Business And Society

2023:
Year inA Strange, Tumultuous
Sustainability
by Andrew Winston
December 28, 2023

master1305/Getty Images

Summary. The year 2023 contained several important sustainability narratives

and trends. The author outlines three key ones — the anti-ESG movement, China’s
acceleration of a clean economy, and the rise of reporting regulations — and then
suggests a series... more

This was a rough year. The world’s biggest challenges generally

got worse, or at least more complicated. Our biggest existential
threat, climate change, is no longer a scientific model of the
future; it’s now a relentless daily challenge. This year, yet again,
heat records were shattered, wildfires and dangerous air spread
over unprecedented areas, and flooding and storms destroyed
thousands of lives. Even the (seemingly) world’s most powerful
woman, Taylor Swift, had to postpone a concert in Brazil because
of the heat. Scientists tell us that we’ve pushed the planet beyond
its ability to support us in critical areas such as availability of
water, biodiversity, and, of course, carbon emissions.

The good news is that even though we’re not moving fast enough,
sustainability in business is mainstream — a must-do, not a nice-
to-do. With both significant bad and good news, I’m frequently
asked if I’m optimistic or pessimistic. I can’t answer that easily.
The forces driving companies toward sustainability are relentless
… yet we’re not doing enough and some powerful counter-
pressures are in play. I see duality. As a society, we are winning
(more companies doing more than ever) and losing (emissions
and inequality still rising). As the clean economy grows, or human
rights and equality get more attention, those who do not want
these changes also work to slow progress. So, my core takeaway
from the year is that there’s a yin-yang of interconnected,
opposing forces.

So, let’s look at three themes in sustainability from 2023 that

really dwarf other stories. One side of the tug-of-war generally has
an advantage — and it leans toward more sustainability and more
clean tech — but none of these trends were unobstructed.

1. The Anti-ESG Movement Plagues Companies

This was the biggest topic in sustainable business by far, even as
we struggled to clearly define “ESG.” To me, ESG — which stands
for environmental, social, and governance — is mostly a term
used by the financial world to look at the risk to companies from
environmental and social issues. It’s not the broader idea of
sustainability, which covers the role of business in society and its
contribution to a thriving world. But the terms got conflated, with
ESG opponents using it as “a proxy for opposition to the spread of
‘liberal values,’” as the then-head of sustainability for the
financial services firm Morningstar pointed out. Anti-ESG is an
American creation, and it has a number of flavors, but I heard
discussions of it all over the world.

It’s influence played out in a number of ways. Some companies

and brands — like M&Ms, Target, and Bud Light — faced
firestorms of protest for actions critics found too “woke,” and took
heat for their often awkward responses. Most famously, the
governor of Florida kept battling one of the world’s most beloved
brands, Disney, over the company’s position on state laws
targeting the LGBTQ+ community. CEO Bob Iger hit back, calling
the attacks “anti-business” and then cancelled a $1 billion office
development.

In response to a significant amount of talk in the media and

amongst employees on these issues, many companies decided to
go silent, embracing a sustainability word-of-the-year,
“greenhushing.”

On the other hand…

There’s been a bit of a waning of anti-woke rhetoric on the U.S
presidential campaign trail, and the significant amount of noise
does not seem to be derailing action. A Bloomberg Intelligence
survey found that the “trend of increasing focus on ESG by both
businesses and investors … appears to remain intact.” The report
found that three quarters of executives think the benefits of ESG
are worth the increased risk of scrutiny. Around 90% of investors
felt ESG was mainstream, part of their fiduciary duty, and helped
them make better decisions.

Some in the investment community even pushed back on anti-

ESG laws — partly because, as one analysis concluded, those state
laws could cost taxpayers $708 million. Banks are also making
more money from loans and underwriting to clean energy than to
fossil fuels. One memorable headline read, “Morgan Stanley
Doubles Down on ESG Despite the Politics.”

Other coverage of company action found plenty continuing their

work on sustainability, even in states that are hostile to it. For
examples, South Carolina steel-maker Nucor is working to make
low-carbon steel and set a goal for net zero across value chain by
2050.

