Nikita Mishra
Nov 15, 2022

The climate of business: Where does ESG go in a recession?

Six in 10 CEOs are putting the kibosh on ESG investments in the spirit of corporate cost savings. We analyse the future of ESG amid talks of a recession.

(Photo: Shutterstock)
(Photo: Shutterstock)

As you read this, 45,000 people including 120 global leaders from 196 countries are currently debating a global decarbonisation blueprint at the COP27 summit. The planet is in ‘code red’, and Asia accounts for 99 out of 100 top cities facing the biggest environmental risks. The pursuit of environment, social and governance or ESG has never seemed so critical.

Yet, ESG is undergoing its biggest stress test since the UN Global Compact (UNGC) first conceived it in 2005. A growing chorus of CEOs believe we’re headed toward a recession. A recent KPMG CEOs Outlook report says that 91% of the over 1,300 CEOs polled in 11 markets—six of which are in Asia—are “convinced” a recession will hit in the next 12 months. And just how are they preparing for the economic downturn? Nearly 60% are putting a hold or altogether reconsidering efforts around ESG to cut costs, and 51% plan to downsize their employee base.

With the shrinking bottom-line, diminishing investment in ESG strategies is not surprising but will spell financial trouble for companies in the long run, says Quentin Fouesnant, managing director APAC of Fiscal Note ESG Solutions in Singapore.

For the last decade, Fouesnant has been working in the energy, industrial and technology ecosystem helping large companies reduce their carbon footprint through data insights. In his view, amid tightening credit conditions, the prospect of slowing down ESG isn’t one to be considered lightly.

“I find it unacceptable that interest in ESG is waning with the hint of a recession. Will climate change also slow down because there is a recession or cuts were made in the workforce? How can we afford to slow down at this point when we’re nowhere near where we need to be?” questions Fouesnant.

Vivek Kumar, CMO of WWF Singapore pleads with C-suites to stop treating ESG as a vanity project in the face of economic instability: “While it can be tempting to go into ‘survival mode’ during times of uncertainty, having a longer-term mindset is key. Investments in sustainability should be strategic, long-term, and critically linked to the vision and mission of companies."

First it was DEI, now ESG

Fouesnant is right, it’s possibly easier to champion ethics, diversity, and social impact when the market and sentiment are soaring. But what happens when the boom times end?

Few crises can level up to the two-headed monster that was the combined effect of the global pandemic and the economic stress that the world went through from the outset of 2020. During the early phase of Covid, from March to June 2020, career site Glassdoor reported that diversity, equity, and inclusion were the first jobs to be axed. Fresh openings in the sector plunged by 60%—this is sharper than the drop noted in human resources (49%) and overall job openings (28%).

Photo: Mc Kinsey report 'How DE&I Matter'


Stalled progress on diversity makes the road to recovery even harder; recent McKinsey research highlights that companies in the top quartile for diverse leadership teams outperformed their less-diverse peers on profitability.

“For years, diversity initiatives and social responsibility were largely thought of as ‘nice-to-have’ and not as priorities and least impactful to both the agency and the client," remarks Vu Quan Nguyen-Masse, vice president of culture and brand, ASEAN at Vero. "These were the first to be axed in the face of adversity but that has largely changed now. Most companies recognise the importance of DEI; unfortunately, not all still view ESG as an imperative."

Agencies seemed to have made tangible progress in this area. In August 2022, Forsman & Bodenfors become the first creative shop in the world to get certified for gender pay equity; Grey London insists all their clients sign a diversity and inclusion agreement; and VMLY&R unveiled a new inclusion experience practice to help brands accelerate their DEI efforts.

These initiatives take time, effort, and financial backing to show results. In fact, a recent Wall Street Journal analysis found that the 20 most diverse companies in the S&P 500 have an annual stock return of 10% over five years compared to the 4.2% achieved by their least-diverse counterparts.

Are ESG strategies cut out for tough markets?

ESG integration is likely to be considered basic to evaluating a company’s ability to weather widescale disruption. But once FMCG majors such as P&G, Diageo, Coca-Cola and Unilever—some of the biggest ad spenders in the world—feel the pinch of the recession, and if the IPA Bellwether report is to be believed it will be sooner rather than later, no one knows how sharp the whip for ESG initiatives will be.

