On the hook for ESG

This year will trigger the essence of accountability. That means the future will not exclude anyone from being liable for their operations, whether they are companies or their suppliers.  The U.S. Securities and Exchange Commission has proposed a climate-risk disclosure regulation which, if approved and goes into effect in 2023, will require all owned or controlled sources to regularly submit their Scope 1 and 2 GHG emissions. Moreover, if you aim for a net-zero emissions goal, then you also need to include Scope 3 and ensure that all of your suppliers and customers are aligned to this target and work harmonically together towards that goal.  Regulators and Investors have an opportunity to use this and have more companies affect each other.

Reporting matters

It seems that the number of corporations that report on ESG measures and performance globally is on the rise. However, the reporting standards framework still entails some complexity that puts firms under pressure to verify the reliability of the sustainability reports data.
Keep your business committed and rigorous while disclosing ESG data and get ready for the long future where a more integrated spectrum of standards will be available for all companies.

Supply Chain management is the focal point.

The pandemic and other global turmoils (e.g the Ukraine war) that have taken place during the last years have brought disruption to multinational supply networks regarding their sources and goods. Rising costs in energy and materials or limits in production due to extreme weather conditions make organisations re-examine their resilience and how they deal with their supply chain network overall. Although companies do not consider that a fruitful conversation with suppliers over climate concerns should be on the top of their agenda, it seems there is an increasing interest on behalf of businesses to include their supply chain into their sustainability plans. Investors are highly looking for climate programs that take into consideration climate, forest and water-related risks on all supply chain operations.

2023 is expected to be a transition year when it comes to supply chain decarbonization, the stopping of supply chain deforestation, and the development of science-based water frameworks.

Reconsidering Ethical and Sustainable Marketing.

During 2022, an avalanche of negative responses came into the public eye about the operations of many renowned organisations in fashion and consumer product, transportation and finance. Allegations included the companies’ engagement in suspicious greenwashing practices. This news caused reactions and misbeliefs on behalf of customers as well as the stors and regulators who increasingly question how “conscious” some products and services are.
To fight this tendency, the EU has decided to reinforce anti-greenwashing laws. In 2022, the Competition and Markets Authority (CMA) developed the Green Claims Code to give businesses a framework to check whether their environmental claims are genuinely green.

Protecting the Environment

2021 and 2022 marked a devastating record of land disaster following the wildfires globally. EU parliament adopted legislation that requires all marketed goods in the EU to exclude deforestation. 2023 is a year when firms need to closely supervise their supply chain and due-diligence.

Additionally, the outcome from the COP15 in Montreal last December was more than optimistic . The approved deal to end and reverse biodiversity loss by 2030 will want companies to take part in these initiatives, despite the very early stage of development of standards and regulations. 

Another much anticipated debut in 2023 is expected from TNFD (Task-Force on Nature-related Financial Disclosures) and its newly  beta framework. According to the updates, businesses will learn methods on how to further disclose nature-related data based on the calibre of stakeholder data. Suggestions include impact and risk measurement throughout the supply chain as well as closer guidance on sectors such as mining, energy, infrastructure and aquaculture.

It appears that corporations will have to better integrate their environmental concerns with their climate ambitions.

Circular Economy

Under the reuse principle of CE, in recent years, the EU, China and the US, have strengthened their rules and regulations on the waste management of materials. An efficient extraction of materials from e-waste can be a key option to reduce mining and emissions. Businesses will have to stress efforts and extract secondary metals from electronic trash if the authorities are to provide them access to sustainable energy technologies. Also, the negative effects caused from land erosion and water use have intensified the need to explore ecologically friendly alternatives in the clothing industries. It is interesting to see which companies will be able to support unusual, radical fibres during 2023.

Sustainable Investing and IRO’s

Since 2007, when the European Investment Bank issued its first green bond, ESG bonds have kept showing remarkable progress. So the more businesses centre their growth strategies around sustainable practices, the more likely that investors and finance agents will pay attention to them.

During the past years, due to the turbulence in the energy market, investors have been doubtful of some of the corporate climate policies. This year, corporations will have to ensure that they align their climate plans with the global goals for temperature to manage say-on climate voting from investors.

As institutional and individual investors develop a constant interest in ESG that will only keep growing, Investor Relations Officers need to form the most understandable communication and develop stories that are compelling. According to Nasdaq’s most recent Global IR Pulse Survey, nearly one in five IR professionals had a lead ESG responsibility in 2022.  It is evident that IROs have to dive deeper in ESG as they try to communicate a narrative that is appealing and relevant to institutional and retail shareholders. 

Greenwashing is also under careful scrutiny. In both Europe and the US, ESG funds must meet up to this classification and regulators require consistency from funds and advisers when they project an ESG focus. An interesting BNP Paribas poll that took place in 2022 showed that while 2 out of 3 businesses include ESG in their financial strategy, nearly half are able to set ESG KPIs. 

So if you are an IRO looking to give stakeholder information and direct their decisions, learn how to include ESG KPIs but also how to achieve them. Nonetheless, IR professionals are the ones who usually interact with the primary ESG representatives. That emphasises the importance of building strong relationships with advising companies and being prepared to provide greater details for any unclear procedures and regulations behind ESG ratings.

Last but not least, ESG negativity is not excluded from the political picture, especially during the last couple of years. Understanding and not undermining the potential of anti-ESG activity is part of an IR professional’s job along with distributing every possible information regarding ESG efforts to win investor trust.

Governance is changing

An interesting readjustment of the board committees regarding age, experience, skill sets and diversity patterns is also expected to take place in light of global demographic transitions. What was more common in developed markets was the older age of first-time male directors compared to the female directors who were younger in developing markets. Combining younger generations in directorial placements can help companies smoothly adapt to complex and technologically dependent business environments and pursue a culture of innovation.

Nevertheless, boards should not neglect the emphasis on investing in robust onboarding programs that will help younger generations to maximise their performance. Constant learning development is key.

Energy Crisis and next steps

The past years, with the Ukraine war playing the catapult role in high energy costs along with the inflationary pressures, businesses in Europe are compelled to turn to the use of renewable energy. There is an increase in investment in renewable energy and energy efficiency according to the International Energy Agency (IEA).

Increasing efficiency can reduce carbon emissions, waste, and drive down cost. Companies might be able to achieve environmental improvements. Unfortunately, this is not the case for all enterprises, especially for the small ones that have to fight to stay viable while investment in the energy transition is not an option for all. When 148 organisations participated in the online Net-Zero Business Barometer survey of energy and sustainability professionals the past September-October, they responded that a net-zero transition is not currently in their business priorities.

Nonetheless, one of the most impressive trends to expect until the end of 2023 is how AI will be integrated in new promising technologies and the development of green hydrogen. This source of energy from renewables will be able to be captured and transported to long distances.

EcoSkills, the online go-to learning choice for sustainability and ESG topics aspires to deliver a powerful skill set and prepare future-oriented professionals from all industries. Check out our brand new certified courses with the most quality and relevant content and we will be happy to guide you through any questions.