Sustainability Trends 2024

What's changing for companies, CSOs, and their teams this year?

The Corporate Sustainability Reporting Directive (CSRD) came into effect on 1 January 2024, with the first companies due to report next year. Undoubtedly, CSRD has been the single most important victory for corporate sustainability in 2023. It has given sustainability a firm seat within the strategy, finance, and legal departments, it is triggering discussions and reflections about business alignment to sustainability that few companies have had before, and it is setting off transformations within operational business processes.?

As a result, companies have been regearing, upskilling, and generally re-evaluating the role of the sustainability department. Many impactful changes have built up for companies, CSOs, and their teams related to how the sustainability function will continue to operate. Ultimately, we are looking at further institutionalization of the role within an organization and greater quality of its delivery. This article covers some of these changes that will be top of mind for CSOs in 2024.?

1. A year of data collection?

CSRD has sent many companies back to the basics of data collection. Partly, this is because the ESRS under the CSRD require a greater level of ESG accounting on some topics than existed in the reporting standards used previously, like the GRI Standards, and partly because of greater scrutiny on double materiality that will bring new topics to manage. Despite the wealth of sustainability data already reported, in 2024, CSOs will double down on building robust ESG data warehouses and data collection processes. This includes assessing the gaps between the ESRS requirements and the type and the quality of data they disclose already, mapping out all sources and owners of primary ESG data across the company, and building the process and the discipline of data collection with various data owners.?

The good news for CSOs is that CSRD has given them a strong tailwind as the importance of CSRD compliance is recognized at the Board level, with Finance and Risk functions granting their full sponsorship to the process.??

2. New role: ESG controller?

2024 will be all about lifting sustainability reporting to the level of financial reporting and building related internal controls. As an outcome, a new role is emerging – ESG Controller. When performing assurance, auditors will need to be able to follow the reported information to the source and reconcile it with supporting evidence, calculation methodologies, and assumptions used along the way. Is data entered manually, sourced from existing ERP systems, or third parties? Is its manipulation prone to error? Is it complete? Are definitions aligned with those used in the ESRS? Who validates the data, and at what stages of the data chain? Is there a risk of material misstatements, such as fewer GHG emissions disclosed than emitted in the reporting year???

These questions fall under the ESG Controller’s mandate – a function responsible for setting up ESG data lineage and data governance, building on the principles that exist in financial reporting. In the first one to two years of CSRD implementation, ESG Controller will be a full-time effort until sustainability data management systems and processes are fully built out and automated to the extent possible.?

3. Reviewing sustainability claims?

2023 was the year of litigation against unsubstantiated claims about sustainability performance and credentials. After years of careless use of sustainability messaging in a largely laissez-faire regime, we have drawn a line in the sand about what and how is acceptable for external sustainability communications.?

As a result, in 2024, companies will be inventorizing their sustainability claims across websites, public reports, product packaging and product descriptions, partner marketing, and other corporate communications. CSOs will need to scrutinize whether claims meet upcoming regulatory requirements and tighten the governance and control system around external communications. Eventually, companies will need to take down some claims.?

The outcomes will be fewer claims but of greater quality. This should lead to market re-alignment, where some companies will lose customers after cutting down on sustainability messaging at risk of litigation. In contrast, others who can prove sustainability USP and progress will earn deep-rooted trust. Most importantly, it will mean greater progress for the industry overall as we get honest and transparent about the degree of sustainability our products and our businesses can achieve.?

4. Sustainability budgets grow?

Sustainability budgets generally include operational costs to run the function, like people expenses, consulting fees, marketing activity or tech tools, and investments in business transformation. As companies will need to develop robust transition plans and targets for climate change mitigation and adaptation, CSOs will start working more closely with Corporate Finance teams in 2024 to model and factor in investments to decarbonize the business. With a firm write-off of offsets as an option to claim climate targets, CSOs and their management teams will need to review tangible decarbonization levers like energy efficiency, electrification, fuel switching, circular business models, regenerative agriculture, and innovative product design. These are all significant investments that need to be factored in early in annual corporate budgets.???

In addition, the list of operational expenses will grow, too. Compliance with CSRD will incur the costs of hiring new talent, outsourcing sustainability strategy and reporting roadmap development to consultants where knowledge gaps exist, investing in building a tech stack, and the costs of mandatory assurance.?

Taken together, these costs can run into the millions. For smaller companies or those that didn’t have a formal sustainability function before, this will come in sharp contrast to any previous spending on sustainability initiatives. CSOs and sustainability managers will have to do the awareness work with their CFOs, preparing them for these costs and working together on a feasible budget.??

5. A more critical eye on the vendor ecosystem?

In 2024, CSOs will look more critically at the value add of the services and vendors they use. Partly, this is driven by the growing costs to run the Sustainability function, and partly by the new regulatory regime in which mandatory assurance is a central mechanism that should validate the quality of reported information about sustainability performance. In this regime, CSOs will weigh the costs of hiring consultants versus hiring expertise in-house, which is often cheaper. They will re-consider participation in voluntary pay-to-play certifications, like the SBTi or B-Corp, and they will be more critical towards the market of sustainability solutions, like the many carbon accounting and ESG reporting platform vendors. Attention will shift to hiring services related to product LCA assessments and highly specialized environmental impact assessments related to the company’s operations and products.?

In conclusion – CSRD is but one legislative act in a series of accountability mechanisms that the EU is putting in place, but already it feels like we are shifting away from the smoke and mirrors of corporate pledges to the actual hard work of reducing externalities. It’s a good year to be in corporate sustainability.?

This is an original English version of the article published on the Duurzaam Ondernemen on 6 January 2024.