Sustainability Slips as CEOs Shift Focus to AI and Economic Challenges, Bain Report Reveals

Sustainability and environmental issues are taking a back seat for many chief executives, even as consumer concerns about climate change continue to grow, according to a recent report by Bain & Co. Released on Monday, the report highlighted that CEOs are now prioritizing artificial intelligence, business growth, inflation, and geopolitical uncertainty when shaping their strategies. Meanwhile, 60% of consumers have become more concerned about climate change compared to two years ago, primarily due to their personal encounters with extreme weather events.

Bain’s global carbon transition practice leader, Torsten Lichtenau, explained that the importance of environmental, social, and corporate governance (ESG) efforts peaked during the 2021-2022 period, especially following the Glasgow COP26 climate conference. He pointed out that interest in these initiatives has since waned, returning to levels seen in 2019. Lichtenau noted that many companies had set highly ambitious climate and ESG goals during this peak period but are now adjusting their targets to more realistic levels, recognizing the challenges and costs involved in decarbonization.

Lichtenau emphasized that companies tend to move through phases in their sustainability journeys. Initially, they may set lofty goals, but this is often followed by a reevaluation, leading to more practical and achievable objectives. The challenges of reaching these targets, especially for long-term carbon reduction, have prompted a recalibration of corporate sustainability commitments.

Many firms have also become quieter about their ESG efforts, with some even renaming their initiatives. For instance, BlackRock has rebranded its approach to investing in clean energy as “transition investing.” While a recent analysis by WSJ Pro revealed that companies are still mentioning sustainability frequently in financial reports, they are discussing it less in earnings calls and promotional materials. Additionally, a Barclays report from August indicated that investors had pulled a net $45 billion from ESG equity funds since the beginning of the year, marking the first time outflows in this sector have turned negative.

Despite this corporate shift, Bain’s research shows that demand for sustainability remains strong among both consumers and business-to-business companies. The report noted that 36% of B2B companies would consider changing suppliers if sustainability expectations were not met. However, the reality of meeting sustainability goals has proven challenging, with over a third of businesses failing to meet their Scope 1 and 2 emissions targets, which are directly related to their operations, and more than half missing their Scope 3 targets, which cover supply chain emissions.

Lichtenau suggested that investors may not heavily penalize companies for missing these targets as long as they are making genuine efforts to decarbonize and set more achievable objectives. He warned, however, that pressure would intensify as the 2030 deadline for many climate goals approaches.

The report also highlighted a growing interest in sustainability among Generation Z consumers, those born between 1997 and 2012. This group is more likely to support sustainable brands and is willing to pay premiums for goods and services that align with their values, suggesting that consumer demand for sustainability will continue to influence corporate strategies moving forward.

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