ESG, sustainability, technocracy and just transition (II/II)

This article is part two of a two-part series on sustainability policy. You can find part one here.

In the first part of this series, we drew on the case of the political backlash of Dutch farmers to illustrate some of the challenges which can arise from overly relying on top-down targets and data-driven solutions in sustainability policy and the corporate sphere.

In this part, we want to propose some remedies to ensure that the sustainable transition (both in government policy and business) takes place in a consultative and participatory way, lessening the risk of democratic backlash.

Solution - democratising sustainable change

Climate change remains one of the greatest challenges of our age. But if change is not handled in the right way, there is a risk of backlash which fundamentally undermines the goals of the sustainable transition. Just transition, sustainability policy and ESG must take lessons from the Dutch farmers' case. Sustainable change in both government and corporate spheres must be consultative, participatory and mixed with bottom-up interventions, alongside top-down measures. It must engage individuals who are most impacted, respecting traditional and regional demographics, values and ways of working, understanding the on-the-ground realities for businesses of sustainable transition and democratising the approach to sustainable change.

In policy-making this can be achieved through:

1. Grassroots movements - encouraging the use of consultative and participatory mechanisms such as citizen’s assemblies which bring in the views of those who are most impacted by sustainable change and government policy. This will ensure that government targets are properly communicated to impacted stakeholders and that these stakeholders have the opportunity to shape targets and policies in a way that minimises the likelihood of disbenefit and resulting democratic backlash.
2. Promoting regional decision-making and solution-building - translating top-down, centralised targets to bottom-up regional outcomes. To be sure, there is a range of regional climate strategies in existence in the UK, but these remain in the power of government departments and local councils, and more can be done (aligning with the grassroots movements point above) to include representatives from impacted groups in the shaping of regional policy and how this is implemented. One of the key lessons from the Dutch farmers' case is that farmers know best about how to use the land in a sustainable and future-oriented way. The same holds for other professions and industries.
3. Platforming - understanding that a key element of ‘just transition’ involves giving a platform to those most impacted. This may be individuals in emerging economies who are most impacted by climate change, or regional farmers and workers who stand to lose most from rapid change from policy making (and who do not necessarily stand to benefit from the influx of ‘Green’ or ‘Sustainable’ jobs which are commonly promised by governments).
4. Education - understanding the reality of climate risk and communicating this to impacted stakeholders in a way that is bespoke to their reality. How will climate change impact modern farming and industry? What medium and long-term risks does this pose to the individual farmer or worker such that a change in approach is needed? Why should they get behind a government policy or Net Zero target? This tailored messaging is essential to climate advocacy, and without it, it is often not clear why the stakes are sufficiently high to justify radical change to people’s lives and livelihoods.
5. Taxes and incentives - the Dutch farmers' case shows the problem of using the stick too much in policymaking, without giving a picture of the benefits to those who are most affected. It simply does not work to tell people they need to fundamentally change the way they do their job, with a significant risk of personal and financial loss, without putting in place options and incentives to make other ways of doing things like farming appealing. The carrot must be used to counter-balance the stick to ensure that people do not feel like change is being unreasonably forced upon them.

In corporate circles, this can be achieved through:

1. Moving away from an overemphasis on data and targets - moving away from narrowly focusing on external data and ratings towards more internal business-led thinking about building biodiversity, carbon reduction and social impact. At present, too much of ESG is based around meeting external targets which are themselves not subject to accountability and scrutiny in terms of how effective they are in aiding sustainable change. Businesses should be encouraged to build their own goals which fit within the realities of their sector and their business operations, and which utilise their own expertise in running successful enterprises. Funding and investment can then be leveraged based on these business-led criteria, rather than being aligned to the abstract criteria set by NGOs, supranational organisations, banks and/or large financial institutions.
2. Moving ESG towards ethics and impact driven by incentivising businesses in the right way - at present ESG is about risk management and filling the requirements of ESG ratings or corporate reporting in a way that requires ticking boxes. This is not the same as driving companies to be more ethical or sustainable. To achieve the latter, we need to incentivise businesses to make the right kinds of changes and trust that businesses themselves can achieve this best (rather than conforming to a top-down standard setting). ESG is young and must be given time. But if it remains a movement in the hands of financial institutions, there is a risk we spend a lot of time thinking about data, targets and reporting, without scrutinizing whether these are actually the best way to achieve sustainable transition.
3. Being honest about tradeoffs - in its advent, ESG promised the world but has yet to achieve what it has set out to. Whilst we shout about the need to achieve headline-grabbing strategic objectives like Net Zero, we aren’t clear about what a Net Zero world might look like. For example, in the pursuit of Net Zero real estate, it is possible to simultaneously create unaesthetic cityscapes, buildings with a short shelf life and justify bulldozing (and thus wasting the resources used in) other elements of the built environment. There are important values at stake if we transition in a way that is not sensitive to navigating tradeoffs in the right way. We must be honest about the complexities of sustainable transition and recognise that difficult decisions must be made, and important values must be weighed against each other.
4. Holding investors and insurers accountable for proper engagement - institutional investors and insurers often measure ESG success in their investees and policyholders by their ability to engage firms in gathering full datasets for reporting and disclosure. In the case of considering real-world environmental impact, firms may seek to enforce and encourage standards that move beyond data. For example, by engaging with agribusiness companies on land stewardship and regenerative agriculture.
5. Identify opportunities for innovation - lots of time and resources are poured into increasing the number of bureaucratic roles to deal with increasing reporting and disclosure regulations. Whilst firms cannot avoid such regulatory requirements, they ought to take the time to identify investment opportunities for innovation. Firms can do this by asking what will provide the biggest payoff financially whilst also making the biggest impact on mitigating/abating ecological crises.

Conclusion

The Dutch farmers' case is important because it forces us to pause for thought when it comes to how we effectively achieve a sustainable transition. The case is instructive because it shows some of the problems that can arise if the transition moves too rapidly, and if it fails to engage with impacted parties in a consultative and participatory way. In the words of one farmer: 

“If we have to adapt to new situations, I want to, but we have to be fair, it takes time - give me a chance."

The implications for how we understand just transition are clear - top-down targets and policy-making must be mixed with on-the-ground advocacy, democratic participation, affording a voice to those most impacted by transition and presenting them with viable alternatives when it comes to making significant alterations to the way in which people have lived and worked for centuries.

In the ESG regulatory sphere, we must critically engage with the current mode of operating which involves data gathering and top-down target setting from regulators, supranational organisations, national governments, industry bodies, NGOs and financial institutions. We must appreciate the on-the-ground reality of what it takes for a business to change its operations to become more sustainable, less damaging to the environment and better stewards of the earth by being protective of and additive to biodiversity. We ought to consider how to incentivise business change in the right way - to ensure that the power lies with businesses not just to meet external targets or reporting requirements but to transform their operations to drive more sustainable and ethical business. Put simply, ESG must enable change to be driven by people, and not faceless targets and requirements.