A few years ago the sustainability agenda appeared unassailable: it was a case of decarbonise or die. Now, with everything from green funds to diversity policies getting caught up in the culture wars, the wind has gone out of its sails somewhat.
Just this month the Financial Times reported that investors have pulled $40 billion (€37.3 billion) from sustainably focused equity funds this year, a trend the newspaper attributes to a mix of poor performance, scandals and attacks from US Republicans. The problem for sustainability is that it has become both politicised and weaponised.
Asset managers in the United States have long since felt the ire of Republicans bent on eradicating environmental, social or governance (ESG) considerations from investment decisions. Some red states insist that ESG play no part in public investment decisions, such as where state pension funds park their cash.
Pushback against the green agenda is being felt in Europe too, particularly eastern Europe, where fringe groups accuse environmentalists, industrialists and financiers of working in cahoots by capturing EU agricultural policy and forcing farmers to grow carbon credits instead of food.
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For citizens it can be hard to separate the wheat from the chaff – the fact that the EU itself backed the labelling of investments in gas and nuclear as climate friendly shows just how hard.
Political infighting for a while looked set to scupper the Nature Restoration Law, a key plank of the EU’s flagship Green Deal. What seemed from the outside to be an unalloyed good – reversing biodiversity loss and planting trees – was only finally passed after serious pushback by a number of countries.
Farmer protests also succeeded in getting EU agricultural gas emissions measures – nitrogen and methane, the dirty duo – watered down, while even mainstream politicians, such as France’s Emmanuel Macron, have called for a “pause” in environmental regulations.
Although no doubt fuelled by alarm at the rise of the right, this is the kind of mixed messaging that puts the entire sustainability agenda in peril – not least because it impacts consumer decision making.
EV sales here are already stalling. According to figures from the Society of the Irish Motor Industry (SIMI), EV registrations in May were down 39 per cent on the same month last year. EV sales in the first five months of this year were down 21 per cent.
Electric vehicles’ share of the market now stands at 13 per cent, down from 17 per cent on last year. That puts them back to 2022 levels, figures which by now should be far in the rear-view mirror.
Down with diversity?
Diversity, equity and inclusion (DEI) policies are also caught up in US culture wars, with red states keen to limit DEI practices in public offices, from state capitals to college governing boards. In the UK Esther McVey, the then minister without portfolio dubbed the “common sense” minister, called for the civil service to cut spending on DEI, arguing that money was being wasted on “woke hobby horses”.
Under plans announced by the Conservative government, all external DEI spending in the UK’s civil service was to cease, unless cleared by a minister.
The Republic has so far remained relatively unscathed by the culture wars. But with a growing immigrant population and growing anti-immigrant rhetoric it would be foolish to think that will always be the case.
“What we are seeing here is that companies that have diversity and inclusion as part of their ethos, who see the business value and impact of having a diverse workforce, are bedding down and continuing with their philosophy, purpose and approach. But there is a greater need, as part of that, to show that it is having a positive impact,” says Mary Connaughton, director of human resource professionals association CIPD Ireland.
“In organisations that were only paying lip service to it, or hadn’t really gone down this road at all, they are kind of paused and not doing a lot in that space.”
Though it’s still not a big topic here, there is no room for complacency, Connaughton points out: “We can see this conversation is going on in the US and UK and, given how many of organisations here have parent organisations in these countries, we know we are not immune to it.”
When it comes to DEI, the good news is that the State’s equality legislation should mitigate against the worst of it.
“We do have relatively strong legal underpinnings to all this. We have legal protections in place which will stand, regardless of the social media rhetoric,” says Connaughton.
Indeed, such underpinnings are strengthening, she adds, with the expansion of gender pay reporting to smaller organisations and the transposition of the EU pay transparency directive, which the State has until 2026 to implement.
Reasons to be cheerful
There are other reasons to be sanguine. Yes, some investors may be ditching ESG-linked funds, but perhaps that’s a reaction to a financial services sector that had overly hyped green funds, and, even – whisper it – engaged in greenwashing. If that is now coming out in the wash, and taking investor funds with it, it is no bad thing.
There was some “co-opting of sustainability and ESG by folks that were not necessarily purists, or with the purest of intentions”, says Stephen Prendiville, sustainable infrastructure leader at Deloitte.
There has also been some right-sizing going on, given that “very often ESG indices were linked to the aspirations and goals and strategies of entities, as opposed to what they might be doing right now,” he explains.
The fact that Tesla, for example, a maker of green cars, scored lower in ESG rankings than oil companies – because of labour issues – gave many investors pause for thought.
“It really set people abuzz about what can we trust in the ESG and sustainability linked space, if this is really the case,” says Prendiville. It also explains Elon Musk’s “DEI must die” tweet.
Another reason sustainability got caught up in the culture wars was because it too quickly became commoditised and productised, moving from being a movement to being a thing.
“As a result it has been losing its meaning and the movement has been losing its momentum,” says Prendiville.
Not only has sustainability had the volume turned down as a talking point in elections around the developed world, he points out, but, depending on the outcome of those elections, it might stay muted for a while. Given the commitments signed up to under the Paris Agreement, which need to be lived up to, “that’s a major, major issue,” he cautions.
However, despite the concerns, Prendiville is confident we have passed a tipping point on sustainability, and not only because extreme weather has made the risks of climate change more personally relatable and immediate.
“We are so much further along than we were four years ago, even in relation to the amount of things that are almost baked in and taken for granted around the decarbonisation that needs to happen,” he says.
Though there might currently be chatter, the important conversations have been had and decisions made, he suggests, pointing to electric cars as a case in point.
“As soon as there was a dip in car sales, you had an awful lot of people saying, I told you so. It’s almost human nature – why wouldn’t we love to wake up one morning and find that all the climate crisis stuff had gone away and was never a problem in the first place, so we don’t have to change anything?” he says.
“But it doesn’t matter what that guy over there is saying, or that one person who is hanging on to their dirty diesel, because companies like Volkswagen and Toyota and all the big OEMs [original equipment manufacturers] are committing huge sums of money to electric vehicles. It’s coming, whether you like it or not.”
Whether it is all those rounds of COP conferences, those legally binding emissions targets, or that anti-discrimination legislation, the foundations for a more sustainable future are firmly in place.
“There’s a platform there now for change, growth and movement that, with the greatest will in the world, the naysayers can’t really hold back,” says Prendiville.
