ESG 2024 outlook

To read the full report, please download the PDF above.

The corporate trilemma between growth, profitability and sustainability

2023’s ESG theme centered on the energy trilemma

2024’s ESG theme hones in on the corporate trilemma

Long-term transition challenge remains on working out how to scale things that work, to things that work at scale

The core to our 2023 ESG outlook has been anchored on the energy trilemma of (i) affordability; (ii) security; and (iii) sustainability, in harnessing a just, and orderly transition to net zero (see here).
At the heart of our thesis is that the near-term energy landscape is shaped by structural underinvestment, moored on the climate change paradox. That is, the current pace of renewable energy infrastructure investment is “too slow” for the goals of the 2015 Paris Agreement to be met, and if those goals continue falling short, then current investment in fossil fuel infrastructure is “too low” to make up the shortfall.

As we look to 2024, we permutate the conversation to the corporate trilemma of (i) growth; (ii) profitability and (iii) sustainability. That is, in a world wherein ESG’s decibels of debate are rising and corporate budgets are being squeezed on the back of a higher for longer rates environment, we ask whether making growth sustainable and inclusive requires inscrutable trade-offs – forgoing revenues and profits for the sake of sustainability.
Whilst ESG as an ecosystem is still maturing, the direction of travel in our view is crystal-clear – not only can you do well while advancing ESG, you can do better.
As portfolios evolve in 2024, we believe that companies which gallantly pursue stronger growth and profitability while concurrently improving their ESG performance, will deliver superior shareholder returns.

Looking ahead, net zero by 2050 is an ambition unprecedented in scale. Its just not happening fast enough.
Achieving it depends on significant investment in existing technologies. Put differently, we believe the global economy today faces a scaling problem, not an innovation problem.
One lens to contextualise this is that 90% of the abatement that we need can come from technologies that are already proven, yet only 10% can come from technologies that are commercially mature.
So our challenge is to work out how to scale things that work, to things that work at scale.
We believe three areas are emerging that should now be priorities in the scaling conundrum: (i) building up resilient supply chains; (ii) addressing an emerging skills gap; and (iii) a more holistic approach for financing and investments.