Future Trends in ESG

One might wonder what the future of ESG looks like. Will it hold value and ?stay at the present level or evolve further. Any sustainability enthusiast will give a prompt reply of ESG evolving further in the near future. To know more about it let us take a look at the future trends of ??ESG.

?1) Business leader who fails to act will suffer consequences: Business leaders must understand that ESG is not for today only. It is the future and will depend on how the economy will be shaped in the future for example the diverse workforce of retail companies is majorly semi-skilled and they are at the risk of losing jobs to automation and digitization, are the companies ready to face this challenge. It is said that 97 million tech jobs will be created but it requires skilled workforce with higher qualification and the question is are the schools and education system equipped of the same here one should not forget that the companies also have a step to take. They can reskill the existing workforce and the same can be achieved through well curated trainee programs partnerships as well as ongoing internships and inaction in this direction will lead to unemployment and this can be evaded through an effective ESG policy. One should not forget that if you are a Leader in the modern business who is failing to act on climate change or if you are knowingly damaging the environment or people in that case, you should be ready to face the consequences.

2) There will be common standard for governance: ESG standards at present are assessed by independent third-party accounting or law firm in many cases. The question is whether ESG will be overseen by a Global body or National regulatory organization is still a matter to be settled. Here one should note that ESG benchmarking is highly fragmented, independent firms and regulatory bodies continue to design metrics and standards and here it has become challenging for both to assess which metrics to be chosen and used. For the market to function efficiently an open audit system is required to harmonize rules to be followed by all. There have been few noticeable steps in this direction like in 2020 the international capital Market Association Launched a set of harmonized principles for greenboard which are used by corporations to finance environmentally sustainable projects. Similarly a standard reporting procedure for climate change matters was introduced by TCFD ?(taskforce on climate related financial disclosures) here one can take note of the fact that the International Financial Reporting Standards Foundation is working on development of a global ESG standard. The World Economic Forum is also in talks with four big accounting firms to establish the metrics and disclosures for ESG reporting. A convergence amongst security regulators is being aimed by international organizations of security regulations.

3) Sustainable products will become a necessity: Global companies should address ESG today in a transparent, flexible, consistent, innovative, sustainable, dynamic, future proofed and sensitive to cultural differences way. Further the companies should take into consideration the opportunities that ESG presents with to continue to support human progress while focusing on risk mitigation. This gives rise to the demand for sustainable products making them a necessity. One can already sense that the fast fashion has become very uncool the Millennials and Gen Z who are aware of the impact of climate change and the loss of biodiversity and strongly feel that steps need to be taken. Since they are going to have more purchasing power in the near future sustainable products become a necessity in order to attract them.

4) Working from home will become more common: ESG will facilitate practices which are more environment friendly thus the work from home culture not only saves the employees the valuable time to commute to and from office but also reduces the carbon footprints. It is good for environment as well as the health of the employees. This reduces the emission due to use of fossil fuel and less energy is used in office buildings. Also commuting less is the fastest cheapest and easiest way for people and their employers to reduce their carbon footprints more innovations in remote working can be done in the near future. ?

5) Betterment of carbon offsetting: The company should see to it that how they are making up for the carbon emissions of CO2 that they are generating while manufacturing or various other functions. One can see that net zero emission have become more prevalent when it comes to ESG and this will make carbon offsetting mainstream. At present there are very few green regulatory laws in India but companies like Tata Power have set their net zero targets for the year 2045 and are working towards it. One should know that it is the era of being proactive in modern business the companies should start working in this direction and look for carbon offsetting as well if they want to meet the regulatory standards of the near future. Here it should be noted that many consider offsetting as a form of green washing but these perceptions will change in the near future and more credible alternatives will emerge and will make the quality offset products flourish.

6) The new net zero will be climate positive: Climate positive is a step beyond the net zero will gain traction in the near future. In this the companies calculate the whole scope 123 baseline greenhouse gas emission including the land-based emissions and then reduce to more than 10% of their baseline. This is known as residual emission. Each year companies should purchase carbon credits that remove a CO2 from the atmosphere and the value of at least the double of residual emission. The companies should then maintain their greenhouse gas emission at levels below the regular emission level and continue to neutralize at least double of the residual greenhouse gas emission every year. Carbon negative means going beyond net zero to neutralize at least double of once residual greenhouse gas emission. It is something the companies should aim at. In other words, climate positive means creating a mindset in the organization that comprises of doing more good than not just doing less bad. Methods like carbon handprints can be adopted which has no size limitation thus the new is being climate positive.

7) Organization will have to disclose the climate risk they might be responsible for: ESG has brought about a general awareness of the environment and soon both big and small companies will have to report - what climate risk they may be responsible for creating. This will in turn impact the company’s goodwill, customer loyalty, talent retention and share prices. Thus, the companies will have to act in a more responsible manner towards the environment and should offset the harm they are causing to the environment.

8) Green washing will be penalized: Green washing is publicly claiming the products to be more environment friendly than they actually are. The consumers today are more informed and well aware of the environment crisis thus any form of green washing will be a highly looked down upon and this can lead to downfall of the brand or the eventual boycott of the product by the customers. Thus, it is not wrong to say that green washing will be punished thus the companies should abstain from lying to their investors and the customers as the truth cannot be hidden and it will eventually come to light.

9) There will be rise in ESG investing: ESG investing is the future, the shift from financial shareholder primacy to a broader stakeholder capitalism explains it all. This includes the far- reaching agenda of climate change, worker advocacy, voter rights, gender equality and racial diversity and much more. Today the investor requires the additional data on ESG as well. They want to see whether the ESG standards are met with as the same is also a promise of better performance of the concerned company in the near future. Corporations today should be able to prove that they are ESG compliant through their actions and results. Thus, it is not surprising that the global giant asset manager Blackrock places sustainability as the center of investment strategy.

10) Renewable energy will become more affordable: The latest innovation and economies of scale will make renewable energy cheaper according to IEA’s renewals 2020 wind and solar energy have become 70% and 89% cheaper respectively in the last ten years. This is evident from the fact that solar power today is cheaper than coal many companies are shifting to cheaper renewal energies and this shows a strong positive trend in this direction.

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Author

Shreshtha Bhattacharya

Team Exneco