The pendulum has swung to the other side; it is now a higher risk for business to be lacking behind on sustainability, than to be a front-runner. A trifecta of drivers is accelerating sustainable business even more in this decisive decade: the judicialization of sustainability, purpose-oriented young talent, and sustainable finance flows.
After a false start of what has been coined the Decade of Action by the UN Secretary-General, and while coming to terms with the fact that we must learn to live with COVID-19, it is clear that the only way forward for humanity is to start living within environmental and social boundaries. With nationalist and populist forces destabilizing (geo)politics around the world, society is looking at the business community to show leadership. There are hopeful signs that we are on the brink of an acceleration towards sustainable business reaching a critical mass in the global economy.
Judicialization of Sustainability
From a risk-perspective the judicialization of sustainability has become prominent, with new legislation being introduced in national parliaments as well as the EU, and a barrage of environmental and social court cases brought by citizens towards companies are to be expected. From 2023 onwards, the EU Corporate Sustainability Reporting Directive (CSRD) will require many corporations to report against ESG metrics, and be audited. This will help stakeholders to evaluate and encourage companies to become more sustainable. Recent court cases have asserted that companies have a responsibility to protect human rights deep into their supply chains, and even if governments are not doing enough themselves. We can expect copycat legal action against companies and financial institutions with the usage of this argument for both environmental and social responsibilities in countries around the world.
Purpose-oriented Young Talent
More than ever, there’s a big shift in career direction. Young generations are more purpose-driven when it comes to their career choices and this has a direct impact on attracting and retaining talent. We already see that oil and gas firms are facing a workforce shortage. According to a recent survey more than half of the workers in that sector seeks to move into the renewable energy industry, and in recruitment the applications per vacancies remain low. At the same time this means that companies which embrace sustainability at their core are able to attract the best and brightest without having to pay top dollar. Generation Z is the first generation to prioritize purpose over salary.
Sustainable Finance Flows
Global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140,5 trillion in projected total assets under management. According to the Climate Bonds Initiative (CBI) 2021 will be a record-breaking year with reaching the half trillion mark in annual green bond investment. The EU’s taxonomy and Sustainable Finance Disclosure Regulation (SFDR), together with other taxonomies around the world will aim to prevent greenwashing in sustainable finance. From 2022, investors that offer funds in Europe described as “environmentally sustainable” will need to explain how, and to what extent, they have used the taxonomy in determining the sustainability of the underlying investments. This way large investors will push private sector companies more to address climate change, diversity and other important societal challenges.
Sustainability is not only a moral imperative, but it’s good business. Companies that act fast will have the biggest competitive advantages. Those that don’t act, or too slow, may no longer exist in the next decade.
Marco Swan, Program Manager bij Global Compact Netwerk NL