Sustainability is a cyclical business. Sustainability consultant veterans will remember when they had regular C-level meetings in the 1990s, where every company wanted to know where their “Nike sweatshop” risks sat, only to realise that as long as you’re not newsworthy, well, nobody cares.
The mid-2000s saw momentum around new metrics like carbon footprinting and financed emissions, which was snuffed out by the global financial crisis and the failure of the climate negotiations in Copenhagen.
After a particularly long honeymoon over the past 10 or so years, we are now again seeing companies and financial institutions downsizing their sustainability/ESG teams and, of course, sidelining their sustainability activities.
BP’s announcement last week is perhaps just the most notable example of the “death by a thousand cuts” currently sweeping the industry.
Silver lining: history tells us we’ll have another upswing.
The bad news: the core problem with many sustainability roles is that they continue to be seen – ultimately – as not business-decisive. Or, put differently, not revenue-generating. They are the ‘nice to haves’, the ‘if I don’t have any better things to do’.
We know of course that this is not true, or at the very least “there was truth and there was untruth”.
The untruth is that the announcement of UK pensions manager People’s Pension to move mandates from State Street because of “sustainability considerations” suggests sustainability roles matter.
Some sustainability heads I speak to in the industry are starting to realise that they are not just an accessory but rather the key to unlocking business in 2025, perhaps bizarrely even more so than in years past.
That hasn’t, of course, protected the industry from cyclicality, even if perhaps the current “disaster” facing the industry may in a few years prove to be just as much of an imposter as the triumphs of years gone by.
For now, however, that “imposter” is very real and painful for many people reading this oped, and many others looking for work.
We can of course take this cyclicality as inevitable – sustainability professionals subject to the whims of the Orwellian “priests of power”.
Or we can do our best to not let this crisis go to waste, reflect on what we can do better.
For me, the key opportunity for relevance is perhaps somewhat counterintuitively in the world of extreme, “low-probability” risks. On its surface, they are the recipe for more marginalisation. Speaking from personal experience, I admittedly did not get a lot of love when I tried to pitch a stress-test on a super-volcano explosion to a central bank last year.
However, it seems obvious that there is a market gap here. And business relevance.
Take the pandemic. Timing was of essence not just for mortality (according to one study, mortality doubled for every seven days lockdown policies were delayed). It was also of essence for financial performance.
The first CNN article on the covid-19 pandemic was written on 6 January 2020, a full two months after the first public cases. The S&P 500 would still go up another 5 percent over the next six weeks before it cratered.
But investors meandered over the pandemic cliff, entirely unprepared for what a pandemic could mean to global markets.
And while ESG funds were quick to market their “relative outperformance”, they were equally quick to suffer from underperformance as markets rebounded.
Ultimately, ESG and sustainability professionals were unable to shine during that crisis. A lost opportunity!
After all, there is a tonne of obvious expertise they could have brought to the table. An understanding of nature and social risks. An expertise in industry co-dependencies that can easily be transposed to crises like pandemics. Work on geospatial dimensions to crises, to name a few.
Where were the break-glass plans that ESG professionals should have had ready for this moment?
It isn’t as though the ‘mainstream’ was prepared. The World Economic Forum Global Risk Map is best understood as a backward-looking exercise, flagging sovereign risks after the Greek debt crisis, migration risks after Syria, pandemics after covid hit and artificial intelligence after OpenAI launched ChatGPT.
As I was writing my upcoming book, The Pocket Guide to Planetary Peril (available now for pre-order for those that can’t get enough from my column), it struck me how much our industry focuses on anthropogenic climate change and nature, even as society faces a plethora of other risks.
Some of this is because investors can do very little to mitigate many of these other risks. While I have advocated for investor focus on migration, in many meetings I am rightfully reminded of the complexity for investors of “doing something about it”.
But that is exactly the point. As long as we are married only to work that “has impact”, we will inevitably remain a cyclical industry.
To be clear, I am not making the case to only focus on risks. But there is plenty of important ESG or sustainability risk work that doesn’t have an impact angle. And that isn’t being done.
What is the right investment response in case of emerging population shocks from a (perhaps plastic and chemical-induced) fertility crisis? If quantum computing has a breakthrough? If an unexpected asteroid comes onto the scene? Or any of the other 26 risks I cover in my book?
It probably would seem bizarre to have a volcano-aligned investment strategy. But it seems equally bizarre to be unprepared for an event that we know happens on a somewhat regular basis.
Making money requires being fast. Being fast requires being ready. And no one is ready!
In terms of approach, this isn’t a question of setting up an extreme-risk TCFD or GFANZ (bad examples perhaps in the current context, anyway), or to run 20 conferences every year on super-volcano investment risks (although if RI Europe adds a panel, I’m putting in my name in now!).
The point instead is to have “response strategies” ready to be first movers when these risks (inevitably) materialise. To be as prepared for these risks as our industry should have been when the pandemic hit.
Who is better equipped to develop them than this industry?
And who knows, a resilient response strategy may also help to prepare the world and make a small contribution to ‘saving it’ when these risks materialise. At the very least, it may help save our jobs.
