There is, of course, a tremendous amount of hype around ESG and climate risk management. So much so that – like “sustainability” back in the 1990s and early 2000s – it may create unreasonable expectations about its business value. Perceptions may arise that a company’s ESG or climate efforts insulate the company from negative macro-economic trends. Here is an example of what I’m talking about – another of todays’ blogs covered the current downturn in the renewable energy sector due to impacts of cost volatility in supply chains. Bloomberg reported the world’s top alternative energy companies are in the most serious financial slump in years, even though clean energy projects are on record pace:
“Xinjiang Goldwind Science and Technology Co., the No. 1 wind turbine maker, just reported a 98% slump in third-quarter profits. The head of Longi Green Energy Technology Co., the top solar manufacturer, said on Tuesday that panel prices were at ‘irrationally’ low levels. And in the US, SunPower Corp. plunged Wednesday after cutting its full-year forecast on weaker demand. The company has dropped by over three-quarters this year, making it the worst performer on the S&P clean energy gauge…
The renewable industry’s travails are being reflected in a rapid drop in company share prices. The S&P Global Clean Energy Index has fallen 30% this half, while the broader S&P 500 Energy Index has risen over the period.”
It is easy for us to get caught up in the tidal wave of optimism and financial opportunities. But there are limits to what ESG and climate programs can do – they are not a financial panacea. ESG professionals need to maintain that perspective and stay realistic concerning their expectations and what/how they communicate to executives, boards and investors. It isn’t possible to completely insulate a company from global economic trends – so stay real with expectations around business benefits of ESG or climate management. Let’s not return to the failed garbage economics and overselling that was emblematic of sustainability in the 1990s and early 2000s.
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