The Indecisive Decade? 5 Years to Change Trajectory

29th July 2024

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In an evolving world marked by geo-political instability, rising living costs, and the lingering effects of COVID-19, the landscape of business and consumer behaviour is undergoing seismic shifts. On the surface, consumers express a strong desire for sustainable products, and studies such as McKinsey’s recent research on willingness to pay seem to prove there is indeed a premium for products with social or environmental attributes, though the picture is patchy. But, the cultural tide still seems to tolerate business with, on the face of it, far less sustainable business models – with ultra-fast, disposable fashion being just one example of a slew of industries apparently immune to consumers’ claimed concerns and raising questions about the true impact of these purported shifts towards sustainability. ThredUp’s 2023 Resale Report noted that while the second hand fashion market is growing, new sales by some mainstream fashion brands have grown 50% in 2022 alone, in a market expected to grow from $99.78bn by 8.8% CAGR from 2022 to 2030 (Euromonitor International 2022).

Prioritising action

As companies grapple with the paradoxes and complexities of consumer behaviour, some are recalibrating their sustainability claims and commitments. Major players in the energy and FMCG industries have recently made the headlines for all the wrong reasons – publicly rolling back on their sustainability goals, citing the overambitious pace they had set on too many fronts, the need to focus on topics that materially matter for their business, or the importance of remaining flexible in uncertain times. If the first half of the decade showed signs of optimism post-covid, there are signs to suggest a new trend: while quick wins in sustainability are achievable, they often fail to generate the substantial impact needed to address global challenges, and the cost of pursuing more ambitious long-term plans can lead to a rocky ride with investors.

ESG risk, opportunity and business value

Against this somewhat mixed picture of action and retrenchment, it’s notable that the valuation of businesses has also transformed to reflect a much broader view of the drivers of future performance. Intangible assets, including a company’s stance on sustainability and ESG practices, now constitute a significant portion of their market value. Brand Finance (2022) suggests intangible asset value makes up 48% of total market value for global listed businesses, a figure that increases to 90% for the S&P500. This shift suggests that sustainability is increasingly seen as a proxy for long-term value, pushing companies to integrate these principles into their core strategies.

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Increasingly interoperable regulation raising the bar

Though the landscape of voluntary and mandatory reporting may still look infuriatingly complex from the boardroom, regulation is gradually being harmonised across borders, making it easier for businesses to implement basic sustainability measures. The Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB) present different views on the future of reporting, but also promise to become interoperable. The big stick of regulation is undoubtedly driving a huge uptick in action focused on better understanding and managing ESG impacts and risks. 

The real challenge lies in navigating the nuances and trade-offs between commercial imperatives and the net present value of long-term sustainability programmes. This environment calls for a strategic focus: doing fewer things but going further with each initiative. This approach is underpinned by the need for double materiality assessments (DMA) in CSRD, which help identify and prioritise the most impactful sustainability actions, and those that are likely to have a financial impact on performance of the business (with only the later required by ISSB).

The definition of leadership and the role of business in sustainability is changing

As we move through the second half of the Decisive Decade, regulation is leveling the playing field, eroding the competitive advantages once enjoyed by early adopters of sustainability. In this new era, leadership will be defined by the ability to integrate sustainability into the fabric of business operations, creating value not just for shareholders, but for all stakeholders. The question remains: are businesses prepared to lead in this transformative age?

The leaders of the future will be able to leverage mandatory reporting pressures and use them as a credible evidence base for clearer strategies; impact reduction programmes; and innovation around the many opportunities the transition to sustainability demands. We expect these rich evidence bases to inform how priorities are articulated through brands. Those that will succeed will be able to minimise the reporting burden through navigating compliance requirements efficiently, freeing up time to focus on protecting businesses against financial risks, and getting a handle on, and reducing their impacts over time.

Anthesis supports organisations across sectors and geographies with mandatory reporting and ESG, guiding clients from initially understanding their current strengths and weaknesses through to developing and implementing strategies and solutions to improve and solidify performance.

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