Massive cuts across Meta and Twitter might be a precursor to what the year ahead will bring. Advertising has already felt its first pinch as heads roll, albeit in small numbers, at Ogilvy Australia and M&C Saatchi. Though Ogilvy declined to confirm the exact numbers, according to media reports, 10-25 roles in Australia have been made redundant and the agency spokesperson told Campaign that the lay-offs "follow an evaluation of current client demand against required resources."

A recession puts options on the table which never existed. Amid the human and economic carnage which Q4 is inching towards, Adam Driver, founder and director of Authentic Communications says it’s time to put sustainability and ESG efforts on the chopping block.

“Let’s not dance around the issue. The coming years will be tough, very tough. Consider how your brand or organisation deals with ESG values and brand purpose versus being competitive and attractive in other ways. Of course, it’s great to stand for something, and align where it works. The important phrase there being the last–only where it works,” he says.

“Money makes the world go around, and that is the same for sustainability and green goals. To thrive as a business with sustainable credentials, and true brand purpose, you need to first of all survive as a business. If you don’t profit, you can’t reinvest that profit.”

CEOs cannot respond to the recession like they did in 2020

Photo: KPMG CEO Outlook report 2022

“I’m thinking of the Warren Buffet quote right now, ‘When the tide is low, you can see who is swimming naked’," says Amy Williams, founder and CEO of Good-Loop.

In her view, when the chips are down, pressing pause on ESG will have a profound effect on an agency’s ability to mitigate risk and create long-term value.  

“We cannot act like its 2020. Have we learnt nothing from the pandemic? We are already losing ground on carbon emissions, net-zero targets, access to clean and affordable energy among other parameters and this is not the time to stop all the good work that has been done. By 2025, global ESG assets will hit US$53 trillion; in crunch time, budget cuts for ESG is a short-term, knee-jerk reaction,” says Williams.

Paul Knopp, US chair and CEO at KPMG adds that expecting economic stress and consumer demand to stay depressed for a long period can spell disaster in the current imbalanced hiring market. “Cuts to ESG initiatives that customers and employees like—ones that prioritise sustainability, diversity and social progress—could backfire in the long run,” he adds.

Knopp gives the example of the pandemic, when a shuttered economy meant jobs were culled or furloughed, but by early 2021, “the economy bounced back incredibly fast, and those leaders that cut jobs probably regretted it to some degree.” Competitive hiring meant that employers had to raise wages, add benefits and improve job conditions in order to get talent through the door.

Kumar of WWF Singapore cites ample research to support that the best performing companies are those that prioritise ESG.

“Priorities are clearly changing, and citizens increasingly value environmental concerns. If companies are willing to thrive post the economic downturn, it’s vital that they keep these priorities in mind so as not to diminish the respect of today’s consumer,” he adds.

Putting the E in ESG

When the markets tumble, the high fees on ESG investments might not always yield favourable returns. This can lead to incidents like one in May when Elon Musk termed the entire industry as “scam” after S&P’s ESG Index kicked Tesla out from its list. S&P did this, it said, in part because the switch to cleaner-burning cars does not offset discrimination claims and autopilot crashes that Tesla was wrapped in.

Musk reacted with his customary grace, however, he is hardly alone in the growing cynicism about the future of E in ESG.

Remember the infamous Stuart Kirk episode, HSBC’s global head of responsible investing who boldly rocked a conference attended by passionate ESG-focused crowd, to question whether climate risk should even be on the investor agenda. While HSBC was quick to snap ties with Kirk, who was first suspended and then his position rendered permanently unsustainable, his speech exposes the widening fault line in the ESG debate; the key weaknesses and inconsistencies that the investment model is riddled with.

Stuart Kirk presenting at the Financial Times Moral Money conference in May, 2022. His speech was peppered with provocative remarks such as that central bankers like Mark Carney were trying to “out hyperbole the next guy” and “who cares if Miami is six metres underwater in 100 years, Amsterdam’s been six metres under way for ages and that’s a really nice place.”


In a Financial Times op-ed, Kirk went on to explain that ESG is suffering from an “existential defect”, the approach has “two meanings from birth”, which regulators have never bothered distinguishing. The result was that “the whole industry speaks and behaves at cross purposes”, he opines.

Add to it the accusations of greenwashing against brands which are rife: The ongoing COP27 is funded by Coca-Cola, the biggest plastic polluter on Earth; Nestlé's big boss went on record to push back on corporate responsibility for plastic pollution saying “it shouldn't fall on us all the time”; H&M, Decathlon, and ASOS among other fast fashion brands have repeatedly been called out for drowning in misleading ‘eco’ claims.

