Sustainable Business: Trends and Challenges

May 17, 2024

https://triplecrownleadership.com/sustainable-business-trends-and-challenges/Sustainable Business: Trends and Challenges

At the University of Denver’s Sustainable Business Symposium recently, we heard about several trends and challenges, including not only advances in renewal energy and carbon emissions reporting but also a backlash against ESG, greenhushing, and pushback against DEI efforts.

The challenges are real, but so is the progress. But first, the context.

The Ethical Basis for Sustainable Business

In his welcome address at the symposium, Bruce Klaw, Chair and Associate Professor in the Department of Business Ethics and Legal Studies at the University of Denver, started with a historical perspective going back four decades.

He noted that the United Nations formed the Brundtland Commission, named after the former Prime Minister of Norway, aiming to unite countries around the goal of sustainable development. There were grave concerns even then about environmental degradation, energy, poverty, and conflict, along with a sense that the world lacked the political will and capacity to address these daunting challenges.

Embedded in their definition of sustainable development (“development that meets the needs of the present without compromising the ability of future generations to meet their own needs”), he noted, was a moral claim: “that we owe something to each other,” in his words, “to the planet we all inhabit, and to the future generations who will inhabit it.” Professor Klaw continued:

“While it may be practical considerations—like profitability, risk, and reputation—that often underpin efforts to consider people and planet in business strategy and operations for today, it is ethics—the simple belief that it’s the right thing to do—that motivates our efforts to consider future generations in our decisions of today….
Sustainability is ultimately about ethics. It’s about making ethical choices—to think beyond our immediate wants and conveniences; to account for the communities and other stakeholders affected by our decisions; to consider how we can do better than business as usual; and to think about the long-term legacy we leave behind.”

It’s in this larger context that we view recent challenges threatening progress in these important endeavors.

Personal Values Exercise

Complete this exercise to identify your personal values. It will help you develop self-awareness, including clarity about what’s most important to you in life and work, and serve as a safe harbor for you to return to when things are tough.

ESG Backlash

ESG (environmental, social, and governance) is both a framework for a set of issues that companies are expected to report about so people can assess their sustainability and societal impact efforts and a set of aspects that can be considered in investing.

While sustainability remains very popular generally among consumers and investors, ESG has become something of a lightning rod politically. According to a recent Conference Board survey of more than 100 large U.S. companies, nearly half reported that they’ve experienced ESG backlash.

What’s going on? The term “ESG” got caught up in heated debates over “woke” and progressive policies, and whether some investment managers and policymakers have become too hostile to fossil fuel companies. Larry Fink, chairman and CEO of BlackRock, announced recently that he stopped using the term “ESG” because it’s become “weaponized.”

Signs of the ESG backlash include:

Several states blacklisted money managers with sustainability commitments (e.g., BlackRock, Goldman Sachs, State Street, Wells Fargo).
Many states introduced legislation designed to limit ESG considerations as investment strategies among financial institutions. (About half of these initiatives have failed, according to an S&P Global analysis, leaving about 18 or so that have succeeded. Meanwhile, several states bucked the trend and passed pro-ESG laws.)*
Several major U.S. financial institutions (including BlackRock, JPMorgan, Pimco, and State Street) withdrew from Climate Action 100+, a global coalition of money managers pushing big corporations to address climate challenges.
Support for ESG policies in shareholder proxy voting has dropped.

There’s also frustration that ESG claims aren’t as clear and precise as they should be to help people make informed choices. Many companies need to get better about making the business case for sustainability and explaining how ESG fits into their overall strategy, as opposed to being a side issue. On the investing side, why not ensure more precise and accurate reporting on all funds and allow people to choose what kinds of funds to buy, whether ESG or not?

One issue to watch closely going forward: These days, we’re so focused on carbon emissions disclosures that we’re often not seeing what’s ahead, including the challenge of disclosing impacts on things as complex as biodiversity.

In the end, we’re less likely to see the end of ESG reporting and investing in practice than a change in terminology, with less focus on “ESG” and more on sustainability, corporate responsibility, conscious business, and responsible growth.

Leadership Derailers Assessment

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From Greenwashing to Greenhushing

For a long time now, we’ve been aware of “greenwashing”—companies exaggerating their environmental efforts, representing themselves as being greener than they are. There’s a spectrum here, from companies engaging in wishful thinking as they naively push for unreachable goals (a.k.a., “greenwishing”) to companies cynically deceiving consumers so they can sell more products or charge higher prices.

A newer phenomenon is “greenhushing”—when companies choose to downplay or be quiet about their sustainability goals and efforts. While greenwashing is about exaggerating and over-reporting sustainability initiatives, greenhushing is about the opposite: hiding and under-reporting them.

How common is it? A 2022 South Pole report found that 67% of surveyed sustainability leaders (in 1200 companies) have a net zero and science-based carbon emission reduction target but only 23% have chosen not to publicize their milestones beyond the bare minimum.

What are the motivations for greenhushing? There are several, including:

protecting them from critics (e.g., who may accuse them of greenwashing if they overpromise and underdeliver)
bypassing the perception among some consumers that sustainable products have lower quality
protecting them from lawsuits (e.g., they don’t meet their targets)
avoiding pushback from investors who believe that focusing on ESG can lower financial returns

Alignment Scorecard

When organizations aren’t aligned, it can reduce performance dramatically and cause frustration and dysfunction. With this Alignment Scorecard, you can assess your organization’s level of alignment and make plans for improving it.

