Why ESG Will Be Impossible to Ignore in the 2020s

Scanning through the news last week, there were two big stories that caught my eye, first individually and then as inextricably linked. The first was from the world of finance, the other a report from our natural world.

Up first, Larry Fink, of giant fund manager BlackRock, dropped his annual letter to public corporations.  BlackRock, which has $7 trillion (yes, with a “T”) in assets under management, said it would be increasingly disposed to vote against management and boards that don’t disclose climate change risks and plans in line with key industry standards. BlackRock and other large investment funds are increasingly putting focus on corporate sustainability due to the real financial costs and future risks associated with issues like climate change, water shortages and environmental pollution.

The other story was on fires killing more than a billion animals and raising the extinction threat for hundreds of species across Australia. The immense area of impact, which covers more than 20,000 square miles in New South Wales alone, is more than 10 times the size of the devastating wildfires that scorched California a year ago.

The Australian fires story is just one of a litany of other environmental crises regularly featured in the news. While there’s a risk that these repeated messages become background noise, one thing is certain —the threats are now a clear and present danger. Political ideology often clouds discussion on this topic, but the bottom-line reality is the independent partners funding our operations and insuring them against catastrophic risk are raising expectations on what we pay and how we mitigate.

The following chart is specific to the United States, though it certainly scales at a global level and points to a distinct increase in the number of climate-related events causing $1 billion or more in damage over the last decade.

So What Can We Do?

It would be easy to throw our hands up based on the enormity of the underlying challenges involved in turning around our environment, but that’s not how the supply chain community operates. After all, we collectively make the world run on a daily basis.

One tactic that will not work is trying to solve these global environmental issues, solely, as individual entities. We, of course, need to take action as individual companies, but there also needs to be an ecosystem-wide approach to making this all work. Some suggestions:

• Come Around to Circular Models:Gartner’s latest Future of Supply Chain Survey (n=1,473) shows that nearly two-thirds of companies are exploring circular economy models. These models extend the life of existing products, allow for more recycled inputs to be used in new products and reduce overall waste across product life cycles. This means Dell reclaiming and reusing plastics and metals from old products, sometimes from other companies, as part of its Legacy of Good This means Schneider Electric offering monitoring and maintenance solutions that help customer-installed products last longer in the field before being reclaimed for parts cycled into its next-generation products.

• Partner for Scale:Nongovernmental organizations such as the Ellen MacArthur Foundation, the Responsible Business Alliance and the Ethical Trading Initiative are forming partnerships. They are working with companies across industries to set standards for ethical sourcing and to identify partnership opportunities to share resources and best practices driving large scale reuse of materials. Others, such as CDP (formerly the Carbon Disclosure Project), are providing industry visibility and coordination toward the goal of lower carbon emissions and improved stewardship of water and forest resources.

• Invest for the Future:Many of the large companies we regularly interact with have joined these larger coalitions to address environmental issues. They are also benchmarking industry leaders’ public commitments when setting their own targets for the reduction and use of plastic, increased use of renewable energy sources and promotion of human and workers’ rights, globally. Looking at this across the landscape, however, there is still a “chicken and egg” dynamic when it comes to the economics for solving some of these issues. For instance, the waste management industry and corporate plastic producers and consumers need to partner and invest in capacity and technologies that make recycled feedstock affordable relative to virgin sources.

A Call to Action

The pressure to act on environmental sustainability issues will only increase over the next decade. Fink and his counterparts’ voices at other environmental, social and governance (ESG) funds will only grow louder in our boardrooms. More work and partnership will certainly be needed.

To quote teen environmental activist Greta Thunberg’s recent address at the World Economic Forum in Davos, “Our house is still on fire.” Immediate action is required. Let’s do this supply chain!

Stan Aronow,
VP Distinguished Advisor,
Gartner Supply Chain
stan.aronow@gartner.com