Call it growing pains, perhaps, but there remains a stubborn divide between investors' needs for relevant ESG data and what companies are disclosing. CNN’s Before the Bell recently reported the largest outflow of investor cash in ESG funds since the March 2020 recession. The impact of the damage has caused ESG market assets which peaked at US$8.5 trillion in late 2021, to now stand under US$7 trillion.

ESG 'contributes to the bottom line': Unilever CEO

Clockwise from top: Suzy Goulding (MSL), Vu Quan Nguyen-Masse (Vero), Amy Williams (Good-Loop), Vivek Kumar (WWF-Singapore), Quentin Fouesnant (Fiscal Solutions)


As the debate around ESG takes an ideological turn, CEOs like Alan Jope of Unilever are firm believers that sustainability and core business values are deeply linked. Speaking at the Clinton Global Initiative earlier in September, Jope rebuffed the debate:

“We are not an NGO. We're a for-profit organization. And the reason why we care so much about sustainable business, B corps, and other expressions of it is because we think it contributes to the bottom line. We're seeing our brands that offer consumers sustainable choices are growing much faster,” remarked Jope.

Unilever's CEO Alan declared his company would “not back down” on ESG investments during at the recently held Clinton Global Initiative in New York. Photo: Twitter/WillHild


Unilever began scrubbing its sustainability reputation in 2010 when former CEO Paul Polman introduced the company's Sustainable Living Plan amid growing chatter on climate change and the company's dreary performance comparative to rivals such as P&G.

Fouesnant chimes in saying that “wiggling out of ESG commitments won’t be an option for bigger brands and networks.”

“They have strict regulators to answer to. That said, what can happen is that in a downturn, companies can start approaching this from a pure compliance angle and satisfy the investor with the strict minimum of ESG disclosures. While mandatory disclosures are helpful, there is an urgent need to put purpose before profits,” he adds.

Experts like Suzy Goulding, head of sustainability, APAC and MEA at MSL Group, are optimistic about the fate of ESG in the impending crisis. In a chat with Campaign, she tells us that regardless of the economic outlook, every sustainability journey is long and complex. 

“I think most businesses will continue to push ahead with their ESG agenda, given that it is now baked into all aspects of a business. That said, a reassessment and rebalancing of priorities can happen, perhaps even a slowing down of ESG progress, but not a hard stop,” she opines.

Given that majority of businesses recognise ESG progress as a necessity for long-term financial success, leaders who go off-course too much risk losing out on access to capital from financial stakeholders who want to see improved corporate ESG efforts. Audiences associate with brands who walk the talk, especially Gen Z makes buying decisions around a brand’s conscious commitment, so straying too far from publicly proclaimed ESG commitments can backfire miserably.

That said, a sea of new global regulations (EU, US, UK) is about to change the business and investing landscape in a way that will, recession or not, make it tricky for leaders to downplay ESG.  In Asia-Pacific, which is generally fragmented in any regulatory landscape, this means that different markets impose their own timelines and supervisory style. However, ESG regulations hit differently. China, Japan, South Korea and New Zealand have established mandatory carbon markets, which essentially cap the amount of greenhouse gases certain firms can emit, and if they emit more than they are permitted, they have to purchase extra from their counterparts at a market price. Meanwhile, The Monetary Authority of Singapore is taxing greenhouse gas emissions.

“Promoting your agency’s ESG efforts can draw consumers, give more engagement and boost sales. Instead of reducing your investment in ESG, companies should use this crunch time to prove their authenticity and true commitment. That's part of a genuine risk mitigation and future investment strategy that I think investors and consumers are looking for now more than ever,” says Williams of Good-Loop.

Every C-suite decision maker trying to figure out the cuts they’ll make to save their sinking ships must learn a lesson or two from Unilver’s Jope who concluded his speech at The New York Clinton Global Initiative, saying:

“We've taken 1.2 billion euros of cost out of the business through sustainable sourcing, we know it reduces risk. A world on fire or underwater is not a great place to be selling soap or soup.”

Related Articles

Just Published

17 hours ago

Creative Minds: Why Ng Mei Mei’s perfect day is a ...

Get to know the creative group head at Iris Singapore who started a cookie business during the pandemic that forced her to go without sleep for 50 hours.

1 day ago

Agency of the Year 2022

See the full list of winners for markets including APAC, Southeast Asia, ANZ, South Asia, and Japan/Korea.