Is ESG Dead?
We would call 2024 a 'flip flop' year for ESG and sustainability – two steps forward, one step back.
It was a year which saw major companies being criticised for "paring back" their sustainability ambitions … and those same companies then declaring they remain committed, but to a more focused, realistic set of priorities. In September, the FT released a film entitled 'Who killed the ESG party?' which led to an article entitled 'ESG is Dead. Long live ESG' – advising us to urgently address the tension between profitability and sustainability.
It’s easy for businesses to deprioritise sustainability, when the obvious change that is required to deliver to the needs of the planet and its people can run counter to the demands of the loudest stakeholders. Growth and profitability – impacted by geopolitical conflict, inflation and the integration of AI, to name a few – command more urgent attention in the boardroom than sustainability.
However, the upcoming Ipsos ESG Council report, due in January 2025, reveals that while 55% of Chief Sustainability Officers agree that some leaders are diluting their commitments to ESG, 90% agree that ESG is fundamentally changing the way businesses operate, up from 83% in 2023.
90% of Chief Sustainability Officers agree that ESG is fundamentally changing the way business operate
The role of legislation
Legislation will certainly have had an impact. 2024 has seen companies in Europe who turn over €40m+ preparing to comply with the CSRD (Corporate Sustainability Reporting Directive) – a European Union law that requires all large and listed companies to disclose information on what they see as the risks and opportunities arising from social and environmental issues, as well as on the impact of their activities on people and the environment. The intention behind the legislation is for businesses to send a clear message to society, capital markets and other stakeholders that their longer-term approach to value creation must be aligned with a sustainable economy.
In theory. Flip. Flop.
The CSRD has faced significant criticism – the main one being the excessive reporting of 1,000+ data points and the burden this places on businesses, which has prompted calls for the EU to simplify its sustainable finance rules to ease disclosure burdens. This is compounded by the recent postponement of the EU deforestation law (delayed under mounting pressure from the German government) and the recent calls to amend or postpone the 2035 ban on internal combustion engine cars.
How does this government and corporate 'flip flopping' impact the global public?
Climate convergence was one of Ipsos’ nine Global Trends for 2024. People are now very clear; 80% agree we are headed for environmental disaster without rapid change to our habits.
Why convergence? Because a decade ago, there was a 34-point gap between China and the US – two of the most divergent markets on this question. This gap has now shrunk to 12 points with China’s enthusiasm waning (likely because they have seen some improvement in air quality) while the UK and the US have increased (likely because of the growing frequency of extreme climate events).
The debate is no longer whether climate change is occurring.
It is now focused on the trade-offs required to meet the net zero goals which will stabilise these events.
Who should take responsibility?
Ipsos Global Trends 2024 finds 77% across 50 markets saying that companies do not pay enough attention to the environment and 81% say companies’ impacts on the environment should be subject to closer government control. That said, when asked which groups or individuals need to take action first and foremost to help improve the environment and fight climate change in their country, 62% say the government – higher than any other group.
People acknowledge that they, too, need to take action, and indeed 72% say they are already "doing all they can" to save the environment. You could interpret this as outrage and frustration at companies’ inaction – but a more empathetic perspective would be to hear the lack of agency people feel to impact further progress. There's a need to bring consumers along the sustainability journey and engage them in the development of new offers, telling the positive story of progress and help them play their role in it.
So, where do ESG and sustainability go from here after this flip-flop year?
There is some light that demonstrates that progress is being made
The EU achieved a net 8% reduction in greenhouse gas emissions in 2023 compared to the previous year, the largest drop in decades, a trend primarily driven by EU industries. The first quarter of 2024 also continued in the same direction.
Also, data from the recently published Green Market Flash Eurobarometer, conducted by Ipsos on behalf of the European Commission, indicates that an increasing number of companies are engaged in reducing their energy consumption.
Earth Overshoot Day marks the date when humanity has exhausted nature's budget for the year. In 2024, this fell on 1 August, which sounds like pretty bad news. Essentially, the Earth used up its annual nature budget in seven months! The (somewhat) good news – this has been pretty stable for 10 years.
Source: EarthOvershoot Day 1971-2024 https://overshoot.footprintnetwork.org/
In spite of it all, there are signs of hope
But how much more progress would we be making without the polarisation and politicisation of the terms DEI, Sustainability and ESG? Research by Maslansky and Partners suggests 'responsible business' is a term that does not polarise. Moderates view it as a moderate agenda, and conservatives view it as a conservative position – essentially, each group feels a sense of connection with this term and it has the potential to resonate with all stakeholders. Or as Harvard Business Review (Sept/Oct 24) highlighted, “Being a responsible business requires having a clear purpose – and that requires clear understanding of what the company can and cannot do to address societal and environmental challenges while providing long-term returns for its shareholders”. We would add that bringing consumers along with companies on this journey can only accelerate the impact on the planet.
To quote the World Wide Fund for Nature:
"We are the first generation to know that we are destroying the planet... and the last one that can do anything about it."
Stop the flip-flopping and let’s support responsible business to do something about it!
Further reading
