8 Top ESG and Sustainability Trends for 2024
Hasan Hamdan, PhD
PhD | Trusted Advisor | Project Management | Sustainability Innovation | Energy Transition | Renewables | Lifelong Learner
The aftermath of 2023 revealed compelling ESG trends that go far beyond mere compliance measures.
2023 marked a significant milestone for Environmental, Social, and Governance (ESG) initiatives—a year where companies made substantial investments in both capital and time towards comprehensive CSRD assessments and double materiality assessments. As we move forward into 2024, the anticipation is high for the enforcement of new regulations, poised to impact numerous companies directly or indirectly.
The coming year, 2024, is set to be a period of catalyzing change. It will involve extensive preparation, capacity building, and implementation strategies, varying depending on where companies stand in the regulatory landscape and their ESG maturity.
It has become clear over the past decade that ESG risks are synonymous with financial risks.
To assist you in navigating the challenges and opportunities of the upcoming year, I have curated the top 8 ESG trends for 2024. These insights are drawn from expert reports and studies, including those from MSCI, McKinsey, PwC, the Economist, Forbes, and others. By providing thoughtful analyses and actionable insights, these trends aim to empower businesses to assess and navigate the evolving investment landscape that lies ahead.
1. Beyond Compliance and Disclosure: The Era of Entrepreneurial Sustainability has started
Recent developments indicate a shift in ESG trends beyond mere compliance and disclosure, heralding the emergence of a new era termed “Entrepreneurial Sustainability ”. The risk landscape is rapidly evolving, with challenges ranging from climate change to breakthrough technologies, triggering an urgent need for strategic attention from corporate boards.
The spotlight is on climate disclosure. This includes the implementation of impactful sustainability standards like the EU's Corporate Sustainability Reporting Directive (CSRD) and forthcoming regulations from the US Securities and Exchange Commission.
However, the consensus among experts is that the emphasis on compliance should not overshadow the ultimate goal of fostering genuine change. Peter Bakker from the WBCSD highlights the risk of excessive reporting without tangible impact and advocates for a shift towards rewarding companies for actual progress. This sentiment is echoed by Mark Lee, emphasizing the necessity to move from data provision to delivery and holding businesses accountable for measurable change. Several sources collectively stress the need to go beyond superficial reporting and prioritize substantial actions that contribute to sustainability.
This signifies a crucial juncture where companies are urged not only to comply but also to use reporting as a tool for informed decision-making and tangible change.
A notable shift in mindset is apparent. The emphasis on compliance is viewed with caution, as leaders stress the need for companies to be rewarded not just for reporting but for substantive progress. The narrative transforms from a managerial cycle of meeting regulatory requirements to a proactive phase where businesses are encouraged to innovate and seek value. As managerial systems are set to become operational in 2024, the stage is poised for a resurgence of entrepreneurial endeavors. The focus pivots from the floor of compliance to the ceiling of innovation, promising a wave of thought leadership, innovative announcements, and actions geared towards a future where sustainability is not just a mandate but a strategic advantage.
2. Honest Marketing: Fewer Flashy Campaigns and More Product-based Sustainability Stories
In 2024, the marketing landscape is undergoing a significant shift towards a more genuine and transparent approach. The EU has taken a proactive stance against greenwashing, instituting a ban on greenwashing and climate-neutral claims by 2026 . Stricter regulations from entities like the UK’s Financial Conduct Authority and the EU’s Green Claims Directive have instilled a sense of urgency for brands to rethink their marketing strategies. The focus is transitioning from flashy-purpose campaigns to authentic product-based sustainability stories. Gen Z consumers , in particular, are demanding honesty and humility, seeking evidence of responsible practices and a connection to the origin of products.
The marketing landscape is acknowledging that sustainability is not merely a trend but an effective business strategy.
Amidst these changes, the overarching emphasis will be on transparency, accountability, and honesty in marketing practices. As the legal definitions of concepts like greenwashing become clearer, businesses are urged to align with these ethical considerations, recognizing the importance of genuine sustainability efforts over superficial campaigns.
3. Many Will Rethink Their Business Models: The Rise of Climate Solutions Companies
As the world moves towards a decarbonized economy, companies need to rethink their business models and become more focused on finding solutions. Recent analysis indicates that by 2024, ESG integration will be deeply ingrained in the financial systems of companies, where sustainability and financial stability are intertwined and synonymous.
