Sustainability is Dead – Long Live Sustainability
Sustainability is at a crossroads. Political pressure, regulatory fatigue, and economic pragmatism are challenging the traditional ESG framework. With rising geopolitical tensions, protectionist policies, and short-term financial incentives dominating decision-making, sustainability is increasingly seen as a bureaucratic burden rather than a strategic advantage. But is this the end of sustainability as we know it, or the dawn of a more dynamic, opportunity-driven approach?
by Prof Dr René Schmidpeter
February 2025
ESG and Sustainability Under Political Pressure
Sustainability is under attack – some say even dead: Recent political trends, including rollbacks by the Trump administration and several European governments, have stalled sustainability regulations, citing economic burdens. Critics view ESG and the EU Taxonomy as bureaucratic obstacles rather than drivers of innovation. However, this overlooks the economic advantages of entrepreneurial sustainability.
A major factor behind the ESG backlash is geopolitics. Political pressure is mounting due to de-globalization, protectionism, and a shifting multipolar world order. Governments are prioritizing competitiveness over sustainability, arguing that other pressing challenges take precedence. Despite the escalating global crises, politicians - driven by the need for reelection - avoid unpopular long-term decisions. CEOs, likewise, are incentivized by compensation structures that prioritize short-term gains over sustainable business transformations.
In this context the Omnibus Regulation, based on the recommendations of the Draghi Report, will play a significant role in further shaping the current regulatory landscape. The Omnibus Regulation seeks to simplify key sustainability directives, including the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy. With the key date of February 26 approaching, discussions on ESG frameworks and their long-term economic impact are intensifying.
Is the traditional bureaucratic approach dead, making way for a dynamic, opportunity-driven sustainability model? What is the way forward to reframe the sustainability discussion?
Sustainability and Profitability: A New Perspective
In the past growing regulations challenge businesses to balance sustainability with profitability. Traditional narratives position sustainability as an economic burden, but a paradigm shift could be emerging - moving from compliance-driven strategies to an entrepreneurial mindset that integrates both sustainability and profitability. The key-question for the competitiveness of businesses: How can corporates develop strategies that align financial success with sustainability?
Beyond a "Tick-Box" Approach
Sustainability has often been treated as an isolated compliance task. A new approach could embed sustainability across all business operations, making it a core element of corporate strategy rather than a separate obligation. Right now, to many firms reduce ESG efforts to compliance exercises, fueling criticism that sustainability stifles business rather than enhances it. But simply adhering to regulations does not resolve the outdated trade-off between sustainability and profitability. Companies must move beyond compliance to embed sustainability into strategic decision-making. Only than they can gain business advantages and develop new market opportunities.
Multidimensional Integrative Approach
A modern sustainability framework extends beyond environmental concerns to include social, economic, and knowledge-driven dimensions. True sustainability encompasses diversity, inclusion, social justice, and education. Here, it might also be helpful to introduce a new business terminology in the sustainability field - terms that resonate with both managers and policymakers alike. This new opportunity-oriented language is key to moving beyond the outdated jargon. Creating a new sustainability language that is understood and accepted across sectors, and encouraging practical implementation, business relevance as well as management connectivity.
Managing Complexity Instead of Reducing It
There are voices arguing that a double materiality analysis with more than 10 significant factors is simply unmanageable and thus, not useful. With such complexity, the focus should be on identifying truly impactful factors and understanding which business models are best suited to them. This also implies narrowing the focus and concentrating on the most influential levers. However, this concentrated approach often reduces comparability across industries, making it a delicate balancing act. Rather than simplifying sustainability through regulation, businesses must embrace a multidimensional model incorporating environmental, social, economic, and knowledge factors. Entrepreneurial management is key to integrating these dimensions into decision-making and thus translating sustainability into business opportunities.
From Status Quo to Future-Ready Sustainability
We need a mindset which sees businesses as part of the solution, not the problem. Economic creativity must drive sustainability as an engine for innovation rather than a bureaucratic burden. Governments, businesses, and society must collaborate to foster an opportunity-oriented sustainability approach.
A new sustainability paradigm requires concrete steps:
Educating Decision-Makers on sustainability as a strategic advantage.
Developing Integration Tools to embed sustainability in business processes.
Encouraging Collaboration between businesses, governments, NGOs, and academia.
Creating Positive Policy Incentives instead of overburdening regulations.
Continuous Adaptation to market and innovation demands.
Innovation over Regulation
Many business models need to undergo significant transformation to align with sustainability goals. This creates potential goal conflicts - especially for large corporations (particularly publicly listed ones). For these companies, investing in sustainable development or green products can reduce short-term profits. Therefore, it is crucial to engage investors and align their expectations with the long-term strategy. A key lever for transformation lies in product innovation - products, as they form the core of value creation, have a direct impact on the sustainability of the entire value chain, extending to upstream and downstream processes. Thus, businesses need to focus on redesigning their products with sustainability at their core.
A Mindset Shift for a New Sustainability Era
Also, digital transformation can serve as a crucial driver for sustainability. The disruption potential of new technologies, such as AI, is immense and can be leveraged for accelerating sustainable practices by improving efficiency, optimizing resource use, and enabling new business models. In a new sustainability era business, political, and academic leaders must embrace sustainability and profitability as complementary forces. Integrating sustainability into business processes strengthens competitiveness and innovation. The digital transformation and sustainability transformation can be reinforcing each other.
Sustainability Regulations: Burden or Opportunity?
Political resistance often frames sustainability as an economic constraint, ignoring its potential for long-term competitiveness. Businesses that integrate sustainability strategically enjoy:
Cost Savings through energy and resource efficiency.
Market Competitiveness driven by consumer demand for sustainability.
Investment Appeal as investors prioritize future-proof businesses.
Regulatory Stability through proactive sustainability adaptation.
Innovation Potential leading to new business opportunities.
In this regard, regulators and policymakers should not only focus on imposing regulations but also reward businesses for pursuing sustainable practices. For instance, if carbon pricing will be adjusted to make CO2 emissions more expensive, governments should at the same time also subsidize renewable energy sources like solar, wind, and hydropower to support the transition to a sustainable economy in order to intensify positive incentives for transformation.
Conclusion: Towards a Strategic Sustainability Paradigm
Sustainability should be seen as an economic driver, not a hindrance. The future belongs to those who leverage sustainability for innovation, growth, and long-term prosperity. Transforming a large corporation in practice requires leadership and cultural shifts - leading by example and adapting compensation models to incentivize long-term thinking. At its core, decision-makers in business, politics and civil society alike need to believe in the economic advantage of sustainable business transformation. If they do not, their perspective on its consequences will differ, shaping their decisions and actions accordingly.
In fact, there are already businesses and industries moving in this direction - companies that are gradually embedding sustainability into their core business models. These examples show that transformation is possible and profitable when done strategically. The key is to act now, recognize the opportunities, and remain positive. Long live sustainability!
Prof. René Schmidpeter
is Professor at BFH Bern (Switzerland) and research scientist at the interdisciplinary academic faculty of the Parmenides Foundation in Munich.
His research and teaching activities focus on sustainable business transformation, international perspectives on sustainability, social innovation and sustainable entrepreneurship. René serves as an expert and keynote speaker in many academic, economic and political steering committees as well as sustainability advisory boards. He is Vice President of the Global Corporate Governance Institute (GCGI) and Founder of M3TRIX / TETRANOMICS in Cologne and Munich, Germany