Sustainability pays off, even if flaunting it is no longer trendy

“You’re good, and they throw stones at you. You’re bad, and they throw stones at you,” sang Gian Pieretti and Antoine at the Sanremo Music Festival in 1967. Fifty-eight years later, the attitude expressed in the song risks casting a deafening silence over the issue of sustainability.

The term “greenhushing” refers to the practice of companies downplaying or entirely avoiding communication about their environmental goals and achievements to dodge criticism or prevent backlash. The term became popular at the end of 2022 when South Pole, a Swiss sustainable finance consultancy, published a report revealing that nearly a quarter of the 1,200 companies with a sustainability officer disclosed “only the bare minimum” of their results. Xavier Font, a professor at the University of Sussex, observed the same phenomenon in the UK tourism industry.

There are several reasons for this. On the positive side, it’s a response to tighter, more effective regulations on greenwashing (the deceptive marketing strategy when a company promotes a green image without adopting the corresponding practices).

On the downside, greenhushing is also a result of the increasing polarization of the political debate, particularly in the United States. Companies fear both being accused of showcasing their achievements for purely economic gain on the one hand, and on the other, becoming targets of “anti-woke” sentiment. Even before Trump’s election, the US states of Florida and Texas enacted policies penalizing financial firms that refrain from investing in polluting local industries in the name of environmental protection. According to The Washington Post, this led some major investment companies to scrub ESG references from their websites.

Lastly, the announcement effect is losing steam: the first company to reveal that it has built sustainable headquarters is seen as a trailblazer; the hundredth risks looking like a laggard.

But both greenwashing and greenhushing reflect a poor understanding of why businesses should embrace sustainability. It’s not a marketing gimmick, but a strategic decision. When effectively embedded in innovative business models, sustainability can generate competitive advantage and create value. Poorly managed, it can do the very opposite.

Since the early 2000s, over 2,200 research reports have been published examining the relationship between ESG performance and financial results, and the takeaway is clear. More than 80% of the studies show a positive relationship between the two variables, 7% report a negative correlation, and the rest are inconclusive. A Harvard analysis updated in 2014 found that a portfolio of companies performing well on material sustainability issues yielded double the return of a portfolio composed of poor performers. Since then, the gap has likely widened even more.

Ultimately, a review of the scientific literature reveals a threefold advantage: ESG performance correlates with better results on all key indicators (EBITDA, Net Income, ROA, ROE); ESG investments generate greater value; and a sustainable strategy increases a company’s chances of survival, reducing default risk by 65%.

Making human activity sustainable for the planet and its inhabitants is not a negotiable goal. Everyone has to do their part to make it happen: the financial sector, which can’t back away, given the scale of investment needed to transform economic models; companies, which must adopt a long-term mindset; citizens, consumers, and retail investors; and finally governments and institutions, which must be able to regulate this transformation to minimize its social impacts.

Originally published in Fortune Italia