While the traditional messages of climate change – global warming and rising sea level – continue to be critical, they have to be reframed for them to continue to be relevant. With the trilogy of geopolitical divide, energy crisis, and AI, we should recast ESG as “EESG”, where the first “E” is economics.

With serious backpedaling on sustainability, particularly by the US presidential administration, businesses have taken the opportune moment to scale back on ESG-related commitments. Is it then game over for ESG? Is it caught in a point of reversal with no return forward?

Far from ESG reaching the endpoint, I posit that it just needs a new narrative. The economics or added “E” in “EESG” will complete the specification. In essence, this recalibration could be the next playbook for policy and regulation.

EESG for Sustained Sustainability in Business

The refreshed composition comes exactly at a time amidst a US-China geopolitical disparity in the view on climate change. This is accentuated by the energy supply disruptions in West Asia, which brought oil prices to new highs recently. At the same time, the galloping advancements in AI have placed severe pressures on energy and water consumption, which adds colossally to the global carbon footprint besides the electricity costs.

The interactive trilogy of geopolitics, energy crisis, and AI rationalises an economic impetus for sustainability actions. In a light-hearted way, it will not be “tree-hugging” alone that motivates the cause of climate actions and sustainable development. 

Now more than ever, corporate sustainability—accountability and responsibility—will continue to be critical. It will be value, revenue, and profit that bind businesses to fight climate change. At the end of the way, it will be such self-interests that make sustainability more sustainable in the big picture.

In this sense, EESG is not about decentering sustainability. It is really a more realist approach of benefits versus costs that will bite more effectively.

Trilogy Factor One – Geopolitical Divide

Noted by the signature “drill, baby, drill” mantra popularised by US President Donald Trump at the inauguration speech for his current term, the country will be relentlessly expanding the production of oil and gas.At the UN General Assembly last year, Trump called climate change “the greatest con job ever perpetrated on the world” and labeled it as “scam”. And he has withdrawn the US from the Paris Agreement twice in his two terms as president. 

On the other hand, China has taken an opposite trajectory. It has made firm commitments to reduce dependency on coal. The country’s president, Xi Jinping, articulated China’s commitment to reduce greenhouse gas emissions and increase renewable energy usage, amongst various key policies for a climate-adaptive society.

These commitments announced China’s—and with other Asian countries’—ambition to represent the new growth offerings in green industries. They boast readiness in manufacturing and materials for products such as electric vehicles and solar panels. With this, the global economics equation will likely tilt towards a more climate-sensitive mode.

Trilogy Factor Two – Energy Crisis

The US-Iran conflict has disrupted the flow of oil and gas from countries in the Persian Gulf such as Saudi Arabia, Iraq, UAE, and Kuwait besides Iran itself. The chokepoint is the Strait of Hormuz through which 25%of the world’s seaborne oil trade and 20%of global liquefied natural gas exports flow through. Some 90% of these go to Asian markets.

The seizure of Bab el-Mandeb at the tip of the Suez Canal by Iran-backed Houthis forces from Yemen closed yet another key energy transit point. The Bab el-Mandep route commands another 5% of the world maritime oil trade. The issue is compounded by air strikes of Saudi Arabia’s East-West Pipeline by drones from Iraq. 

Just before the Hormuz crisis, crude oil prices were trading around 60 US dollars per barrel. After that, the prices have escalated above 100 US dollars. 

The high costs of oil and gas have made switching to renewables even more economically attractive. Using the full-cost comparisons of energy sources from International Renewable Energy Agency and Lazard, renewables such as solar, hydro, onshore wind, and geothermal have become even more viable compared to natural gas, which powers most of our electricity generation presently.

In the pipeline next will be low-carbon alternatives, particularly nuclear and hydrogen. Those will definitely get some boost from the high and fluctuating oil and gas prices. Already the costs of these alternatives are dropping towards those of fossil fuels due to scaling and technological progress.

Trilogy Factor Three – AI

With the preponderance of generative AI and the emerging agentic AI deployment, the need for energy has shot up dramatically. Even beyond the ethical and social aspects, AI will place an exorbitant strain on the environment. And the problem is not simply direct electricity use for computing. It is also about the cooling needed for the data centres.

An AI prompt can take up to 10 times more energy to complete than a regular Google search. Meanwhile, smarter AI models with more reasoning abilities produce up to 50 times more carbon emissions than simpler systems to answer the same question.

These environmental burdens translate directly to the economic cost of electricity and water use. Indirectly, they also translate to the economic cost from the heightened public health risks that come with data centres. 

Towards a New Playbook

The geopolitics, energy, and AI tri-factors provide a crucial economic basis for the necessary quest for sustainability. 

Climate-induced catastrophes, such as the Nepal-China border floods or recurrent dry weather phenomena such El Nino-induced regional hazes from forest burning, will continue to exert their importance. But these are often distance events and it is not clear that businesses have to foot the bills. 

Where it hits the pockets directly—like the costs of energy—only then will there be climate actions. The playbook for sustainability has to be economic in nature, like EESG. No amount of moral persuasion will be that effective.

Editor: Nazalea Kusuma

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Lawrence Loh

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Lawrence Loh is Professor and Director at the Centre for Governance and Sustainability of National University of Singapore Business School. He is also Executive Director of Well-Being and EESG Alliance (WEGA). He received his PhD from Massachusetts Institute of Technology where his doctoral dissertation on technology governance won top global prize in the field of information systems.

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