The sustainability scene is changing rapidly, and 2024 is anticipated to be a crucial year in the efforts against climate change and environmental decline that take place globally.
ESG has been growing in the past years alongside the rising awareness of climate change, and that is the reason why, in 2024, companies are expected to shift their approach towards ESG, viewing it not just as a compliance and risk management task but as an opportunity to revamp their business models thoroughly. Genuine incorporation of ESG will involve restructuring design processes, revising procurement strategies, and altering marketing and communication approaches. ESG is poised to become an integral component of business strategy, moving away from being a mere supplementary element.
Professionals now have a wider role in a corporate environment where there are environmental, social, and governance challenges, which includes integrating new services like ESG offerings. This expansion is influenced by technological shifts, societal norms, climate considerations, and changes in the media landscape.
Let’s explore the 10 most possible and important trends that businesses are going to follow in 2024.
As greenly mentions, ESG trends refer to the current movements being implemented to accelerate the importance of implementing ESG practices into a company’s business model. They are vital because they can inspire businesses to implement sustainable initiatives that they otherwise would ignore. Although they are neither optional nor trivial, businesses should acknowledge them to avoid greenwashing, comply with regulations, and attract customers who value sustainability.
Upcoming reporting directives will guide a fresh wave of sustainability and ESG reporting advancing into 2024. The role of ESG reporting is going to evolve into a powerful communication mechanism for organizations. Businesses will use their ESG accomplishments to build trust and credibility among stakeholders, while transparent reporting will prove to be crucial in shaping brand reputation and maintaining a competitive advantage. Integrated reporting will include ESG, impact, and financial reporting as well as strategy development.
“2024 will be ‘The Year of Compliance’, where companies’ approach to sustainability reporting will move from voluntary to mandated,” said John Marchisin to FiscalNote, a managing director at consulting firm AArete.
The ESRS contains standards that guide companies in reporting their impact on people and the environment, alongside detailing financial risks and opportunities tied to environmental and social issues. As we head into 2024, the acceleration of disclosure preparation is inescapable, mainly in response to the Corporate Sustainability Reporting Directive (CSRD) in the EU and the Securities and Exchange Commission (SEC) in the U.S. The CSRD is widening the range of companies mandated to disclose sustainability information, compelling numerous additional European companies to provide detailed insights into their operations’ environmental and social effects and how they manage associated risks and opportunities.
Commencing January 1, 2024, European companies adhering to the Non-Financial Reporting Directive (NFRD) will be compelled to incorporate reporting on their climate impact as a component of the Corporate Sustainability Reporting Directive (CSRD), a new and improved version of existing requirements. As of 2025, this regulatory framework will encompass more big companies operating within the EU, signifying 2024 as a pivotal year where numerous entities will collect and report ESG data. The new regulations also introduce innovative definitions of materiality, encompassing financial materiality, impact materiality, and double materiality (the combined consideration of financial and impact materiality).
Scope 3 emissions represent the indirect emissions within a company’s value chain and quite often constitute the primary contributor to its carbon footprint. Differing from Scope 1 and 2 emissions, which are under the company’s direct control, Scope 3 encompasses all other indirect emissions stemming from activities such as business travel, procurement, waste, and the utilization of sold products. Anticipated for 2024 is augmented scrutiny of Scope 3 emissions, driven by stakeholders’ escalating demand for heightened transparency and decisive actions on climate change. Investors, customers, and regulatory bodies are encouraging businesses not only to disclose but also actively mitigate their Scope 3 emissions.
This trend requires strict data collection and collaboration with suppliers and partners to enact alterations throughout the entire value chain. Although this is a complex undertaking, the growing imperative for decarbonization within businesses’ supply chains is fostering innovation in product design, logistics, and materials. This trend, in turn, instils a cascading effect of sustainability enhancements across various industries.
According to MSCI, forthcoming EU regulations dedicated to preserving nature and biodiversity will soon necessitate companies to verify that products marketed in the EU do not incorporate commodities originating from recently deforested areas. Enterprises have started considering things beyond solely global warming and their carbon footprint. Thus, they redirect their focus towards evaluating their impact on nature in general and incorporating aspects of nature restoration into their investment decision-making. The enduring emphasis on biodiversity and corporate disclosures related to nature is anticipated, especially following the international treaty endorsed by over 180 nations during the biodiversity COP15 in December 2022. This accord obliges the undersigned parties to mandate reporting on nature-related aspects for large companies by 2030.
