Sustainability is on a path toward becoming mainstream, and it is encouraging to see this growth, although we remain in early days. An emerging challenge worth noting and monitoring is the subversion of the term with the objective of masking operations with severely negative externalities [1].
This and other challenges arise from the amorphous and inherently subjective nature of the term sustainability, which is constantly changing to match our society’s environmental and social needs, goals, and collective vision.
For example, companies that explore the earth to produce fossil fuels, operating activities that so evidently result in exacerbating the climate crises, or even companies that produce cigarettes, which are known to be addictive and contribute to unnecessary deaths — these companies are being recognized for their ‘strong performance’ on sustainability.[2]
Having worked with ESG (environmental, social, governance) teams from various institutional asset managers recently, there is a strong trend of interest, investment and growth that is helping to inch sustainability closer to mainstream, at least from an ownership perspective.
Nonetheless, many ESG teams are met with skepticism and confusion by the broader investment teams, inhibiting adoption, rigor, and full “ESG integration”[3]. When the market as a whole more accurately prices in the externalities that result from company activities, mainstream will be just around the corner.
Problematically, corporate messaging at times obfuscates critical issues that stakeholders (consumers, owners, etc…) should be aware of and engage with the company on. While sustainability may reach the mainstream, it will always need a focused and dedicated field of study, since both the definition of sustainability and best practices are dynamic and will change with the times, requiring new methodologies, approaches, and considerations.
[1] Externalities = negative or positive impacts felt by 3rd parties (without their consent) resulting from the operations or products of one party or an agreement / deal between two unrelated actors
[2] RobecoSam
[3] Referencing the practice of incorporating environmental, social, and governance considerations into investment decisions and valuation.
