Recently, in relation to predictions associated with major risks manufacturers and heavy industries face, forecasting trends in the United States has become more difficult. Decision-makers have had to navigate some 180 (and even 360) degree swings in key factors.
Examples of recent whiplash-inducing events include:
- Concerns in the United States about inflation, and an increase in unemployment caused a downturn in the stock market ("Stocks fall on Wall Street as inflation fears continue to grip investors," CBS News, 6-28-2022). Shortly after the downturn, stocks rebounded 13% due to expectations inflation would ease. Then, stocks faced downward pressures again, due to risks associated with an unexpectedly positive employment report (U.S. labor market defies recession fears as job growth surges in July, Reuters, Aug 5, 2022);
- Conflicting judicial and legislative actions restricted, and then broadened, U.S. government commitments toward building a more sustainable economy in relation to the level of strength accorded to the effectiveness of the watchdog overseeing those commitments: Specifically, a major judicial action (Supreme Court limits EPA authority to set climate standards for power plants, CNBC, June 30, 2022) was followed by a 180 degree turn with the signing into law in late August, 2022, of the Inflation Reduction Act (IRA), which includes unambiguous language that defines CO2 emissions as a form of air pollution (The Inflation Reduction Act Includes a Bonanza for the Carbon Capture Industry, Time Magazine, Aug 11, 2022).
The title of this blog is an indirect homage to the author Henry Miller, who stated the familiar saying, “It takes money to make money,” and then asked: “But what makes money make money?” We may, now, similarly ask: “What makes sustainability sustainable?”
Across different industries, there is natural variation in the role and definition of long-term factors within financial justifications. How do more energy-efficient or sustainability-focused operations and maintenance expenditures fit within plans for overall capital improvements, and other major investment decisions? Beyond differences in the depth of consideration of the full life of the assets or facilities directly associated with such decisions, there are also significant variations across application of long-term considerations when it comes to the impacts of different options, based on economic, social, and/or environmental factors.
It is reasonable to expect different corporations, driven as they are by their financial situations and the needs and demands of their customers and stakeholders, to vary across the above areas. But “reasonability” is itself a domain of debate, since each industry and each decision-maker brings different “reasons” to bear.
While debate continues on these and related questions, there is an increasingly widespread expectation that traditional finance-centric decision-making criteria are coming into new forms of balance, based on the ways in which they interact with the rise in Environmental, Social, and Corporate Governance (ESG) programs, evaluations, and reporting.
But the widespread expectation in certain quarters about ESG needing to increase in importance by no means constitutes a consensus. In fact, there have been backlashes against ESG which are noteworthy (ESG under Attack: Wolters Kluwer Experts Analyze Anti-ESG Litigation and Legislation, PR Newswire, July 18, 2022). But the backlashes occur within a context in which alternate perspectives about long-term risks come to the forefront.
Decision-makers in asset-intensive industries, as elsewhere, do not generally find risk and volatility to be their friends in the short term. But higher risk and volatility can indeed be the friends for those whose decision-making processes take a longer-term view into consideration, based on inclusion of a greater emphasis on sustainability.
Returning to the question of what makes sustainability sustainable, multi-faceted answers have been considered in detail in recent ARC Advisory Group Insights and Strategy Reports. But one particularly ironic answer is worth adding to the mix: Complex problems are best addressed by way of comprehension of the complexities involved, rather than oversimplification or avoidance. As a result, it turns out that proponents of the current backlash against ESG who are seeking to rigorously justify their claims that ESG inhibits economic growth or creates social inequities, would have to rely on the very same highly detailed ESG tracking and reporting capabilities that they are arguing against, to prove their points.
These and related issues are discussed in more detail in the recent ARC Insight, The Sustainability Singularity: Accelerating Industrial Energy Transition.