Sustainability Bias
Some industries, financiers, and governments are taking pride in mischaracterized and often unsubstantiated sustainability “wins.” These so-called “sustainable” actions are now being challenged in court, with litigators around the world probing the veracity of companies’ assertions.[1] Some of the purported achievements are shrouded in mystery with a lack of data, data that cannot be verified, data that represents only a segment of the actual life cycle of a product or service, or actions that yield superficially plausible results on the surface but create unintended consequences in other parts of the supply chain.
This distortion can lead to sustainability prejudice where seemingly eco-focused, socially forward, or sustainability-centered entities perpetuate false narratives that invariably misrepresent the dynamic and multilayered composition of sustainability. Cognitive biases in sustainability can lead to precipitous and satisfying decisions, but from a systems perspective, they can also create or exacerbate a broad range of modern, complex, and long-term challenges. In order to eliminate false “green” narratives and achieve true sustainability, it is crucial to understand these environmental, economic, and social challenges and apply systems-level thinking across the entire life cycle of a product or process.
Sustainability is Complex and Requires Systems-Level Thinking
Developments across the energy and resource landscape in the last two decades highlight the fact that understanding the global interconnectedness of environmental concerns, energy and resource markets, their complex supply chains, and the factors that shape them, is growing ever more important in sustainability discussions. Technological change, economic growth, local and national politics, geopolitics, energy trade, energy poverty, and energy security concerns are all interwoven with national and global welfare, social equity, environmental performance, and domestic and global economic priorities. Analysis of the future of all forms of energy across complex supply chains — from raw materials to manufacturing to delivery of final products to consumption and, ultimately, end of use — requires an awareness of the risks and trade-offs along transition pathways that fully consider environmental, social, and financial sustainability.
There is an urgent need for actors across product value chains to conduct their due diligence and address the economic, ethical, and environmental issues associated with the development of current and innovative technologies, products, and processes. Moreover, it is important to integrate systems-level principles that assess life cycle impacts for a true perspective of sustainability.
Sustainability is a life cycle balancing act across several vectors. Achieving sustainability, in its truest form, requires a systems-level approach that considers a wide array of environmental, social, and economic factors and assesses how they interact (Figure 1). It evaluates issues such as government policies, geopolitics, impacts to Indigenous communities, socioeconomic and demographic influences, sociotechnical capabilities, and other subdomains.
Figure 1 — Sustainability is Multifaceted
Sustainability involves quantifying and understanding the risks, trade-offs, and unintended consequences — from a life cycle perspective — across a service or product’s entire value chain. This holistic consideration is what leads to long-term system balance, as well as positive investor returns and welfare improvement.
There is minimal knowledge or application of this in today’s policies and decision-making. The environmental dimension to sustainability is often a single point of emphasis, but sustainability is far more complex than simply concentrating on climate or greenhouse gas (GHG) emissions, choosing presumed eco-friendly options, or transitioning to alternative energies, especially when purported “clean” alternatives have significant environmental and social impacts along their supply chains. Comprehensive insight on the impact of the overall system and of any potential risk-shifting is needed before an action, policy, product, or technology is deemed sustainable.
The 17 sustainable development goals put forth by the United Nations outline critical components of a sustainable growth platform. Achieving sustainable growth requires a balance of environmental, socioeconomic, and commercial/financial dimensions — three legs on the sustainability stool (Figure 2). Innovation, market design, and policy bind the constituent parts, buttressing the sustainable growth platform. If any one of the legs fails, sustainability is not achievable.
Figure 2 — A Sustainable Growth Platform
A primary focus on climate and emissions (just two elements of the wide-ranging “environment” leg), while ignoring the “socioeconomic” and “commercial/financial” legs of the three-legged stool, will inevitably lead to collapse, or a systems failure in sustainability. Sustainability is thus a balance of all three domains. Therefore, understanding the first order impact of specific actions is never sufficient because the “law of unintended consequences” is ever-present, often predictable, and can render specific pathways unsustainable.
Sustainability is Not a Property of Something
Without recognizing the relationship with the system, things in isolation cannot be sustainable (e.g., paper straws, bioplastics, solar panels, electric vehicles, etc.). An electric vehicle is not sustainable if the social and environmental externalities across the lithium-ion battery supply chain are not considered — from mining, processing, smelting, trade, transportation, manufacturing, and disposal across the global supply chain to the lack of recycling and recovery options for the battery at its end of life. The geopolitics and human rights violations involved in such processes and transactions, as well as the potential of operating in sensitive environments and collaborating with corrupt regimes or ineffective governments that have weak or absent environmental, safety, and labor laws, can also affect a system’s overall sustainability profile.
