The era when sustainability was the top of every business agenda appears to be over, at least in certain parts of the world.
Numerous corporate announcements about carbon neutrality, net zero and ESG have come and gone, leaving many in the sector feeling a but jaded and lost.
But scratch beneath the surface and sustainability is still there. Other issues like AI might be the buzzword of the moment, but it is still embedded across many corporations, which are now grappling with extreme weather events, driven by climate change.
EY’s global vice chair (assurance), Marie‑Laure Delarue, said recent events are helping boardrooms focus on resilience, security and sustainability, in an interview.
Delarue added sustainability, in particular is now shifting from a “compliance exercise” to something far more strategic and embedded across a business, operations and supply chains.
And she said while a lot of focus has been on carbon in recent years, there is a growing a growing shift towards focusing on nature impacts.
“Overall, businesses are starting to realize we are much more constrained by natural resources than we previously thought,” Delarue told me.
“Water stress has become one of the most pressing issues in many economies. It’s already been the case in the Middle East and South Africa, but now we have companies in Europe who are telling us they had to briefly stop their factories last summer, because of water restrictions.”
“Since the energy crisis in 2022, a lot of small companies have understood exactly how much they spend on energy and adapted.
“If they are asked how much they spend on water, they have no clue. But this is going to change, because water scarcity is becoming a reality.”
EY’s global climate change and sustainability services leader, Alexis Gazzo added countries in Asia and Latin America are still investing massively in transition to renewable and low-carbon energy.
Gazzo added sustainability is now completely embedded across number of business processes, whether it’s managing risks, resilience of value chains, and access to finance.
He said for many business leaders it “is clear there is no turning back”, because they see sustainability as key to creating value and to creating resilience.
Gazzo said many of EY’s clients are reporting they still need to adapt to anticipate climate risks, extreme weather events and energy prices.
“Chief executives and corporate leaders realize these risks are not going away. Climate risk is not going away. Water stress is not going away,” Gazzo told me.
“All this generates a new dynamic for sustainability, different from what we knew in the last years. We are seeing a more operational phase of sustainability.”
Rodrigo Tavares, professor of finance at Nova School of Business and Economics said over the last two decades, many companies adopted sustainability in a broad way, often incorporating practices with no clear financial relevance, in an email.
Professor Tavares added many of these firms are now becoming sceptical, because the promised financial return from sustainability never clearly materialized.
“As a result, for a large number of firms, sustainability still remains essentially a compliance exercise, driven by reporting obligations and regulatory pressure rather than by core business logic,” he told me.
But Professor Tavares added other companies are taking a more disciplined approach and focusing on the specific sustainability variables that can affect operations, disrupt supply chains, alter risk exposure, or raise the cost of capital.
“For example, water stress becomes material when it forces factories to halt production or requires additional investment in water efficiency,” he said,
“In supply chains, extreme weather or resource constraints can create delays, shortages, and input volatility. “
And David Veredas, professor of financial markets at Vlerick Business School, said companies are not stepping away from sustainability but rather integrating it, in an email.
Professor Veredas adds it is no longer a hype subject, and this is why companies are talking less about it.
He said countries like India are facing increasing water distresses, with monsoons becoming more random, and changes to the natural flow of water will affect more developed economies as well.
“If you put all this natural changes together, no wonder than companies will experience more uncertainty and physical losses,” he added.