The reality is that there wouldn’t be such powerful backlash if

there weren’t real progress. On some level, it doesn’t matter too
much if companies speak less as long as they continue to do the
hard work of decarbonizing and tackling inequality. But it is a
concern, as it might make it less likely they will work on the
larger, systemic problems we need to solve. It’s hard to collaborate
if you don’t talk. The silence should lessen. Some corporate
leaders are just changing language — BlackRock CEO Larry Fink
says he’ll stop using the “weaponized” term ESG (but the firm
kept launching ESG funds).

2.Points
China Leads the World to Clean Economy Tipping
The year in clean tech started with the amazing news that the
world had spent more than $1 trillion on green tech, which topped
investment in fossil fuels for the first time. And the International
Energy Agency, which has been underestimating the growth of
clean tech for decades, now sees the light, describing an
“unstoppable” energy transition. Many regions and countries
accelerated their efforts; for example, the EU is banning sales of
new internal combustion engine cars by 2035 and calling for a
phase-out of fossil fuels. And France banned short-haul domestic
flights in favor of trains.
Great news all around. But it was China that blew everyone away.
In what may be the single biggest sustainability headline of the
year, China’s national oil company, Sinopec, said the country had
reached peak gasoline demand (in part by radically increasing
sales of EVs). Some analysts believe China may have peaked in
total carbon emissions already. The country was on track to add
150 gigawatts of solar this year (versus adding 87 gigawatts in
2022), more than the total capacity in the U.S. And in a rare
positive moment in U.S.-China relations, the countries agreed to
ramp up renewables. If all the estimates are true, it’s a
monumental and fundamental shift in global energy and
transportation systems — which has enormous ripples for many
gargantuan value chains. And it goes directly against the
persistent myth that “China isn’t doing anything” on climate.

On the other hand…

As critics point out, China is permitting more coal plants, but this
can get misconstrued. (People say to me that China is building two
plants per week when, in reality, many don’t get built.) The new
plants are much cleaner, it’s generally backup power, and China is
also cancelling and shelving plants rapidly as well.

There are more important countervailing forces, including some

indication that exponential growth rates of some techs, like solar,
may slow in 2024 due to supply-chain issues. But more pressing is
the swing toward conservative leaders globally, which generally
correlates with being pro-fossil fuels and actively anti-
renewables. For example, Mexico has been making renewables
projects much harder and pushing fossil fuels. The UK retreated
on some climate policies, like delaying a ban on combustion
engines in cars to 2035.

And the global climate summit in Dubai, COP28, included the

meeting president (and CEO of the UAE’s national oil company)
sounding like a climate denier. Fossil fuel interests now dominate
COP, and they’ve inserted into the discussions the language of
“abated emissions” — i.e., you can keep burning fossil fuels if you
can capture the carbon (a big if). The final language of the COP28
agreement seems to support a fossil fuel phase-out, but we’ll see.
We’ve also seen some serious citizen pushback in a number of
countries to policies that are perceived to raise the cost of living.

There’s also increasing concern about one aspect of the clean tech
transition: There are problematic working conditions in the
mining supply chain for clean-economy metals like lithium and
cobalt. These are real concerns that should be addressed. The
clean tech transition is necessary for our thriving and survival,
but we must simultaneously address human rights issues that
have plagued all forms of energy. As part of this work, the U.S. and
EU are working to secure sourcing under better conditions, as
well as sourcing more broadly than from just China.

Finally, I want to note the persistent myth that EVs are “just as
bad” as (or worse than) fossil-fuel cars in terms of carbon
emissions because of a) the energy needed to make a battery-
powered vehicle, and b) the fact that it’s often plugged into a dirty
grid. Yes, of course EVs have a footprint, but they are much more
efficient users of energy and they are a key part of a systemic
solution, including cleaning up the grid. This is a much longer
conversation, but the short version is that the footprint of a
combustion and oil-based transportation system is wildly higher
than a battery and electricity-based one.

3. Rising Requirements and Regulations for Reporting

The biggest tactical discussion about sustainability in business is
focused on reporting. It’s wonky and unsexy, but rising
regulations covering “non-financial” reporting are creating a lot
of work and stress for companies. Most of the attention is focused
on the requirements measure and report on carbon emissions —
both their own and, increasingly, their suppliers’ and customers’
as well (called “Scope 3” emissions). But these new rules also
demand discussion of impacts on water, biodiversity, human
rights, and more.