This scenario highlights why sustainability imparts such a distorted and complicated challenge to existing markets and associated regulatory and policy structures. Traditionally, we gravitate to a myopic, often project- or product-based life cycle as opposed to a full supply chain-focused method to management and policymaking. We examine, dissect, and disassemble individual systems and then attempt to synthesize and optimize, assuming that if all the portions are functioning individually, the whole is effective. This façade emerges when a limited perspective of sustainability is leveraged and ultimately inhibits systems balance.
ESG Should Not be Construed as Sustainability
The environmental, social, and governance (ESG) framework is an investment-focused lens that centers on financial risk and returns. It is hardwired into financial markets where financial performance and enterprise value are the key purposes. ESG considerations are a specific set of criteria based on standards set by lawmakers, investors, and ESG reporting and standards-setting organizations. The ESG framework has evolved into a portfolio that is climate- and emissions-centric, representing only two facets under the broad sustainability domain and, even then, it often focuses on the company level rather than a life cycle supply chain level. Thus, compliance with GHG emissions reporting, ESG reporting, or the U.S. Security Exchange Commission’s proposed climate disclosure requirements should not be interpreted as “sustainability.”
ESG reporting can certainly be a means to sustainability, but it is not an end. Characterizing ESG standards as synonymous with the broad and balanced scope of environmental, social, and economic domains of sustainability is an erroneous portrayal of its multifaceted discipline. For example, if ESG-related requirements result in significantly increased costs, the social and economic impacts could be devastating for household affordability as well as broader financial returns along the affected value chains. By definition, bankruptcy, supply shortages, and unemployment or low-wage employment are not viable characteristics of sustainability.
Sustainability as a framework is not directly connected to financial markets. It covers a broad set of fields and represents the relationship between an entity, product, or technology to its environment, economy, and society. It is bound by the principles of managing resources that aim to provide ecological, social, and economic equilibrium, recognizing there are trade-offs across the three. Choosing whether to focus attention and resources on ESG issues more narrowly, or on sustainability more broadly, is not only a question of perspective, but also very much a question of intention. The true risks and opportunities of sustainability cannot be captured with a restricted focus on ESG standards. A realistic and just energy transition is going to involve trade-offs that ultimately drive the most pareto-efficient outcome.
With climate as a central agenda, policymakers, investors, and a number of NGOs are aggressively promoting accelerated investment in alternative energy, particularly wind and solar, which are presumed to be “sustainable” regardless of what life cycle data may actually indicate across global supply chains. Current ESG investing has evolved into favoring any presumably environmentally minded business whose portfolio is “less bad” or “less risky” if exposure to fossil fuel companies is minimized or eliminated. However, that does not necessarily reflect reality when the entire life cycle and supply chain are assessed.
Fossil fuel inputs are critical materials for a diversified energy future. In fact, they are key ingredients for the manufacture of solar panels, wind turbines, batteries, electric vehicles, electrolyzers for hydrogen production, and more. Advocating to defund or restrict access to capital for suppliers of incumbent energy sources before potential substitute lower-carbon resources are economically viable and sufficiently scaled is fraught with risk. Moreover, such action without a clear appreciation of impacts to populations and environments risks destabilizing a global energy-food-water-human well-being nexus that would likely delay energy transition efforts for decades. If sustainability is a strategic priority, then it is critical to understand the full range of risks, vulnerabilities, and liabilities from social, economic, and environmental perspectives throughout the global network.
Today’s Narrow Vision of Sustainability Creates “Carbon Tunnel Vision”
If systems sustainability and resiliency is the objective, it cannot be achieved with a focus on emissions or climate alone. This insular emphasis creates blind spots, ignoring other unquantified impacts like waste management, mining and processing, water use and quality, land use/land change, biodiversity, the financial health of the companies involved, the socioeconomic well-being of consumers, etc. “Carbon tunnel vision” may exacerbate social equity, socioeconomic, and environmental justice issues across geographies. It could also result in communities, companies, and governments that are maladapted and vulnerable to supply chain disruptions and less resilient in the long run (Figure 3).
Climate policy does not directly incorporate long-standing issues such as Superfund sites, lead pipes in drinking water systems, aging and inadequate infrastructure, non-GHG toxic air emissions, exposure to pesticides, energy poverty, and other matters that affect lower-income, socially vulnerable populations. These matters can be addressed through effective adaptation and resilience programs, not through policies that center primarily on CO2 emissions reduction and carbon management.
Figure 3 — Carbon Tunnel Vision
Perspective Matters
There is not one universal pathway to sustainability. The journey will look different everywhere, and it will change over time as new data or information is revealed. For instance, sustainability in Sub-Saharan Africa or Southeast Asia will look diametrically opposed to sustainability in Europe, the U.S., or even the Middle East. Thus, perspective matters.