Accordint to PwC, nearly one-third of CFOs have assessed the potential impact of climate change scenarios on financial outcomes in 2023.
It is no surprise that those aspiring to be ESG and sustainability leaders must also become leaders in transformative approaches, circular business models, and innovative technology to align profitability with sustainability.
According to Julia Binder, Professor of Sustainable Innovation and Business Transformation, the evolution of sustainability trends will spotlight the maturation of circularity as a central theme. Beyond mere regulatory compliance, businesses are recognizing the transformative potential and inherent profitability of circular business models. This paradigm shift is notably fueled by regulatory incentives such as the Biden-Harris Administration's Inflation Reduction Act and the European Commission’s Circular Economy Action Plan, a cornerstone of the EU Green Deal.
In any case, it's crucial to acknowledge that not every industry and business will emerge as winners in the solutions agenda.
Climate solutions, as defined by the Exponential Roadmap Initiative and Oxford Net Zero , involve products or services that fulfill a societal need, contribute to greenhouse gas emission reduction, and possess significantly lower emissions compared to conventional options. These solutions align with the global 1.5°C ambition, accelerating the transition toward a net-zero carbon economy.
Interestingly, many businesses are now recognizing that their product offerings can be considered part of, or even a source of, climate solutions rather than merely contributing to carbon emissions. This shift in perspective reflects the growing importance of integrating sustainability principles into business models, as outlined in the principles for defining climate solutions proposed by the Exponential Roadmap Initiative and Oxford Net Zero. These principles aim to contribute to the corporate climate action governance, accountability, and reporting landscape by offering straightforward yet precise criteria to avoid greenwashing and ensure meaningful progress toward a sustainable future.
Overall, the necessity and strategic advantage of transitioning to low-carbon business models in the decarbonization era have become increasingly evident, urging businesses to not only meet their net-zero commitments but also to be trailblazers in sustainable development.
4. Supply Chain Transparency and Due Diligence
In 2024, supply chain transparency is set to play a pivotal role in corporate sustainability, driven by updated reporting requirements like the CSRD and the California Climate Accountability Package . Companies acknowledge that their supply chains often contribute to excess scope 3 emissions , resulting in an undesirable carbon footprint. To tackle this issue, organizations are actively enhancing transparency and communication within their supply chains, aiming to mitigate emissions and comply with mandatory reporting of Scope 3 emissions and product lifecycles.
ESG trends in 2024 highlight the significance of frameworks developed by the International Sustainability Standards Board (ISSB) and the integration of ESG considerations into supply chain management. Amidst challenges such as the rise of "orphaned emissions " and potential decarbonization plan slowdowns due to economic challenges, companies must navigate complex reporting landscapes. As outlined in MSCI’s trend report , various methods, including excluding emissions from non-wholly operated assets and shifting to market-based emissions accounting, have been observed, emphasizing the need to scrutinize the fine print of sustainability reports.
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Supply chains are where the intersection of environmental and social concerns are taking shape.
The evolving regulatory landscape compels companies to prioritize ethical material sourcing, fair labor standards, and environmental initiatives throughout their supply chains. Stakeholder expectations are steering a shift towards responsible business practices and scaling up supply chain due diligence. Pending EU regulations, such as the Corporate Sustainability Due Diligence Directive (CSDDD), may further mandate environmental and human rights due diligence across operations and supply chains. Moreover, the convergence of environmental and social aspects of ESG is evident in the focus on how supply chains impact water and nature, aligning with the TNFD's inclusion of nature-related reporting in both upstream and downstream supply chains in the upcoming year.
5. Justice, Not Impact: The word “Justice” begins to appear more often on the agenda of board meetings
According to a report by Glassdoor on workplace trends in 2024 , companies are increasingly prioritizing social justice and equity in the workplace. The shift from impact to justice is partly driven by a new generational shift between Gen Z and Baby Boomers. Gen Z is poised to overtake Baby Boomers in the full-time workforce by early 2024. Gen Z has a higher awareness of and cares more about justice in all its forms, including social, climate, and economic justice.
Social impact is primarily fueled by "doing good" campaigns or enhancing the company's reputation through women's empowerment programs, social support partnerships, or even direct donations.
