ESG is past its peak. But it’s more important than ever | by Ari Joura, PhD | March 2024

The hype is dying down, but ESG-related issues remain pressing

Working on ESG issues can feel like a roller coaster ride. Image created by Leonardo AI

When interest rates rise, long-term aspirations take a back seat. This is natural: As financial institutions pass on higher borrowing costs, their customers become less willing to embark on projects with high upfront costs and uncertain outcomes.

ESG-related topics were influenced by this background. Many sustainable projects come with a large need for upfront cash and decades of low or uncertain returns on investment. In a low interest rate environment, this may be feasible if the expected returns are large enough over several years or decades. However, with higher rates, the cost of financing is too high and future returns are discounted to the point of irrelevance.

The result is a difficult environment for ESG-related topics at the time of writing. Given the need to address issues such as climate change, nature degradation and social issues, such topics do not deserve to be pushed aside. To illustrate, consider the fact that 2023 was another year peak oil — and the absolute peak is unlikely to be reached until 2028, it says International Energy Agency. Even adjusted for multi-year climate phenomena such as El NiñoClimate change appears to be accelerating:

Global temperatures have risen faster in the past decade. Source: An open mind

Unfortunately, other factors further complicate the path to a greener and fairer future. Many industries cannot keep up with the pace of ESG regulation, even though regulation is probably not moving fast enough. Some companies see ESG as a compliance exercise without really committing to important causes, making it difficult to analyze. Leading voices on ESG are turning their attention elsewhere. All of this is happening against the backdrop of an increasingly conservative political environment and the upcoming US election.

These are challenging times for sustainability. But in all challenges lie opportunities. It is up to us to take up these challenges to make sustainability better, faster and faster.

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