Despite the challenges facing ESG, here are some predictions for what could happen in the space in 2024 as it gains mainstream status.
This year, 2024, will be the year that companies start taking their environmental, social, and governance (ESG) activities seriously, proving conclusively that ESG is here to stay. While this trend certainly began with the need for regulatory compliance and risk management, by this year companies will be fundamentally rethinking their business structures. ESG issues will move from being an optional add-on to becoming an integral part of corporate strategy, essential to creating sustainable value.
Here are six of the most important ways ESG will play an influential role in 2024.
1. ESG is attracting attention
By 2024, sustainability will be deeply embedded in companies' financial foundations. Nearly a third of CFOs are already considering the potential impact of climate change scenarios on their 2023 financial results, according to PwC. In fact, considerations for financial professionals include sustainability Valuation of tangible assets, valuation of goodwill and other intangible assets were some of the ways ESG integration was already being done. Additionally, more and more organizations are creating the position of ESG controller, a role that oversees and manages the integration of ESG issues into an organization's operations and financial reporting protocols.
The convergence of sustainability, finance, and business strategy reflects a growing recognition that sustainability and financial stability are not mutually exclusive goals, but are fundamentally intertwined. As a result, closer integration of finance and sustainability will rise as a priority in the field of CFOs, financial managers, and corporate finance and accounting professionals.
2. ESG will be made private
Scope 3 regulations will extend sustainability reporting to private companies. Scope 3 regulations require reporting companies to monitor all indirect emissions that occur throughout their supply chain and among third-party vendors, particularly as a result of California and European Union regulations. This means that private companies of all sizes that supply large public and private companies, whether public or not, will likely need to start or improve their greenhouse gas accounting methods.
Scope 3 requirements will drive significant change across all sectors, as all companies in each sector strive to meet the standards set by industry giants. For example, law firm managing partners are for the first time starting to mention the need to calculate their carbon footprint.
3. The politicized environment surrounding ESG will continue
As it has throughout much of 2023, ESG will continue to be a partisan topic next year. With presidential and congressional elections, an expected increase in pro-ESG and anti-ESG laws in the United States, and elections in 50 countries and regions in 2024, companies are We will need to continue to be careful about how we discuss sustainability. There are several solutions available to companies on how to approach officials with polarized pro-ESG and anti-ESG perspectives. This includes using stakeholder mapping on divisive issues and focusing on (or rebranding) individual initiatives under the ESG umbrella.less polarizing than this term ESG.
4. Biodiversity emerges as a mainstream ESG topic
Although there is a topic of biodiversity loss It was gaining momentum last year, and the trend continues. In fact, at Cop28, the world environmental conference in December, nature and land use were included in the global deforestation target for 2030. Furthermore, the number and assets of investment funds focused on biodiversity and nature are growing rapidly, as evidenced by a four-fold increase in assets under management in European funds dedicated to biodiversity. doing.
Additionally, the Task Force on Nature-related Financial Disclosures (TNFD), which compiled disclosure recommendations in September, highlights evolving nature-related dependencies, impacts, risks and opportunities along four pillars: Many governments are currently considering adopting these standards, which are consistent with other frameworks and standards that enable corporate reporting. More governments are likely to follow suit in 2024.
5. Supply chain at the center of “E” and “S””
Several recent laws mandating Scope 3 reporting, such as California's new law and the European Union's Corporate Sustainability Reporting Directive, as well as increasing stakeholder expectations, are encouraging companies to ensure ethical sourcing, fair labor standards, and Priority has been given to initiatives aimed at complying with environmental regulations and reducing environmental damage. across the entire supply chain.
Indeed, supply chains are where environmental and social concerns intersect, and their development is likely to accelerate in 2024. Indeed, another pending EU regulation, the Corporate Sustainability Due Diligence Directive, will require regulation in the EU and non-member states if passed. -EU companies will carry out environmental and human rights due diligence across their operations, subsidiaries and supply chains.
Next year will see the environmental and social parts of ESG integrated. E And that S — TNFD includes nature-related reporting related to both upstream and downstream supply chains, so focus on how a company's supply chain can impact both water and nature doing.
6. Sophistication of greenwashing claims
For 2024 and beyond, green washing The term, which is often used to criticize inadequate or misleading sustainability efforts and disclosures by companies, could be legally defined more clearly and have a greater impact. It is expected.
Greenwashing involves reputational, regulatory, and litigation risks. Additionally, the concept of greenwashing varies by product, service, regulator, and jurisdiction, as there is no consistent legal definition. Meanwhile, the EU has made considerable progress in eradicating greenwashing, including developing new rules aimed at limiting false advertising and providing consumers with better information about products.
By 2024, companies will be adapting their business models not only for compliance and risk management purposes, but also with a full understanding and acceptance of the need to consider the increasingly complex external risks that may occur at the same time. There is hope for the adoption of ESG standards as an opportunity for fundamental change.
While this shift will lead to an overhaul of design processes, procurement strategies, financial management, and marketing and communications practices across many ESG-related issues, opponents will still be vocal. At the same time, ESG will move from being a peripheral element to a central element of a company's overall business strategy.