Progression toward energy transition and sustainability goals has specific implications for developing economies. More than 700 million people, 10% of the global population, still live in extreme poverty, and 940 million people worldwide do not have access to electricity. More than double that number lack access to reliable energy services at all.[2]
Current policy prescriptions have largely failed to address global social equity issues and often perpetuate social, economic, and environmental challenges in lower-income countries. Oversights related to power, trade, and the role of high-tech solutions contribute to that inequity. Consumer preferences and consumption cycles may be misaligned with the priorities of high-income societies. The notion of “zero waste,” “net zero,” decarbonization, a circular economy, and other strategies can be perceived as Westernized, “OECD-centric,” and inconsistent with the societal needs and economic growth priorities of developing nations. Indeed, societies in these nations may not yet be receptive to theories about reduction, prevention, elimination of waste, or transitioning away from fossil fuels. Basic needs such as access to safe and secure housing, food, and water may take precedence, even if strategies forwarded by leaders in wealthy nations promise more sustainable long-term solutions, especially when one considers that the “long-term” to an impoverished individual is very different compared to that of most citizens of middle- and upper-income societies.
China, India, Africa, and Southeast Asia are all at very different stages of economic development, and hence energy and material usage, so they each have unique priorities, objectives, and challenges. With over a billion emerging-market consumers, many of whom are just entering into the middle class, residents in developing economies may naturally seek an opportunity to consume and improve their standard of living, especially given the massive gap between the energy needs of developed and developing economies. They will seek opportunities to forge their own paths forward, independent of Western world perspectives, interference, and influence.
Progressing Toward Sustainability Entails Data and Transparency
The notion of sustainability appeals to corporations, financiers, and policymakers because it has been presented as a win-win situation. However, success requires a means to measure the costs and benefits across life cycles to ensure presumed “solutions” do not shift risks and offset social, economic, or environmental gains. Appropriate metrics and indicators are needed to set a baseline to steer transitions, build cohesion, monitor progress, create accountability, and evaluate the impact of interventions.
Data can address how sustainability is being characterized and implemented, and it provides valuable lessons for the future. It will aid in decision-making, allow the assessment of potential business cases, raise awareness, and avert false or misleading claims about the benefits of a product, service, or activity. Measurement, along with transparency, will differentiate the rebranded “business as usual” strategies that can lead to greenwashing from even well-intentioned efforts that strive to create sustainable solutions. Making false or misleading claims and using the ESG framework as a public-relations cover is a reputational and financial risk that degrades the value and principle of sustainability. Data and information can build trust and be the basis for a social license to operate. Any inability to verify claims runs counter to society’s desire for greater transparency and accountability.
For widespread and system-level change to occur — change that aligns with the global sustainability agenda — establishing a baseline and setting targets monitored by clear and transparent key performance indicators is necessary not only for industries, but also for governments who propose policies without consideration of broader life cycle economic, environmental, and social sustainability impacts throughout supply chains and across geographies.
Sustainability Requires Collaboration
Sustainability touches every part of the value chain in our complex global system. No one actor, company, or industry can realize sustainability goals in isolation. It requires engaging the full value chain and aligning the interests of a diverse set of shareholders, upstream and downstream businesses, secondary market players, customers, policymakers, and local communities in unprecedented partnerships to boost social and environmental outcomes, minimize waste, and maximize value.
Developing a resilient and sustainable economy, ecosystem, and society requires building trust, leaning into transparency, and active collaboration. It requires policies and business models that are affordable and accessible to all segments of society, and it considers new risks that solutions might pose for communities impacted across the global supply chain.
The long-term success of a regenerative, healthy, resilient, and engaged society is contingent on communities that also benefit from the transition. Issues like jobs, safety, and quality of life will be shared priorities. Sustainability planning necessitates properly identifying stakeholders and actively connecting in a meaningful way to build trust. It involves developing an understanding of shared concerns, goals and objectives, determining areas of commonality, establishing a reciprocal interpretation of the problem, developing mutually beneficial options, and garnering support for workable, scalable solutions. Sector-wide and systemic change is more likely to be successful and appreciated by stakeholders when there are clear engagement goals with measurable outcomes.
The Sustainability-Resilience Nexus
A lack of resilience, defined as a system’s ability to absorb and recover from unexpected incidents and disruptions, forces a population to focus on short-term requirements when unexpected incidents occur and to take any action possible to limit damage. Such reactive behavior ultimately inhibits consideration and development of long-term sustainability approaches that involve greater resilience. An essential characteristic of a society or a system that aspires to create and maintain a state of sustainability is that the society or system is indeed resilient.