The main issue with social impact is that it treats the symptoms and not the root problem, which is achieving justice.
I am not saying that including justice is easy to do, but companies need to start using this term more often to achieve real sustainability outcomes in the “S” part of ESG. Or as Solitaire Townsend , a sustainability solutionist, puts it, “Companies must get comfortable with the ‘J’ word. Climate justice, economic justice, racial justice, and gender justice are harder terms for harder times.”.
6. Green Skills: More Workers Will Acquire One or More Green Skills
A recent study by LinkedIn emphasizes the importance of investing in green skills and innovation, as well as the potential economic benefits of doing so. However, the report also highlights a lack of concrete policies and programs to equip workers with these skills. This presents a significant challenge for the global economy, as the transition to a greener economy requires a skilled workforce to develop and implement new technologies and practices.
According to the Global Green Skills Report 2023 , the hiring salary for workers with at least one green skill is 29% higher than the workforce average.
To address this challenge, businesses are entering 2024 with bold efforts to invest in people's capabilities and provide training and education programs that equip workers with the necessary green skills.
7. Business Puts More Efforts to Understanding Nature
In 2024, businesses are increasingly recognizing the importance of their impact on nature, with disclosures on nature-related risks and impacts gaining prominence alongside climate reporting. The Task Force for Nature-Related Financial Disclosures (TNFD) released its final recommendations last September, aiming to enable companies to assess, disclose, and comparably manage nature-related risks. According to a recent report from the Economist Impact , despite this growing focus, nature-related efforts are expected to temporarily plateau due to the current regulatory wave, compelling companies to pause voluntary disclosure initiatives. The complexity is evident as companies face challenges in doubling data points within a year and ensuring legal and financial approvals for assurance.
Furthermore, the global regulatory agenda highlights the intertwining of nature with climate, emphasizing the need for the preservation and restoration of nature. Investors are starting to address this challenge by measuring portfolio impacts and exploring investment opportunities in nature conservation projects. However, understanding how investee companies contribute to biodiversity loss remains a challenge.
According to the World Economic Forum , more than half of global economic output is at least moderately dependent on nature.
The emergence of biodiversity as a mainstream ESG topic is evident in its inclusion as a global deforestation goal at the COP28 environmental conference . The TNFD's finalized disclosure recommendations and the growth of investment funds dedicated to biodiversity signify a shift towards greater awareness and action in 2024. Many governments are considering adopting these standards, aligning them with other frameworks and standards for corporate reporting.
8. Increasing Focus on Project Implementation as Sustainability and ESG Ambitions Soar
Although sustainability traces back several decades, it was not until recent years that governments and businesses started to take it seriously. To understand its future trajectory, one must look to the humble beginning of HSE (Health, Safety, & Environment). Companies now have well-established policies and staff dedicated to HSE work. Sustainability has a similar trajectory, but it is much more complex and requires a higher level of design and implementation.
According to Forbes , leadership, time management, and collaboration skills are reported to be among the top 10 most in-demand skills for the next decade.
Sustainability and ESG efforts and initiatives are inherently projects, defined by their nature, and subject to the principles and laws of project leadership and management. This implies that those who work in sustainability and ESG domains need to elevate their game and start acting like project leaders to ensure effective execution.
Conclusion
As we embark on the journey into 2024, the landscape of ESG initiatives is evolving beyond a mere response to regulatory requirements. The pivotal year of 2023 laid the groundwork for a paradigm shift, emphasizing entrepreneurial sustainability over compliance-driven practices. The eight significant trends forecasted for 2024 highlight a move towards genuine change, urging companies to use reporting not just for compliance but as a tool for informed decision-making and substantial impact.
This transformative era prioritizes innovation, transparency, and accountability, with a focus on circular business models, climate solutions, supply chain resilience, social justice, green skills, and an increased understanding of nature. As sustainability and ESG ambitions soar, the spotlight turns to effective project implementation, demanding a higher level of design and execution. The trends outlined serve as a guiding compass for businesses aspiring to improve their sustainable performance and actions in the dynamic landscape ahead.
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PhD | Trusted Advisor | Project Management | Sustainability Innovation | Energy Transition | Renewables | Lifelong Learner
10 个月Overview