Will Inflation and Supply Chain Disruption affect ESG Strategies too?
Environmental Social Governance (ESG) is not a temporary strategic agenda. Rome was not built in a day, nor will humanity’s attempt to restore the earth’s air quality and carbon levels to the quality it once was a century ago occur in a similar timeframe. Sustainable change does not transpire overnight and has lengthy-time lines which require methodical planning, implementation, and management. Still, a dedicated and committed effort to make the environment, its people, and all living things have a positive outcome from our actions today is a non-negotiable if we are to leave any prosperous future to the next generation (Dolan and Zalles 2022). As governments and companies achieve incremental environmental, social, and governance (ESG) success, their aims and aspirations often extend to milestone targets addressed by COP26 (Quinones 2021). The first milestone target is 2030, the next 2040, and the desired outcome is carbon neutrality by 2050. There are, however, numerous stumbling blocks in the way of progress.
Russia’s War on Everything
Russia’s invasion of Ukraine has created food shortages for the rest of the world, and emerging economies are feeling the brunt of the pain (WFP 2022). The short and medium-term social outlook looks dire as hunger and famine are about to make an even more significant dent in the global population than COVID had. With a quickly ageing global population (WHO 2021), malnourished youth and children in emerging economies and shortages of commodities like fertilisers, grain, cooking oil, fuel, and other necessities, it is fair to say the world is in turmoil. Sustainable food supply chains must be protected, and there must continue to be fair trade even through periods of significantly reduced farming yields to serve the imminent demand shortages.
The shift in focus from ESG to famine and loss of life is already taking place, and governments are attempting to secure essential commodities for their economies. A protectionist mindset has crept in, which will only further exacerbate the global food problem causing some nations to stockpile and others to restrict the trade of certain commodities. While the United Nations is hopeful a deal will be struck between Russia and Ukraine to pause the fighting for grain shipments to resume (Kulu 2022), the situation is still perilous. Even if grain shipments reach their export destinations, there will still be a food shortage as farmers still require the financing and fertilisers to plan for the next crop season. In these current circumstances, the ‘S’ in ESG becomes far more pronounced.
Ageing Populations & Economic Equality
Contemplate a world where the youth are dying off in emerging economies, and the elderly in more wealthy economies require increasing help to maintain their health and lifestyle in their later years. Then consider how Covid impacted movement and the way of life for all. Now multiply those impacts by a factor of at least two to understand where we are headed. The compounding effects of climate change, inflation, war, human behaviours, monetary/fiscal policy, and laws like China’s once enforced one-child policy show us a window into the future of a world we may not recognise.
We are entering a world where declining populations and soaring prices expand the divide between rich and poor and where the progress we have made in the last century may be unwound in less than a decade. The world is on the brink of experiencing a massive population decline if urgent steps are not taken to aid faltering economies, and declining populations impact consumerism and the greater economic engine of progress (UNDESA 2022). Some might argue that declining populations are better for the world with fewer polluters and more resources. However, pollution is caused by all who partake of the global economy, and our collective duty is to work in multiple ways to improve our impacts on the earth and the populations it sustains.
The Age of Distrust
We are progressing towards a less connected world characterised by legal barriers, more stringent borders, fewer migrations, more onerous controls instead of global treaties, and freedom of movement. Food insecurities, energy insecurities and rising geopolitical tensions will only increase the rate of deglobalisation. Governments and corporate leaders are trying to keep the wheels of the economy and business turning while protecting employees, re-engineering their strategies and mitigating risks. The continuity of supply chains must be a dedicated focal point for all company owners, leaders, and managers. Whereas governments must ensure long-standing trade agreements do not falter, alternative supply chains are being set in motion, and contingency plans are being made.
Will Climate Change & ESG Still Matter?
ESG agendas must factor in alternative supply chain costs while maintaining the steady flow of commodities without causing further market stress. ESG initiatives remain intact and robust at the corporate and national levels, with the Australian government increasing its support and tightening its resolve toward climate change policy and action. In turn, companies have responded because they want (and need) to do right from operational integrity, ethical and environmental perspectives. In contrast, others have been influenced by the hands of investors shifting access to capital by introducing new requirements with stronger ESG mandates. Financial concerns must factor in the required changes to capital access and the risk of non-compliance, which will impact operational integrity and customers if not addressed. In recent annual/ ESG reports and product proposals, more clear statements are reflected in firms’ missions, operations, and stakeholder expectations that align with ESG mandates to appease investors’ requirements.
The implications of the points discussed in this article draw attention to the speed at which drastic change is required to settle many of the world’s most pressing concerns. Organisations face growing anxiety and complexity as the Federal Reserve increases interest rates and the cost of goods spirals up to 33-year highs (Bullock 2022). Company stakeholders are beginning to emphasise being proactive and not reactive with their ESG agendas (The Economist 2022). The slew of supportive companies that set targets to lower global temperatures ahead of COP26 will hopefully continue to demonstrate the same enthusiasm ahead of COP27 even through an economic downturn.
Time to Act
How is your organisation addressing climate change? Do you have a strategy in place, and if so, have changes been made to pivot that strategy? If a carbon price is set in Australia today, how will it impact your organisation and its supply chains in the future? In a world where ESG is becoming more entwined with capital access, can you afford not to act and wait to weather the approaching storm? OceanBlocks.org works with firms and organisations to help account for their carbon footprints and set plans to reduce carbon emissions with the help of innovative ideas, technology, and rebalancing initiatives. With your help, we can build collaborative partnerships and invest in feasible carbon sequestration projects with a pebble that creates ripples that quickly expand into waves of action. Our goal is to help drive down global emissions and restock the world’s ocean one step at a time. Reach out to explore how we are positively impacting environments. We can be of value to your organisation by orchestrating logical, measurable strategies that can adapt to changing market conditions.
Bullock, M (19 July 2022) ‘How are households placed for interest rate increases?’, ESA (QLD) Business Lunch, Brisbane, AU, viewed 26 July 2022. https://www.rba.gov.au/speeches/2022/sp-dg-2022-07-19.html.
Quinones, L (13 November 2021) ‘COP26 closes with ‘compromise’ deal on climate, but it is not enough, says un chief’, United Nations, accessed 26 July 2022. https://news.un.org/en/story/2021/11/1105792
The Economist (2022) Measure less, but better: It’s the environment, stupid, The Economist website, accessed 26 July 2022. https://www.economist.com/special-report/2022/07/21/measure-less-but-better
UNDESA (United Nations Department of Economic and Social Affairs Population Division) (2022), World population prospects 2022: Summary of results, UN DESA, United Nations website, accessed 26 July 2022. https://news.un.org/en/story/2022/07/1122272
WFP (World Food Programme) (2022), War in Ukraine drives global food crisis, World Food Programme website, accessed 26 July 2022. https://www.wfp.org/publications/war-ukraine-drives-global-food-crisis
WHO (World Health Organisation) (2021) Ageing and health, WHO website, accessed 26 July 2022. https://www.who.int/news-room/fact-sheets/detail/ageing-and-health