Across the globe, companies in the consumer goods, automotive and financial services industries are reneging on their sustainability commitments. Firms that set goals in everything from electrification to plastics reduction are either diluting or delaying their targets.
In April, Unilever delayed its target to phase out virgin plastics, while in October BP abandoned its goal to cut oil output entirely. Additionally, Amazon has stepped back from its Zero Shipment pledge, which would eliminate emissions of half its shipments by 2030, though the online marketplace insists that it remains focused on its pledge to reach net-zero carbon across its operations by 2040.
It’s a broad trend. In March, more than 200 companies were removed from the website of the Science Based Targets initiative for failing to submit a target to move from commitment to action on aligning with the Paris Agreement.
Moreover, analysis of 51 companies by the NewClimate Institute and Carbon Market Watch identified that firms are on track for a 30% reduction in absolute greenhouse gas emissions by 2030 on average. This is significantly less than the 43% reduction required to limit global warming to 1.5 degrees Celsius, as recommended by the IPCC, the UN body for assessing science on climate change.
These are only a few of the many instances that point to a growing problem: a corporate sustainability recession. The trend is worrying, given that four out of the five most severe global risks over the next decade are related to climate change, according to the World Economic Forum.
A focus on the financials
So how did we get here? Research from Bain & Co reveals that sustainability has declined sharply as a priority for CEOs in recent years.
Experts believe there are several contributing factors. For a start, executives have become preoccupied with managing persistent geopolitical instability, short-term financial performance, inflation and AI.
External factors are creating rippling effects. Rick Benfield, managing partner of the Outsourced Chief Sustainability Officers Group, highlights the impact of increased politicisation, especially the passage of anti-ESG laws in American states such as Texas, as well as the broader backlash against DEI.
“Companies are stepping away from their environmental and social commitments for fear of looking partisan and isolating customer groups. This is heightened in an election year, with more than 60 countries heading to the polls,” he says.
The relative scarcity of clean energy has also proved problematic. The International Energy Agency warned that the global rollout of renewable energy capacity has been undermined by a lack of clear and consistent policy on a national level, as well as gaps in grid infrastructure.
María Mendiluce is CEO of the We Mean Business Coalition (WMBC), which supports business and policy action to halve global emissions by 2030. She believes “governments should work more closely with leading businesses to remove the barriers to the energy transition and the regeneration of nature.”
Impact of external factors
In some instances, trade policy has contributed to the sustainability slowdown. Frederic Hans, senior policy adviser at the NewClimate Institute think-tank, points to the electric vehicles (EV) industry, for example.
He explains that the rise in EV exports from China to Europe has meant that car manufacturers have delayed deadlines to transition to EVs. Once set on selling solely EVs by 2030, Volvo now aims for 90% of its output to consist of plug-in hybrids and EVs by 2030. Similar decisions to delay electrification have been made by Mercedes-Benz, Ford and Toyota.
Sustainability leaders are trying to do something very hard for the first time. As part of that they may get it wrong
Moreover, regulations in ESG reporting may not be having the desired effect in the near term. Benfield says regulations such as the EU’s Corporate Sustainability Reporting Directive and Corporate Sustainability Due Diligence Directive have led to increased number-counting to meet reporting requirements but have failed to motivate broader stakeholder engagement. However, he acknowledges the problem is temporary. “As companies get to grips with reporting requirements and adopt technology to support, it will alleviate the large chunk of time currently allocated,” he says.
Internal pressures, particularly to deliver financial performance, are also impeding the focus on sustainability. At Unilever, for instance, investors have publicly expressed their disillusionment with “purpose-driven” initiatives. And Hein Schumacher, the chief executive, revised the company’s sustainability targets because they had not delivered enough value to shareholders.
What’s more, Benfield believes that teams have become distracted by other investment opportunities, such as emerging technologies. “Companies view AI as a big shiny new object, driven by the fear of missing out,” he says. “This has pushed sustainability further down the priority list.”
How to renew the focus on sustainability
So how can firms get back on course and elevate sustainability on the list of priorities? They must first recognise the magnitude of the task at hand. “As we shift from higher-level pledges to real-world implementation, following through on net-zero commitments with the right strategies and planning can be difficult,” Hans says.
Organisations must first fully integrate sustainability into their business and set clear KPIs. “Chief sustainability officers are often fighting an uphill battle. Anchoring sustainability throughout the business through governance structures can help,” advises Hans.
Similarly, Benfield recommends giving equal weight to climate and social-related targets, as much as financial ones. “These targets should be embedded into the products and services that a business sells,” he says. Reorienting KPIs across various departments, whether that’s finance, procurement, marketing or operations, is a clear way to do so.
It is important, however, that leaders are comfortable with a degree of uncertainty and failure. Mendiluce says: “Sustainability leaders are trying to do something very hard for the first time. As part of that they may get it wrong.”
Managing board expectations on realistic timelines to achieve sustainability targets is also important, as is communicating how climate risk can threaten current and future productivity, revenue and innovation.
Next, firms should work with partners and peers to raise standards across their industry and supply chains. “Some problems can’t be solved alone. Action in supply chains requires collaboration to drive success, everything from demand signalling to working with your sector peers to upskill suppliers in your sector,” says Mendiluce.
Hans points to the opportunities peer learning can present, especially on measuring and reducing scope three emissions along the value chain. “Working with others gives these companies a chance to influence and steer actions, especially in developing solutions for scope three,” he says.
Last is lobbying and advocating for broader market regulation that can help to drive the energy transition.
“Companies that are serious about reaching climate targets know that the right government policies are critical to accelerate progress,” according to Mendiluce. “By advocating for pro-climate measures, business leaders can help to bring about policies that unlock investment, deliver action at scale and cut emissions faster.”
Businesses are not doomed to accept the sustainability downturn as a cyclical phenomenon. Mendiluce argues that “true leaders are able to navigate short-term pressures, overcome market barriers and hold course on their strong long-term vision.”
