#26 War & Peace: The Sustainability Paradox

In times of geopolitical turmoil and economic uncertainty, sustainability is often the first casualty.

But history shows that deprioritising it in times of crisis is a costly mistake — one that leaves companies vulnerable when the dust settles.

4 min read

The Dangers of Short-Term Thinking

As macro headwinds swirl, many companies batten down the hatches: budgets cut, recruitment frozen, investment and discretionary spend put on hold.

But this knee-jerk reaction to protect short-term finances actually compromises a firm’s longer-term prospects.

Sustainability and ESG are often the easy choices for cut-backs, but this can expose a company to even greater financial risk.

Energy (In)Security

A key theme of the Russia-Ukraine war is the impact it's had on energy prices.

The disruption to supply caused huge volatility in the prices of fossil fuels.  This led to oil and gas companies achieving record profits, which sent their stocks surging.  By comparison, ESG funds and sustainability-focussed trackers performed poorly.

As ESG funds underperformed, companies scrapped investments in clean energy and cut sustainability budgets — ironically, this happened during a period where renewable energy prices showed remarkable stability.

Companies that transitioned to clean energy before the war locked in stable pricing. Meanwhile, those still dependent on fossil fuels were hit with soaring input costs — forcing them to cut spending elsewhere.

Culture Wars

Sustainability and ESG have also been impacted by the culture wars, accused of being tools of political statement which do not belong in the corporate world.

At the heart of this argument is the false belief that ESG conflicts with the profit motive and shareholder primacy.  Or put simply: it is a waste of money.

As the example of energy price volatility shows, this is not the case.

ESG is about balancing the interests of all stakeholders and guarding against future risks — including those associated with the climate crisis.

Companies that are able to keep their customers, staff and suppliers happy, and proactively mitigate risk are of course likely to be more successful and more resilient.

These companies don’t just survive downturns; they outperform their peers.

And this will be reflected in stronger financial performance, which will ultimately benefit shareholders too.

Risk Mitigation

There are many ways that climate risks translate into financial risks.

The most tangible are those relating to natural disasters and extreme weather, with fires, floods droughts causing acute disruptions to supply chains and the availability of materials.

Governments have been picking up the tab for the clean-up costs so far — but how long will this last?

It is only a matter of time until the cost is passed on to companies in the form of taxes and penalties for non-compliance.

And however the markets are viewing ESG at present, governments are accelerating climate related regulation.

The companies cutting back on sustainability agendas are trading short-term term gains for a significant long-term financial risk.

Value Creation

Beyond risk mitigation, ESG can also be used as a value creation tool, as other editions have explored.

Employees and customers are increasingly placing a premium on a company's social and environmental credentials.

A purpose-led ESG strategy can attract, retain and motivate staff (often more effectively than financial rewards), and is also a powerful way to secure loyal, high-value customers.

Spending Better, not Spending Less

This holds especially true during times of economic uncertainty, where more thought is put into every purchase decision.

Rather than the simplistic assumption that this means "cheapest wins", it actually means putting more consideration into how and where to spend money.

This is especially true for Gen Z, who spend more per capita than any generation before them — despite living through almost constant macroeconomic upheaval — and place a high value on brand trust and values.

Change is the Only Constant

"Change is the only constant" as the saying goes — and perhaps we should accept that we'll be thrust into the next macroeconomic crisis before we see out the current one(s).

Rather than waiting for the perfect moment to arrive, or even for 'normality' to return, we should instead think about how to continue building for the long-term under the constraints of the present.

Even if the ascent of ESG has waned, history indicates that this is momentary blip.

Let's consider two other periods of momentous macro mayhem this century: the Global Financial Crisis and Covid-19.

Occupy Wall Street

The origins of the ESG boom could be traced back to the Global Financial Crisis of 2008 and the  recession that followed.

These events demonstrated the power wielded by companies, and how badly things can go wrong when they are not managed appropriately.

The Occupy Movement sparked widespread scrutiny of capitalism’s failures — excessive risk-taking, income inequality, and a lack of corporate accountability.

And this led to two major shifts:

First, the rise of impact investing and ESG. Investors began prioritising businesses that balanced financial returns with social and environmental responsibility, driving demand for more transparent and accountable corporate practices.

Second, the growth of stakeholder capitalism and the B Corp movement. Companies faced increasing pressure to serve a broader set of stakeholders — employees, communities, and the planet — rather than focusing solely on shareholder profits.

The Attenborough Effect

Sustainability was a cresting wave in 2019. 

Blue Planet and other David Attenborough documentaries pushed the climate crisis to the forefront of public debate, from the tabloids to the house of commons.

This all came crashing down with the onset of the pandemic: amid huge uncertainty, sustainability (along with many other things) was put on hold as companies grappled with store, factory and office closures, supply chain chaos and a fight for survival.

The pandemic highlighted just how fragile global systems are and how interconnected business, society, and the environment have become.

It forced companies to rethink resilience — not just in terms of financial health, but also supply chains, workforce wellbeing, and climate risk.

Rather than derailing sustainability permanently, Covid-19 ended up accelerating corporate ESG commitments.

What's Next for ESG?

If history teaches us anything, it’s that crises may slow progress — but they rarely stop it.

The Global Financial Crisis exposed the cracks in capitalism, leading to impact investing and the rise of B Corps and stakeholder capitalism.

The Covid-19 pandemic forced companies to reassess resilience, which ultimately reinforced sustainability as a corporate priority.

And today, geopolitical turmoil and economic headwinds may be causing ESG to take a backseat — but not for long.

Forward-thinking companies understand a fundamental truth: when done well, ESG isn’t just about compliance — it’s a driver of performance, competitive advantage, and long-term value creation.

Those that wait for regulations or market pressures to dictate their actions will fall behind.

The companies that continue to invest in sustainability while others retreat will emerge stronger when the dust settles.

The journey towards a better way of doing business

We are on the cusp of a new paradigm of responsible business, and helping impactful companies pair purpose with profit will accelerate the shift.

I believe this holds the key to solving many of our greatest challenges and inspiring positive change throughout society.

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