Is sustainability going out of fashion in Scotland?

The surge in environmental, social, and governance (ESG) initiatives seemed to herald a new era where profitability and social responsibility could coexist. However, as economic pressures mount and initial enthusiasm wanes, a pressing question arises: Is sustainability losing its appeal?

Over the past 18 months, a troubling trend has emerged as major corporations retreat from their ambitious ESG commitments. With oil prices climbing, companies like BP and Shell have scaled back their carbon-emissions targets, while footwear company Crocs has delayed its net-zero carbon goal from 2030 to 2040.

Microsoft’s rapid expansion in AI has raised questions over its carbon-reduction targets, and tech giants like Meta and Google are scaling back their diversity, equity, and inclusion initiatives. 

These developments suggest that for many companies, the perceived costs of sustainability are starting to outweigh the benefits, while growing concerns over greenwashing add to the challenge by discouraging full commitment to sustainability initiatives.

Implementing comprehensive ESG strategies often requires substantial upfront investments, with financial returns that remain uncertain. Transitioning to renewable energy, ensuring supply chain transparency, adopting circular economy principles, and enforcing ethical labour practices can be expensive, and the benefits may not be immediately apparent.

As a result, some view sustainability as noble, but impractical, in a competitive market. In the investment sector, the percentage considering ESG factors in their decisions has declined from 65% in 2021 to 53% in 2023. 

Dr Antoinette Fionda-Douglas

The underperformance of ESG equity funds compared to traditional ones has led to a multi-trillion-dollar shift away from ESG investments. This change might partly explain why Renewcell, the world’s largest textile-to-textile recycler, recently filed for bankruptcy after failing to secure additional investment.

Business leaders’ and investors’ concerns over greenwashing have also surged, with 63% of respondents in a recent Association of Investment Companies (AIC) survey expressing fears about misleading environmental claims.

This has been prompted by global regulatory bodies cracking down. The US Securities and Exchange Commission has adopted new climate-related disclosure rules, while countries in Asia-Pacific, such as South Korea and China, are enacting their own greenwashing laws. Australia has already issued its first penalty, and Latin American nations like Perú, Chile, and Colombia are also advancing similar legislation. 

Europe is leading the fight against greenwashing, with France and Germany enforcing strict laws and the EU’s 2024 Green Claims Directive setting new standards. This directive requires detailed disclosures and third-party verification for environmental claims, imposing fines of at least 4% of annual turnover for violations.

It also bans terms like “carbon neutral” or “carbon positive” from 2026 and prohibits claims based solely on carbon offsetting. These changes are already making a difference – H&M got rid of its “Conscious” label following an investigation, and Zalando took down sustainability icons from its website after being called “misleading”. 

Many businesses are finding themselves in a difficult position – falling short of their own sustainability goals and hesitating to share their progress for fear of being accused of greenwashing. 

At the heart of the problem, as Kaisie Rayner, a Sustainable Futures leader, points out “is the legal structure that we’ve used to create companies makes it clear that the directors within those companies are not supposed to be sitting there making decisions as if they’re a human. They’re supposed to be sitting there making decisions as if they’re a calculator. They’re supposed to leave the moral compass at the door, as section 172 of the Corporation’s Act requires them to”.

She argues governments must reform corporate law to prevent companies from prioritising profits at the expense of the planet and people. 
She explains: “The current system we’ve designed doesn’t allow the needs of humanity to take precedence over financial gain.”

We are at a critical juncture in our economic and business cycles, where ambitious but poorly planned 10-year goals set in the wake of COP26 now appear increasingly difficult to achieve.

Many corporations have approached sustainability initiatives reactively, driven by external pressures like regulatory mandates, consumer expectations, or investor demands, rather than integrating these efforts into their core business strategies. 

This reactive approach often results in fragmented and inconsistent efforts that fail to yield significant, lasting outcomes. Additionally, the implementation of these goals has been hindered by a lack of robust government policy support, leading to high costs and uncertain profitability.

Despite these challenges, unsustainable business practices are no longer viable, and no responsible boardroom or investor can afford to ignore the long-term consequences to our planet or its inhabitants. So, where do we go from here?

To make real progress, corporations need to view sustainability as a catalyst for innovation, not just a compliance issue. This means shifting the focus from short-term metrics like quarterly earnings to long-term benefits such as risk reduction, anticipating future-proof regulatory compliance, and enhanced brand reputation.

Companies should prioritise transparency and accountability by setting clear, measurable goals, regularly reporting progress, and actively engaging with stakeholders. Additionally, collaboration with governments, NGOs, and other businesses is essential for addressing complex global challenges. By sharing knowledge and pooling resources, companies can drive innovation and develop solutions that benefit both society and the planet.

However, to drive genuine innovation and systemic change, strong government leadership is fundamental. We must rethink the role of limited companies in society, as this is a complex, systemic issue. 

As Kaisie Rayner notes, Adam Smith warned in The Theory Of Moral Sentiments that unchecked corporations can be detrimental to society. 

In The Wealth Of Nations, he argued that without a strong moral framework, corporations are likely to prioritise rent-seeking and wealth extraction over societal wellbeing. If government policies truly support sustainable practices, businesses will follow suit. If corporate law mandates that people and the planet must be prioritised over profits, it will happen. 

In the UK, starting with the widely supported Better Business Act campaign, launched in 2021, would be a great way to drive change. This change would shift focus from prioritising shareholders and profits to making sure that businesses are legally obligated to benefit everyone involved – employees, customers, communities, and the environment.

Clearly, to ensure that corporations contribute positively to societal transitions, we must strike the right balance between profit and responsibility. This requires us to allow the current system to decline while believing that a new one can be born. 
It’s about hospicing modernity while simultaneously imagining a better future. 

Let’s envision what a flourishing, thriving society in 2100 could look like – a just future where ESG is not just a passing trend but a foundational element of building a resilient, future-proof businesses that makes current and future generations proud. n