DEI Pushback

Diversity, equity, and inclusion (DEI) initiatives aim to promote the fair treatment and full participation of all people in the workplace, particularly people from groups that have historically been underrepresented or subject to discrimination. Goals of DEI initiatives include unlearning stereotypes and biases against certain groups of people, learning to respect differences, boosting the talent pipeline, not overlooking job applicants due to biases, and improving organizational culture and performance.

As with ESG, DEI has also been caught up in the culture wars. Concerns have escalated from early complaints about corporate window-dressing and cynical attempts at manipulating public perceptions to concerns about unfairly harming white workers and reverse racism.

Signs of the pushback against DEI include:

A significant decrease in job postings with “DEI” in the title or description
Anti-DEI legislation (with 24 states considering bills and at least 8 states enacting laws, according to a recent report)
Lawsuits

According to data from the Pew Research Center, a majority of employed U.S. adults (56%) report that focusing on increasing DEI at work is a good thing. However, there’s a sharp divide along party lines, with most Democrats supporting it and most Republicans opposing it.

This has led to a form of “DEI-hushing,” as we saw above with “greenhushing.” Where’s this all headed? In some cases, it’s leading companies to remove DEI programs. But it’s likely to lead to more renaming of such programs than removals. For example: shifting from “DEI” to “IDEA” (Inclusion, Diversity, Equity, and Action). Again, the political pendulum may shift back and forth, but the underlying issues aren’t going away, nor are the efforts to right wrongs and take us forward.

Call for Courage

Leaders today face not only the normal challenges of performance, culture, and alignment in a difficult macro environment but also these kinds of political cross-currents and culture wars. To address them, they’ll need not only judgment and wisdom but also moral courage and ethical clarity. It’s a tall order. How will they respond to the challenge?

Tools for You

Leadership Derailers Assessment to help you identify what’s inhibiting your leadership effectiveness
Personal Values Exercise to help you determine and clarify what’s most important to you
Alignment Scorecard to help you assess your organization’s level of alignment

Post Script: Inspirations on Sustainable Business

“For far-sighted companies, the environment may turn out to be the biggest opportunity for enterprise and invention the industrial world has ever seen.” -The Economist
“I think every business needs a leader that does not forget the massive impact business can have on the world. All business leaders should be thinking, ‘How can I be a force for good?’ What I see is demand from our people to be a business that is good, makes a profit, but also does something for the planet and humanity. I think this is a trend we will see more of.” -Richard Branson, British entrepreneur, philanthropist, and founder, Virgin Group
“We measure success by the way we touch the lives of people.” -displayed on the wall at the company headquarters of Barry-Wehmiller
“The business of business isn’t just about creating profits for shareholders—it’s also about improving the state of the world and driving stakeholder value.” -Marc Benioff, CEO, Salesforce
“The purpose of business is not to make a profit. The purpose of business is to find profitable solutions to the problems of people and the planet.” -Robert Fish, co-founder, Biggby Coffee
“It was incumbent to connect what was good for the business with what was good for the world…. Every company has a soul, made up of all the people who comprise the enterprise. Employees do not want to park their persona at the door. They want to work for a company where they can bring their whole selves to work, a company that cares about the world.” -Indra Nooyi, former CEO, PepsiCo
“We’ve now become conscious of the uncalculated social, economic, and environmental costs of that kind of ‘unconscious’ capitalism. And many are beginning to practice a form of ‘conscious capitalism,’ which involves integrity and higher standards, and in which companies are responsible not just to shareholders, but also to employees, consumers, suppliers, and communities. Some call it ‘stakeholder capitalism.’” -Patricia Aburdene, best-selling author, thought leader
“Business as usual is not a viable option…. I think capitalism is amazing as a driver of efficiency, and innovation, and productivity. But if you don’t have a level playing field for how you treat people, and if it’s legal to dump huge amounts of pollution, I mean planet-altering amounts of pollution at no cost, then the market’s not going to do what you want it to do.” -Rebecca Henderson, Reimagining Capitalism in a World on Fire
“If the success or failure of this planet, and of human beings, depended on how I am and what I do, how would I be? What would I do?” -Buckminster Fuller
“The time is always right to do what is right.” -Martin Luther King, Jr.
“Human greatness does not lie in wealth or power, but in character and goodness.” -Anne Frank
“The fruit of this life is good character and acts for the common good.” -Marcus Aurelius

Note: This post was inspired in part by the Sustainable Business Symposium hosted by the Business Ethics and Legal Studies Department at the Daniels College of Business and the University of Denver.

* Approaches vary. Some states order state pension funds not to consider ESG factors when investing, while others ban discrimination against companies that sell fossil fuels (and/or guns).

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Gregg Vanourek is a writer, teacher, and TEDx speaker on leadership & personal development. He is co-author of three books, including Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations (a winner of the International Book Awards written with his father, Bob Vanourek). Check out their Leadership Derailers Assessment or get their monthly newsletter. If you found value in this, please forward it to a friend. Every little bit helps!