The crushing reality of inaction
For all our data, are we acting against what we know?
Many believe it is only through failure that we learn. We seem to endure failure after failure regarding climate change, so I’d wager we’ve learned quite a bit. Some days, it doesn’t feel like it, though.
While the world was focused on the drama of Open AI and arguing whether the board acted along the company’s mission to protect humanity from AI, our existing systems continue to sow our collective destruction.
Leading up to COP28, a steady stream of our failures has gotten attention, but not nearly as much as the drama around AI. While society idolizes those calling for an AI pause, scientists who warn of environmental change seem to have no such luck, most recently delivering a ‘final warning’ since little improvements have been made.
And so, while the cold in Pennsylvania might have me feeling bitter this week, I suspect it is more around the recent news articles that may have been lost among the corporate drama, rising political tensions, and inflationary pressures.
First comes a pair of news stories outlining just how dire the situation is. The planet reached a ‘canary in the coal mine’ moment for global temperatures as a single day hit above the 2-degree warming limit from pre-industrial levels. Just nine days before this happened, it was reported that 2023 would be the warmest year on record in 125,000 years.
Next, and related, are the outcomes. The US Department of Agriculture (USDA) updated its plant hardiness zones for the first time in a decade, with about half the US moving into warmer zones. As these zones shift, they create new ESG pressures for farmers and the food industry. Meanwhile, logistics companies must watch out as the world’s largest iceberg, about three times as big as New York City, has broken free, threatening global shipping and marine biodiversity.
We’re repeatedly reminded that our planet is not happy with us. Rather than dealing with the climate crisis and adapting to what might result, we’re focused on what AI will do in some hypothetical future. Perhaps the rising crises mentioned above lock us into the status quo as we wait to see what will happen.
With that framing, let’s jump into our current state.
🦆Standards, 🦆Standards, 🪿Progress?
To progress on climate change, we hear that we must measure where we’ve come from by looking backward at collected data, baselining, and showing improvements. But in reality, we have to act to manifest those improvements. Still, we are mired in The Great Disclosening, as companies determine which standards to align with and how to communicate their existing activities, and it might be getting worse.
It’s been a long road for ESG standards. The past few years have seen standards continually consolidate and new regulations, like CSRD, and regulatory guidance, like ISSB, launched. Most recently, EFRAG and CDP have come together to help promote the ESRS standards. Even the EU’s SFDR, focused on accurate fund labeling, is looking for an overhaul to perhaps align a little bit closer to other standards and regulations.
Yet, for all of these streamlining efforts, capital does not appear to be as aggressively moving where it needs to. Carbon emissions have grown at an increasing rate, up 5.06 parts per million YoY to 422.36 ppm. We’re continuing to pump record amounts into fossil fuel companies through subsidies and financing rather than using a singular critical data point that needs no standards (fossil fuels account for 75% of global emissions) to drive subsidies toward a renewable transition. If oil will actually peak around 2030, as predicted, wouldn’t a responsible use of capital be to ensure these energy companies transition using this most basic of data points?
Look, I’ve long argued that we cannot simply shut off fossil fuels for the same reasons discussed for the ‘phase down’ at COP26. The Global North cannot prevent emerging economies from having the opportunity to grow. Still, we must break the myth that higher-quality, more consistent, and comparable data will fix sustainable capital allocation. We need brave action against systemic changes that span public-private partnerships at scale.
Speaking of brave changes, it is possible. Portugal recently ran on renewable energy for six days by prioritizing the issue and diversifying its renewable energy portfolio.
Countries and companies could sustainably transition, with or without reported data. We know fossil fuels are the heaviest source of global emissions, and reporting on them alone, while giving companies a glimpse of the issue, will not help. We need to pursue new data points beyond the baseline and annual cycles into how to construct responsible transitions, i.e., data that informs meaningful actions.
The current data chasing has everyone stuck in a game of “Duck, Duck, Goose,” where nobody yells “Goose!” and progress remains inert. Meanwhile, the teacher is in the corner recording the results while waiting for the bell to ring.
Now, this generalization is a little unfair as progress is being made by some companies, firms, and their value chains. Still, we appear to be sliding backward into complacency and the status quo as regulations are chased, but complex global pressures build.
The anti-ESG backlash fizzles but may have taken efforts with it
The anti-woke/anti-ESG pushback from the spring of 2023, which continued into the summer, has fizzled. Rep. Katie Porter (D-California) called the Congressional Hearings “the stupidest hearing I’ve ever been to.” Yet, something has changed. In 2023, companies pulled back on communicating their ESG efforts, and greenhushing grew.
This short-sighted strategy, appeasing those with selfish interests at heart, serves transient political talking points. Evidence of the short-term nature can be found in a Threads post where someone made a little money off investing in the short-lived boycott of Budweiser. So, if ESG is built to focus on the long term, then anti-ESG is built for the short term, which means its efforts will not last.
Still, the resulting greenhushing might lead an optimist to believe that there are ongoing ESG efforts, albeit inside companies behind closed doors. This ‘glass half full’ view doesn’t appear to be quite how things are playing out. As the world looks to COP28, a short-term assessment of where we are is worth a look. A fascinating report by EY may provide some clues. The first part of the report focuses on two types of companies:
Pacesetter companies are those taking the most action on climate change.
Explorers are those companies taking moderate action
Observers are those companies who have taken the fewest actions
From 2022 to 2023, something has shifted, and not for the better. While Explorers largely remain unchanged, the number of Observers looking to increase their sustainability spending has dropped from 50% to just 7%. The Observers group has also grown from 15% of total participants to 45%, while Pacesetters have dropped from 32% to 7%.
This change has always been my concern since the anti-ESG pushback started. There is no silver lining, as the lack of transparency through greenhushing is an excuse for inaction. Pacesetters are continuing, but their numbers are dwindling. Observers aren’t doing the work they need, and representing about half of the companies surveyed, that group may need the most improvements.
Greenhushing locks the data’s value to compliance. Just as the EY report correctly calls out Alison Taylor’s quote that the Chief Sustainability Officer role is becoming strategic, so must the role of data make this transition. Companies will find intersections with their business value in the data, but they must build on the compliance data and move beyond it to do so.
Non-financial ESG data has immense value, but it comes through our ability to reason over it and act. Again, there are existing data points that should be driving our collective actions already, as called out in the previous section. Companies are sitting on their versions of ‘75% of global emissions’ that they need to sort out, but it may be overlooked.
Globally, we can no longer ignore what we know to be true. As we lead into COP28, new data points will emerge, including the first Global Stocktake, updates on Loss and Damage, and the reality of funding a sustainable energy transition.
As you examine your company’s data and what comes out of COP28, take a hard look at the data, compare it to what you know, and question what can be done.
Resources
ESG on a Sunday: Better ESG Data Is Not Going to Save the World (substack.com)
👆This one had me riled up this week, in addition to all the news mentioned.