In the midst of chaos, there is opportunity

It certainly feels like chaos doesn’t it. International wars, political upheaval, polarisation and protest. It’s fair to say we’re living in a time of ‘permacrisis’, stumbling from one emergency to the next. This sense of existential dread, combined with persistent macroeconomic headwinds, rising financing costs and an uncertain growth outlook, has meant the focus of investors on the bottom line has sharpened considerably.

Anything seen as peripheral to maximising shareholder returns is held up as a distraction. Unilever has been lambasted by activist investors for its focus on purpose-led brands and this has led to a shift in direction under the new CEO, Hein Schumacher, to driving growth and maximising margin, with sustainability commitments taking more of a back seat.

Despite being established for some time and being integral to many businesses, the term ESG has found itself in the crosshairs. In the US, it has become a lightning rod to bash CEOs with and is politically polarising. Larry Fink, CEO of Blackrock, has stepped away from the term ESG because he describes it as being ‘entirely weaponised’. Notably his highly influential annual letter to CEOs in 2024 made no mention of the term, despite Blackrock being an early adopter and advocate for ESG, with Fink flying the flag.

The important thing to note is that while the term ESG has taken more of a backseat in the rhetoric, Blackrock remains committed to the thinking behind it and the

opportunities presented by environmental and social progress. Fink instead opts for terms like stakeholder capitalism and sustainable investing. While the picture in Europe is not as politically charged, we know that what happens across the Atlantic tends to cast a long shadow.

While the term ESG may have become troublesome in some US investing circles, the key principles behind it remain sound. To ignore the considerable opportunities presented would be a case of chucking the baby out with the bath water. Foolhardy in the extreme. The underlying macroeconomic trends suggest this shift to a world where businesses take action to address the biggest challenges facing society is unlikely to slow down. We are on the cusp of the largest intergenerational transfer of wealth in history as $84trillion in assets is set to transfer from baby boomers and the silent generation to millennials and Gen X by 2045. With younger generations known to prioritise social and environmental issues, businesses that are part of the solution are likely to benefit from increased investment as people look to align their financial interests with their worldview.

While in the short term there may be a rebound against the rising importance of ESG, the long-term trend towards people increasingly looking for and expecting more from the brands and companies they buy from and work for is here to stay. B Corps, companies who embed social and environmental impact within their business models, are growing their turnover faster than traditional businesses

(27% vs 5%) and employee headcount (14% vs 1%). This isn’t a short-lived fad to be dismissed as something not to worry about, it is a paradigm shift and will change how business is done forever. For the first time the UN PRI has published research on the necessity of this shift. In a report titled ‘Long Term Value Creation in a Changing World’, the research has found that “the debate is shifting from whether investors should consider sustainability outcomes at all, to asking how investors can play their full potential in addressing sustainability challenges posed by the economic transition”.

Change can be viewed through two different frames. Our natural tendency as humans is to fear change. Our ancestors who had carved out a modicum of comfort in their lives would treat all change with a healthy dose of scepticism and we’re seeing the same thing in investing circles in relation to ESG. When food, water and shelter were all taken care of, anything that might change their circumstances would be seen in a negative light. It could upset the carefully created balance and threaten the status quo. Whether that was changes in the seasons, a new predator on the horizon or a new tribe edging into the periphery of their territory, these things were all seen as a threat first and foremost. Our loss aversion takes the lead. We act to minimise potential losses and protect what we already have. The potential opportunities that might come with collaborating with the other tribe or hunting the predator as an additional source of food fade into the background.

This is the mindset that we often see in legacy businesses and traditional investors. Something new on the horizon is seen as a threat to be managed rather than an opportunity to be grasped. Businesses have become very good at risk mitigation. They have invested heavily into systems and processes under the label of ESG that enable them to measure and be transparent about all elements of their business and the impact on society and the environment.

This is an important exercise, but does it mean they’re spending all their time and money looking backwards, rather than forwards? Leo Rayman of sustainability consultancy, EdenLab says, ‘We’re at risk of creating the perfect rear-view mirror, potentially at the expense of keeping our eyes on the road and spotting opportunities to redesign and reimagine the future.’ ESG creates a tsunami of reporting, but is it just a case of counting the deckchairs on the Titanic? If you spend too much time on reporting, you miss the opportunities staring you in the face. ESG should be used to look forwards as well as backwards, identifying opportunities on the road ahead, as well as showing how far you’ve come on the journey.

Where you’re sat is likely to determine the way you look at the changes affecting our world. If you’re sat in the camp of the start-up or scale up, it’s highly likely you’ll see this shift in consumer attitudes and buying behaviour as a major opportunity. There is the opportunity to gain share in spaces where big corporates dominate by disrupting stale and slow-changing business models. It also provides the opportunity to attract and retain the best staff who are motivated by tackling society’s problems. The next 10 years will bring a decade of disruption, and things will never be the same again. You have nothing to lose and the opportunity is there to grasp in front of you. To carpe the diem.

But if you’re sat on the side of the status quo, you will see things differently. This consumer shift isn’t an opportunity, it’s a threat – to your market share, to your bottom line and your shareholder returns.

Looking at it this way puts you on the defensive. It’s the same mindset that saw Kodak fail to take advantage of digital photography or Nokia miss out on the smartphone. As with almost any circumstance we find ourselves in, there’s a quote from Winston Churchill that is especially apt:

“The pessimist sees the difficulty in every opportunity. The optimist sees opportunity in every difficulty”.

If this defensive mindset persists as we move forward, it will be another case of missed opportunity on a grand scale. Slow to make decisions, managing losses rather than maximising gains. Guarding against becoming obsolete, rather than seeing opportunity. But if we change the frame we look at the world through there is tremendous opportunity to be grasped. If we view the world through the eyes of the optimist, we see possibilities rather than pitfalls. Cyberfort, a cyber security company, sees neurodiversity as a superpower in its line of work so has launched its Neurodivergent Community helping to recruit, welcome and empower the neurodivergent individuals who Cyberfort believe will give the company a huge competitive advantage.

The transition to more sustainable behaviours across society and the desire to make a positive impact on social problems are perhaps the biggest opportunities on the planet for the next generation of businesses. Smaller companies can harness their agility and speed to market to disrupt the established players and land quick gains.

To view disruption as an opportunity or a threat. Those who go on the defensive are likely to miss out in the long-term, but those companies who go on the offensive stand to win big. As Schwab, Founder and Executive Chairman of the World Economic Forum, said:

“In the new world it is not the big fish which eats the small fish, its the fast fish which eats the slow fish.”

This shift is a major opportunity for all parties. All bets are off and what came before is no indication of what the future might look like. The opportunity is there to redraw the battle lines and enter a category that you weren’t in before. Steal share. Win new audiences. Premiumise a category. Ride the changing tides of consumer behaviour. Just because something has always been done that way, doesn’t mean it always has to be.

There is the opportunity to step up and be the hero in this story. The driving force behind the changes that everyone wants to see. Money is humanity’s most powerful invention. It makes things happen and fuels progress. It has solved countless problems in the past, leading to progress in life expectancy, disease prevention and education. It has helped countries recover from war, famine and pandemics and is probably the most powerful tool we have in the fight against climate change. It’s the closest we’ve come to inventing time travel, borrowing against a hypothetical future to make our lives better in the present. Investing in supercharging the growth of the companies that are operating in the right way and taking steps to tackle the biggest problems facing humanity is a chance to both grasp this huge investment opportunity and make the world a better place at the same time.