ESG put to the test in a high inflation world forcing firms to ditch initiatives
Mark Sait, CEO of SaveMoneyCutCarbon, comments on why investors want proof that funds they are investing in have credible pathways to achieve ESG goals, without greenwashing risks.
A new survey has revealed that inflation and rising costs are forcing firms to leave behind ESG initiatives in an effort to ‘keep their heads above water’.
Firms are being forced into supply chain changes due to rising costs as well as disruption. While many businesses have seen efforts to improve sustainability standards ‘hampered’ (64%), research also finds that over half now work with ‘cheaper rather than greener suppliers’ and more than a third have shifted operations to be more local to deal with the uncertainty of rising costs.
ESG hit its peak in 2021. A record £537 billion flowed into sustainable funds globally, up from £449 billion in 2020, according to recent data. Nearly £2.5 billion has now flowed out of funds focused on environmental, social and governance issues (ESG) since May this year, according to data from global funds network Calastone. Reflecting this trend, only 102 new sustainable funds were launched in the most recent quarter of 2023 – down from almost 350 at the peak in 2021. As institutions start to fall out of love with ESG, Mark Sait, CEO of SaveMoneyCutCarbon, argues that the strength of domestic consumer adoption of sustainable behaviours is evidence that businesses must continue to follow suit. In Europe – by far the biggest sustainable funds market – the number of funds adding ‘ESG’ to their names has plummeted amid mounting concerns over greenwashing. Greenwashing, where firms make misleading sustainability related claims about their investment practices, has severely dented investors' trust in ESG.
Mark Sait explains why investors need to follow domestic consumer trends to help produce credible pathways to achieving ESG goals. He said, ‘Consumers continue to be battered by inflation but we are finding that the eco habits adopted during the pandemic have remained strong. Independent research commissioned by SmartestEnergy backs this – four out of five people describe themselves as likely to choose a brand with a positive approach to environmental sustainability. ‘Domestic consumers haven’t stopped being committed to reducing plastic use and creating less waste, along with the pressing need to cut energy and water use, taking control of rising bills. For example, in announcing an extension to the single use plastics ban in January, the Department for Environment, Food & Rural Affairs said that more than 95% of those who responded to its consultation were in favour of the further restrictions.’