Sustainability's Fickle Switch

Every time financial pressure rises, ESG (Environmental, Social and Governance) is binned.

It is the twitchiest of government policies and company strategies. It comes in and out of fashion faster than a MasterChef TV host.

The UK just scrapped its green investment taxonomy and pulled transparency rules. In the US, investors are retreating from shareholder ESG resolutions - support dropped from over 30% to just 16% in a single year.

Markets are flinching. Insurers are offloading billions in climate-exposed assets to hedge their risk. Investors are pulling back as yields rise and volatility makes the risk-return trade-off harder to justify. If the market no longer wants to price in climate risk, what message does that send?

High-profile firms have overstated green credentials. The chair of Aberdeen admitted asset managers had made huge errors over "ridiculously extravagant" claims businesses could save the world, opening them up to legal risk.

We’ve seen this before. After the 2008 crash, green stimulus plans launched across the US and Europe. Within two years, austerity kicked in and most were shelved. ESG talk dried up.

I saw this happen firsthand in 2011, when one minute I was running a sustainability news website, heavily sponsored by industry titans. The next, they had all disappeared.

Sustainability gets dropped like a sack of potatoes every time money gets tight. Its reputation for being dumped means unless it is hardwired into finance or law, with clear returns, it will be spat out when the system is skint.

What has endured the sustainability gauntlet?

A few initiatives have built resilience that isn’t dependent on sentiment:

• EU Emissions Trading System. It puts a real price on carbon, is legally binding and is embedded across the economy. This has weathered the storm.
• Green banks have survived political cycles when legally anchored. Germany’s KfW, Australia’s CEFC and US state green banks like Connecticut’s have endured thanks to statutory mandates. (Some have been sidelined, however)
• CFO leadership. The shift from ESG slogans to substance is real. Unilever is tying sustainability to supply chain costs and firms like Walmart and GM now link procurement to supplier emissions. These are financial moves.

Staying humble, structured and resilient appears to be the lesson. Shouting before doing does not.

The CEO Challenge

1 - Put the CFO in charge of sustainability.

2 - Ban the term ESG and hardwire supply chain or energy efficiency into business economics, operations and keep it low key - but ensure staff know.

3 - Stay with what you control. If your green plan depends on regulation, tax breaks or sentiment, it won’t survive. Stick with mechanisms that are structural, statutory or market-enforced. Or just focus on what you control.

4 - Say less. Show more. The ESG label is toxic and mocked. Build credibility by delivering results.

Sustainability has to be sustainable. Right now, it's fragile, fickle and flailing. CEOs must find their own narrative to fix that.