Environmental tech also has a role to play, according to Ecosystm. More innovative sensors and analytics will enhance and facilitate the monitoring of air and water quality, carbon footprint, biodiversity, and climate patterns.
Heightened awareness and worries among consumers, investors, and regulatory entities are directed towards ethical and sustainable practices within supply chains. Presently, the onus of responsibility for adhering to ESG standards extends not only to large enterprises but also Small and Medium-sized Enterprises (SMEs). As supply chains become more interlinked, the probability of encountering risks associated with labor practices, environmental consequences, and regulatory compliance rises significantly.
The EU and various other significant markets have actively addressed social aspects within supply chains, particularly in combating modern slavery. In numerous jurisdictions, regulations aimed at mitigating modern slavery have been enacted or are under consideration, emphasising the need for due diligence and encompassing preventive measures in addition to risk assessments and reporting. The management of supply chains is poised to be a focal point in 2024, particularly with the introduction of compulsory ESG reporting focusing on social criteria.
An example is the use of blockchain for supply chain tracking and verifying sustainability claims. Companies can provide irrefutable proof of their ESG efforts, fostering trust among stakeholders.
Automated data collection, validation, and reporting are essential. Even MSCI highlights that the better the data is, the better the risk assessments are.
The escalating occurrence of severe weather events, combined with the ongoing imperative to shift towards a low-carbon economy, presents substantial risks to assets, investments, and operations throughout a company’s value chain. The global extreme weather events of 2023 serve as an example of how entities that are unprepared for these occurrences are susceptible to significant disruptions.
By 2024, proactive organizations will likely integrate climate risk management into their fundamental risk management strategies. Anticipated measures include the adoption of more comprehensive approaches, encompassing climate scenario analysis and stress testing to assess potential impacts on their operations across various global warming scenarios. This proactive approach not only mitigates risks but also has the potential to unveil new opportunities for innovation and resilience.
In 2024 and beyond, “greenwashing,” commonly employed to criticise insufficient or misleading corporate sustainability initiatives, is expected to acquire more precise legal definitions and entail more significant repercussions. Recent occurrences, such as a 2023 case where an asset manager paid a $19 million fine for issuing deceptive ESG disclosures, are evidence of this trend. The European Union has notably advanced efforts to combat greenwashing, introducing new regulations designed to restrict deceptive advertising practices and enhance consumer product information.
Enterprises have come to acknowledge the intricate nature of ESG considerations, necessitating a thorough approach and a proficient team, extending beyond the role of a sustainability leader alone. The trajectory towards sustainability for each organization is distinctive and influenced by factors such as size, industry, location, stakeholders, culture, and values. The successful integration of ESG entails a nuanced understanding of an organization’s constraints, opportunities, and risks, rendering it a complex task to navigate the sustainability journey independently. The lack of clear government or industry mandates and guidelines outlining best practices further increases this complexity.
Artificial Intelligence emerges as a powerful instrument capable of addressing complex sustainability challenges. The year 2024 is poised to witness a substantial augmentation in the application of AI for sustainability purposes. AI exhibits the capacity to optimize resource utilization and enhance energy efficiency, thereby fostering noteworthy reductions in environmental impact. Predictive capabilities inherent in AI are harnessed in biodiversity conservation efforts, employing machine learning models to forecast poaching threats and facilitate the management of protected areas. Additionally, AI plays a pivotal role in analyzing extensive datasets in the realm of environmental science, thereby advancing our comprehension of ecological systems and the repercussions of climate change.
Integrating AI and sophisticated data analytics will be pivotal in ESG assessment this year. Corporations will adopt machine learning algorithms to scrutinize extensive datasets and provide immediate insights into ESG performance. This technological application will prove instrumental in discerning risks, opportunities, and areas necessitating enhancement.
The sustainability trends anticipated for 2024 transcend mere alterations in business practices; they epitomize a collective endeavor towards fostering a more resilient global landscape. As these ESG trends progressively manifest, organizations are urged to comprehend, embrace, and harness these advancements to safeguard their future while actively contributing to the overarching global sustainability agenda.
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