Resilience is key to enabling a company or a government to take proactive, forward-looking steps to engage in sustainable behaviors. Building resilience and developing sustainability require a collective and systems-based framework to ensure that a system does not simply revert to the status quo or “business as usual,” but rebounds stronger and more sustainable in the long term.
By developing resilience and fostering sustainability across physical/manufactured, natural, social, human, and economic aspects, society is forced to place an emphasis on innovation, engagement/partnerships, and systems-thinking.
Sustainability is Dynamic, Not a Static End-State
Today’s focus on sustainability is insular and incomplete. Sustainability needs a reset and a rebranding beyond its narrow focus on the climate and CO2 emissions, topics that dominate discussions across global fora and corporate boardrooms. An assessment of data needs, data gaps, data availability, and data sharing is needed. From a systems perspective, we need to understand what the risks are across complete life cycles, where they might surface, and how they can be minimized or avoided.
It is urgent that all actors across the value chain conduct due diligence to address the economic, social, and environmental issues associated with the development of innovative technologies, products, and processes. Systems-level principles must then be integrated to assess life cycle impacts for a true perspective of sustainability. This means going well beyond the compliance approach of aligning with current rules and current sustainability and climate reporting initiatives. Despite the general lack of focus on the complex facets of sustainability, the balanced understanding and application of its true foundational principles in corporate and government strategies can incrementally guide society toward a more sustainable and energy-diverse future — and toward achieving positive global net sustainability over time.
In the absence of data, we can still progress: We can act, we can collaborate, we can communicate. The first step is to recognize that sustainability represents much more than what society currently gives it credit for today. Despite the multifaceted nature of sustainability and the need for complex data and unprecedented partnerships, there is elegance in simplicity. And that simplicity lies with first accepting the symbiotic and necessary relationship between our society, economy, and the environment. It requires identifying where you are today in your sustainability journey and charting where you want to be over the next five, 10, or 20 years. It will take diligence, constant awareness, and adaptability to understand current and future data needs, data access, data quality, and data validation.
In assessing a behemoth as complex as an entire economy or global supply chain, it becomes even more critical to understand how components synchronize and integrate into the whole network. Focusing solely on individual parts creates vulnerabilities by shifting risks elsewhere in the system, thus producing unsustainable and undesirable outcomes. It also establishes a culture of symbolic environmental tokenism that falsely claims that policies, actions, and investments are better for society and the environment when, in fact, they may offset environmental, social, and economic gains. For instance, the potential impacts driven by at-scale solar installations remain largely unexplored. This includes, as examples, the geopolitics of material and mineral inputs; increased land competition that intensifies biodiversity loss, water use, or indirect land use change emissions; and the absence of end-of-life options for solar panels that are currently exported, landfilled, or incinerated.
Some of the most challenging issues faced by society today require a holistic, cross-disciplinary, and multidimensional life cycle approach to achieve environmentally, socially, and economically sustainable solutions. New innovations promise more environmentally sustainable end-use energy and resource systems, but too often life cycle environmental and social impacts across supply chains are overlooked by industries and policymakers. Social compatibility is a prerequisite for any new technology or infrastructure development, and positive returns on invested capital will drive growth and investor focus. Hence, environmental, social, and financial sustainability will be a hallmark of successful transition pathways.
In sum, to eliminate our sustainability prejudice and take pride in a truly sustainable, resilient society, we must apply a systems-level approach that fully considers the vast range of environmental, social, and economic factors involved across entire life cycles. We must also recognize the need for cross-sector collaboration, improved data collection, and increased transparency as we work toward this vision of true sustainability.
Notes
[1] For examples, see “Industry awaits update to FTC’s ‘green guides,’” Financial Times [subscription required], https://www.ft.com/content/2e1db10b-c992-48ff-977a-eee86336def6; Jacob H. Hupart et al., “Greenwashing Class Action Litigation: An Emerging Risk for Companies’ Claims of Sustainability,” The National Law Review, August 4, 2023, https://www.natlawreview.com/article/greenwashing-class-action-litigation-emerging-risk-companies-claims-sustainability; and Mark Segal, “European Regulators Launch Greenwashing Study,” ESG Today, November 15, 2022, https://www.esgtoday.com/european-regulators-launch-greenwashing-study/.
[2] Laura Cozzi et al. “For the first time in decades, the number of people without access to electricity is set to increase in 2022,” IEA, November 3, 2022, https://www.iea.org/commentaries/for-the-first-time-in-decades-the-number-of-people-without-access-to-electricity-is-set-to-increase-in-2022; IEA, IRENA, UNSD, World Bank, and WHO, “Tracking SDG 7: The Energy Progress Report,” World Bank, Washington D.C., 2023, https://trackingsdg7.esmap.org/.
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