regulatory fines, higher operating costs from carbon taxes and decreased consumer demand.

‘Companies that address ESG-related risks and opportunities are more likely to achieve sustainable economic growth in the long term. Which means that sustainability credentials are becoming more than just a competitive advantage — rather they are a prerequisite for commercial viability, whether you are a consumer or shareholder, and will soon hold as much weight as traditional profit-based metrics.’

In fact, it could be argued that sustainability is inextricably linked to social and economic progress. The war in Ukraine, for instance, has highlighted the importance of energy independence and investment in renewables to national and regional security, while the current cost-of-living crisis has refocused investors’ attention on the social aspect of ESG.

Rhyadd Keaney-Watkins is head of ESG at pan-European infrastructure asset manager Arjun Infrastructure Partners.

‘Only a few months ago, the Investment Association – an organisation that represents £10tn of assets – called on companies to consider the cost-of-living crisis when setting executive pay.

‘Given the increasing threat of regulatory, market, technology and reputational impacts arising from the decarbonisation of the economy, together with rapidly changing stakeholder values and expectations, it can be argued that sustainability, or the consideration of ESG factors, is simply an extension of robust business risk management.’

Pressure for reform from all sides

And, it’s not just investor interest or regulatory changes that are driving momentum. Stakeholders at every level – suppliers, employees and consumers – are demanding greater transparency, action and accountability from their corporations, regardless of trading conditions.

Anita Neville is Chief Sustainability & Communications Officer at Golden Agri-Resources.

‘Sustainability isn’t something that can be separated from our lives, our businesses or our economies. We’re talking about complex, connected events.

‘Since Covid, I think there’s been a greater understanding of this connection. How sustainability – in all its forms – is tied up with aspects of our everyday lives, whether through climate impact or diversity, equity and inclusion efforts.’

Which means that if businesses want to secure reliable supply chains, attract top talent and win brand loyalty, they’ll need to invest in sustainability issues – or risk losing the advantage to others who will.

James Purcell is a sustainable finance expert and co-author of new book, Sustainable Investing in Practice.

James notes that with a greater percentage of companies’ capital value now residing in intangible assets, the motivation and retention of a skilled workforce is essential to their future economic prosperity.

‘Corporate leaders are being asked to divide a seemingly finite sum between labour and capital. As such, certain social, stakeholder, and sustainability considerations are coming under pressure. As data and history have shown, the corporations that see opportunity in crisis and continue to prioritise sustainability and to invest in their people will likely be the firms that prosper.’

It’s not just a battle for talent, consumers are also increasingly giving their loyalty to brands that are committed to climate action.

Dr Pippa Bailey is Head of Sustainability for Ipsos. She says that although people’s short-term focus tends to turn to the day-to-day-challenges of paying bills and providing for their families in a cost-of-living crisis, bigger issues are still causing concern.

‘The 2023 Ipsos Global Trends Report shows that 8 in 10 global citizens think we are heading for an environmental disaster unless we change our habits quickly – so the climate crisis is still top of mind.

‘Our Corporate North Star report shows that ESG performance now has material consequences but that businesses often lack a solid roadmap detailing how these goals are going to be achieved and what will need to change in order to reach them. Keeping up with ESG rules is a big headache. Verification is a challenge, because frameworks designed to help report progress on targets and achievements lack standardisation.’

Falling short

Perhaps, in part, because of this regulatory complexity, there is still a significant gap between corporate commitment and real-world action. Many companies have yet to implement the measures that will lead to meaningful progress in achieving ESG goals.

Rhyadd Keaney-Watkins: ‘There is undoubtedly an argument for companies making commitments, without necessarily having full line of sight as to how the targets will be achieved.

‘That’s because many ESG targets depend on nascent and developing methodologies, together with future advancements in the commercial viability and scale of technology (such as decarbonised heavy goods vehicles; battery storage for 24/7 renewable electricity consumption; or renewable heat sources).’

Nevertheless, it can be hard to separate the genuine eco-allies from the Insta-greenwashers.

Rhyadd: ‘There have been notable examples of large organisations withdrawing from ESG commitments. For instance, Vanguard withdrew from the Net Zero Asset Managers Initiative in December 2022; and more recently, Munich RE pulled out of the Net Zero Insurance Alliance.

‘There may equally be an argument that organisations have failed to robustly follow-up on their pledges. For onstance, although many companies will have made some form of commitment to net zero, research by CDP found that out of 18,600 companies reporting to CDP, only 0.4% have credible transition plans.’

The right side of history

When times are tough, it’s easy for issues that aren’t mission critical to slip down the corporate agenda – in the days of CSR, ‘good deeds’ were often the first to fall under the cost-saving sword. Sustainability can’t be sidelined without consequence, though, and business leaders must stay the course.

Anita Neville: ‘Ignoring sustainability isn’t an option. But organisations do need to prioritise where they can have the most impact, both for the planet and for their bottom line. This is an area where business leaders need to truly take the lead and drive the direction for what sustainability looks like for their organisation’.

Solitaire Townsend is author of The Solutionists – How Businesses Can Fix The Future and co-founder of sustainability agency Futerra.

‘If you can deprioritise sustainability during a crisis, then you aren’t doing it right. Your ESG programme should be the perfect answer for challenging times – managing risk, firming governance, saving costs and building resilient relationships with consumers, staff and suppliers.

‘In 2023, leaders are turning to sustainability for innovative product ideas, for improved internal transparency, to motivate jittery staff and stabilise supply chains. With climate change now on our doorstep, disrupting societies and systems, the perma-crisis won’t ease during our careers. So, building sustainability competence isn’t elective, it’s the answer.’

Diane Nowell

Writer and communications consultant