It’s a fundamental shift in what companies have to measure and

disclose, and the EU is leading the charge. The European
Sustainability Reporting Standards (ESRS) and Corporate
Sustainability Reporting Directive (CSRD) create new
sustainability reporting obligations for an estimated 50,000
companies. Multinationals, even if headquartered outside the EU,
realize they must prepare as well.

But the EU is just one player. In 2023, new laws in Canada and
Germany, for example, will require that companies report on the
emissions and targets for their supply chains. As a country,
California would be the fifth largest economy in the world, so its
two climate-related disclosure bills have an enormous impact.
One bill, the Climate Corporate Data Accountability Act, requires
any company operating in the state (with more than $1 billion in
revenue) to disclose their GHG emissions as well as Scope 3
emissions. Almost all of these new bills also hold companies to
extensive standards of climate reporting, most notably the
guidelines provided by the Task Force on Climate-Related
Financial Disclosures (TCFD).

On the other hand…

These are laws, so they’re not exactly optional, but pushback, or at
least some nuance, is growing. The alphabet soup of regulations
and guidelines is not easy to navigate, so companies are raising
important concerns about how, for example, they can gather
Scope 3 data from suppliers that may not have it. Also, data and
tracking are good things, but it’s possible that extensive reporting
is getting in the way of real action by sucking the air out of the
room. I’ve seen internal data from consultants that have surveyed
sustainability executives on their priorities. In 2022, the top issue
was integrating sustainability with strategy, which is what we
want to see. Now, the top concern is about how to answer all the
new requirements.

The way out of this morass is partly about dedicating enough

resources. Companies need more people working on ESG and
sustainability reporting. But in parallel, I also hear companies
making the case that we shouldn’t seek perfection anyway — after
all, precise Scope 3 data is going to be hard to come by (and
actually non-existent further up supply chains — picture a small
apparel company in China that does not have tracking systems on
carbon emissions or human rights). Many aspects of financial
statements are estimated today (for example, goodwill on the
balance sheet), so some leeway on sustainability data should be
expected.

...
A conservative-led quasi-rebellion against ESG, the continued
explosion of clean tech, and the rise of new, detailed
sustainability regulations — these are the big three stories of the
year in corporate sustainability. Of course, many other things are
going on. So, here’s a rapid-fire list of other areas that caught my
attention and will likely become much bigger stories in the next
year or two.

Emissions-heavy industries — the so-called “hard to

abate” sectors like cement, steel, and aluminum — are
starting to turn the ship. Extensive partnerships to develop
low/no-carbon manufacturing technologies, growing
commitments from buyers to guarantee revenue (like this
“green steel” buying network), and new financing
approaches (such as the Sustainable Aluminum Finance
Framework) are proliferating.
 Company positions on policy continue to get scrutiny, as
there’s a clear disconnect for many between their own big
goals and what they, or their trade associations, lobby for.

Insurance companies are starting to bail on places hit

hard by climate-enhanced weather, like State Farm
discontinuing new home insurance policies in California
because of wildfires.

Consumers may finally become a force for sustainability. A

fascinating McKinsey study shows that products with ESG
claims on packaging experienced faster sales growth.

Engaging Gen Z stakeholders directly in sustainability and

activism (versus leaving them to despair about their future;
consider the shocking data on how more than half are not
planning to have kids, in part because of climate change) is
a rising topic. One cool example: Puma’s “Voices of a
Re:Generation” program brought in some young influencers
to help guide their sustainability thinking.

The value of nature — i.e., the many trillions of dollars of

services it provides society and business, as well as our very
existence — has always been hard to quantify precisely, but
efforts continue. In 2023, we saw the development of the
Taskforce on Nature-related Financial Disclosures.

Living wages, a critical element of fighting inequality

(especially in supply chains), are unfortunately nearly
nonexistent in large companies, according to a Just Capital
study (but I remain optimistic that this is shifting).

In total, the tipping points are clear. But countries and companies
are not on track to hit net zero targets as fast as science requires.
The overall story remains one of a crooked path to inevitable
 change. A cleaner, more just economy and world is being born,
but it’s not going to be smooth sailing. I remind myself that
resistance is just a sign that sustainability is winning. Onward to
2024.

Andrew Winston is one of the world’s leading

thinkers on sustainable business strategy. His
books include Green to Gold, The Big Pivot, and
Net Positive.

 @AndrewWinston

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