Walking the sustainability talk

IT CAN be said that the Russia-Ukraine war is the single biggest wake-up call in recent times for the world’s sustainability development agenda, chief of which involves climate initiatives in the race to net zero.

The rising geopolitical friction and resultant extreme uncertainty in the business climate have tested the public and private sectors’ mettle and depth of commitment to sustainability efforts. These challenges have come, among others, in the form of rising protectionism and sanctions which have upended the global supply chain and have wide implications for the environment, economy and society.

“Security, affordability (in volume and prices) and sustainability of the energy supply were challenged, driving the need to diversify the energy supply mix... this has somewhat accelerated the shift towards greener energy sources... as each country moved to secure its own needs,” said the Amundi Institute in a recent report, referring to the tensions in Eastern Europe.

Moscow’s invasion of Kyiv is one of the chief culprits for the inflation woes that have beset the world. It had set off an unprecedented energy crisis, while the prices of everything including food have skyrocketed owing to a supply crunch.

As energy needs are still being met mainly by fossil fuels such as coal, oil and gas – these form a big chunk of the world’s greenhouse-gas emissions – the urgent need to deal with the energy crunch had posed a challenge to the green-energy transition.

To combat the scourge of inflation, central banks led by the world’s largest, the US Federal Reserve, have aggressively stepped up their monetary tightening trajectory. This in turn, has resulted in a slowing global economy just as the pent-up demand post-pandemic was galvanising economic activity.

In addition, the banking turmoil in the US and Europe, plus the unprecedented upheavals in the last three years are clouding the near to medium-term global macro outlook as recession worries continue to dominate.

However, none of these pain points are likely to significantly upset long-term sustainability megatrends aimed at decarbonisation from electrification to automation, harnessing renewable energy sources, green financing and the carbon market. All these megatrends have steadily regained momentum in the post Covid-19 pandemic era.

In fact, the pandemic and geopolitical woes have pushed corporations to re-examine their role in society, and to mitigate their operations’ impact on the environment and society at large. The promising factor is that businesses – both large and mid-sized – have no shortage of factors to encourage them to ratchet up their environmental, social and governance (ESG) goals.

For one thing, a recently-released global sustainability study by NielsenIQ (NIQ), a consumer intelligence company, highlighted that global shoppers are more aware and informed of the importance of sustainability; such empowerment in turn is fuelling the urgency for corporate action and accountability.

Such a trend among consumers is being shaped by three pressures – more government mandates, spiralling costs owing to extreme weather events, and escalating consumer demand for more sustainable products. The study found that 69 per cent of global shoppers feel sustainability is more important to them than it was two years ago, although cost, easy access and clarity are derailing this path towards a more sustainable lifestyle.

Furthermore, due to regulations and greater consumer scrutiny, companies will no longer get away with vague or false claims or greenwashing, the report noted.

NIQ’s vice-president for global thought leadership Nicole Corbett said: “The outlook of rapid change across the next five to 10 years will force companies, manufacturers, brands and retailers to transform and commit to real sustainable business models. We are now at a tipping point, where companies who have been proactive and genuine about climate action will be at a massive advantage as industries grapple to meet requirements and mandated sustainable efforts.”

Corbett added: “To meet targets that become increasingly stringent over the next 10 years, we anticipate a great deal of scrambling from companies that now realise it’s crunch time. They will look for easy wins in the short term, but the game changer is the requirement to report and validate their footprint and gain visibility of emissions and resource use across their whole value chain. This will require a long-term shift and for many a departure from how they currently operate.”

Another impetus for companies to step up their ESG game is the rising scrutiny or focus among investors to put their money in companies with sound sustainability goals.

A report by Mayer Brown and Sedgwick Richardson on how the broader asset management industry in Asia is responding to global sustainability trends discovered that a majority or 85 per cent of asset managers in Asia that were surveyed have raised their emphasis on sustainability in the past two years.

Half of these respondents, who comprise 26 asset managers in Asia from early-stage venture capital investors to some of the region’s most influential fund managers, said they have already seen benefits from their sustainability approach in the areas of fundraising, brand recognition and reputation, and risk management.

This suggested that the appetite for value investing amid the booming green energy transition is unlikely to be interrupted.

Yet, corporations have a lot more work to do to meet the changing dynamics. A recent report by Standard Chartered (StanChart) titled The Sustainability Commitment Paradox revealed that while around one out of two (54 per cent) companies are willing to prioritise positive environmental and social impacts over financial returns, less than 30 per cent have made concrete sustainability commitments, or even set targets.

“Faced with a lack of funding for sustainability initiatives, inconsistent data on ESG-related supplier compliance and the concern of optimising shipping to reduce emissions, progress for many companies remains stubbornly slow,” found the report, which is based on a survey of 300 mid-sized and large companies across the world, with turnovers under US$500 million and over US$2 billion.

In short, there still remains a lack of tangible actions (these could involve operational tasks such as reducing waste, energy consumption and water usage and using more recycled and reusable materials to purchasing carbon credits) and hence, more leadership and strong environmental and social stewardship are required.

This year’s Earth Day (Apr 22) is themed “Investing in our Planet”. For businesses, this serves as a reminder that actionable steps in sustainability efforts are more of a “must-have” than a “nice-to-show”.

Perhaps the strongest impetus for companies to fundamentally embrace this current climate of rising ESG trend is the growing realisation that those that do are likely to perform better financially – in the long run.

“Companies believe that what is good for the planet and good for business are not mutually exclusive,” StanChart noted in its report.

The benefits of corporations’ sustainability efforts go a long way from brand building, consumer alignment, and better operational efficiency, plus the ability to draw investments and bank financing. For these reasons, companies should not drag their feet in shaping a more robust ESG narrative.