About ESG Strategy
The proliferation of mandatory climate disclosures underscores the urgency for companies to integrate ESG principles into their DNA. By prioritizing Environmental, Social, and Governance factors, companies can mitigate risks, seize opportunities, and foster sustainable growth.
More than 88% of publicly traded companies, 79% of venture and private equity-backed companies, and 67% of privately-owned companies had ESG initiatives in place. Implementing an ESG strategy is no longer just a trend—it's a strategic imperative.
In today's business landscape, ESG considerations are pivotal for building resilience, maintaining trust, and driving long-term value. If you're considering integrating ESG strategy into your operations, keep a close watch on the emerging trends for 2024.
2024 ESG Strategy Trends
1. Rapid Adoption of Mandatory Disclosures
In 2023, the call for corporate transparency peaked, initiating a push towards mandatory disclosures on environmental impact and climate risks.
As we step into 2024, this demand catalyzes a significant shift. Companies will no longer have the option but will be obliged to report on sustainability metrics.
Over the past four years, governmental bodies worldwide have introduced 74% more ESG reporting provisions.
Today, there are nearly 400 such provisions across 80 countries. This surge reflects the growing importance of environmental, social, and governance factors in corporate reporting.
This transition will revolutionize how companies measure and disclose their emissions impact, spanning both operations and product/service offerings.
2. Embracing Supply Chain Transparency for Scope 3 emissions
In 2024, the spotlight on supply chain transparency intensifies as companies reckon with the hidden impacts of scope 3 emissions.
Despite constituting a significant portion of a company's carbon footprint, these emissions have often evaded scrutiny.
Regulators like the Securities and Exchange Commission (SEC) in the U.S. and the Canadian Securities Administrators (CSA) in Canada have proposed rules to improve corporate climate disclosures, with a notable emphasis on scope 3 emissions.
The SEC proposal mandates disclosure of scope 3 emissions if deemed material or if the issuer has established targets for them. Similarly, in Canada, the CSA is contemplating a comply-or-explain approach for all emission scopes or for scope 2 and 3 emissions exclusively.
The European Union's Corporate Sustainability Reporting Directive, effective from January 2024, will necessitate scope 3 disclosures, impacting over 3,000 U.S. and 1,300 Canadian companies.
The International Sustainability Standards Board issued its inaugural climate-related disclosure standard in June 2023, incorporating scope 3 emissions.
Forward-thinking companies are taking proactive steps, prioritizing supply chain mapping, scope 3 disclosures, and the adoption of sustainable procurement policies.
3. Biodiversity's Rise in ESG Discourse
Biodiversity is swiftly becoming a focal point in the ESG landscape, with momentum gaining traction from recent global initiatives.
Cop28's inclusion of nature and land use in the 2030 deforestation goal signifies a pivotal step forward.
Concurrently, investment funds specializing in biodiversity have seen remarkable growth, particularly evident in European funds.
The GRI 101: Biodiversity 2024 assists organizations globally in comprehensively disclosing their primary impacts on biodiversity throughout their operations and value chain.
This updated standard integrates key global developments in biodiversity,including the UN Kunming-Montreal Global Biodiversity Framework (GBF), the Science Based Target Network (SBTN), and the Taskforce on Nature-related Financial Disclosures (TNFD)
The Task Force on Nature-related Financial Disclosures (TNFD) has also played a crucial role, highlighting evolving nature-related dependencies and risks.
With governments increasingly considering TNFD standards, biodiversity is set to take center stage in ESG discussions throughout 2024.
4. ESG Integration in Finance
In 2024, sustainability will be firmly entrenched in corporate finance practices.
With around one-third of CFOs already assessing climate change's financial impacts, as per PwC's 2023 findings, ESG considerations are gaining momentum.
This includes evaluating how sustainability affects asset valuations and the rise of ESG controller roles overseeing integration into operations and financial reporting.
This amalgamation of sustainability and finance signifies a shift towards recognizing their intrinsic connection, making closer alignment a top priority for financial professionals and CFOs moving forward.
5. Evolving Greenwashing Dynamics
As we move into 2024, greenwashing—criticized for its misleading sustainability claims—faces a tightening legal landscape.
With undefined legal parameters, greenwashing's implications vary across products, services, and jurisdictions.
In 2023, the European Commission unveiled its proposal for the Green Claims Directive. The directive's primary objective is to combat greenwashing by establishing clear guidelines for companies on promoting environmental claims to consumers.
The Sustainable Finance Disclosure Regulation (SFDR) in Europe targets greenwashing by mandating disclosure of a wide range of ESG metrics at entity and product levels to clarify sustainable product labels.
Additionally, the Sustainability Disclosure Requirements (SDR) by the UK's Financial Conduct Authority (FCA) aim to combat greenwashing by ensuring all sustainability-related claims are transparent, fair, and non-misleading.
Central Consumer Protection Authority (CCPA) in India has also released its Draft Guidelines for Prevention and Regulation of Greenwashing
This shift signifies a global trend towards stricter oversight of corporate sustainability claims, emphasizing the need for companies to navigate legal and reputational risks more diligently.
6. Sustainability Reporting Beyond Public Enterprises
In 2024, sustainability reporting is breaking free from the confines of publicly listed companies.
New climate disclosure laws, such as California's SB 253 and SB 261 and the EU's CSRD, extend reporting requirements to both public and private enterprises.
Crucially, these laws now mandate reporting on scope 3 emissions, compelling suppliers of all sizes to engage in carbon accounting.
While not all findings may be publicly disclosed, this shift is expected to spark significant industry-wide changes, as companies strive to meet the standards set by sector leaders.
Conclusion
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