Rethinking sustainability: are you ready for the next evolution?

See below for some ‘hand picked’ sustainability and climate trends to watch in 2024 and onwards, which will offer readers some interesting forward-looking perspectives on sustainability across all sectors*.

• #ESG. First things first… the acronym ‘ESG’ is now politically charged. In 2024 we started seeing more the word ‘sustainability’ and less the word ‘ESG’. However, firms will still require a ESG framework to deal with (1) Financial return reporting and (2) What they are promising to deliver (the “material impact”). Firms will continue progressing on their sustainability commitments.
• The ESG regulatory drive will continue upwards. In 2023 we saw a significant push for transparency and reporting standards, especially with the introduction of the Corporate Sustainability Reporting Directive (CSRD). Additionally, the US enacted two climate-focused disclosure laws that emphasise sustainability reporting. The demand for corporate climate disclosures will continue. In the US alone, almost 60% of reports analysed by the US regulator found some sort of deficiency and we expect growing scrutiny in 2024. Corporates, investors and countries are becoming resilient and scalling up their ESG and compliance teams in order to achieve expected progress. Regulators will likely focus on firms with the habit of ‘massaging their numbers and practices’. Ideally, more firms will take action to improve their CO2 emission situation rather than shifting the problem to scope 3.
• #Weather and its impact at #Home and at #Work. 2023 has been named the hottest year on record, and was eventful with floods, extreme heat, and the significant #social impact and #financial materiality brought by natural disasters. Certain US cities now face considerable insurance premiums, impacting housing affordability. There’s also clearer impact and correlation of the cost of natural disasters on industries such as construction, agriculture, and fishing: a clear degradation of natural systems and declines in biodiversity. Looking ahead, the call to action for firms, governments and citizens is to act faster to limit the rise in global temperature and deliver climate justice.
• #Nature and #Biodiversity. While nature has given us much to date, we are now facing the reality that natural resources are becoming rarer. In 2024, we anticipate more regulation related to land use, water-consumption & GHG emissions. Although it’s knowingly difficult to compare sectors and companies by their potential contribution to global species extinction, there is a vital first step to be taken in the next years: to agree on what to measure. We’ll be watching whether metrics such as the PDF (Potentially Disappeared Fraction of Species) become common ground.
• #Supplychain. Supply chain due diligence is becoming law. Regulators are now targeting actions as well as disclosure. To keep an eye on this space.
• #Profit vs #Purpose. It’s heartening to note that MSCI ACWI benchmark provides strong evidences that companies with high ESG ratings outperform low ESG-rated peers over 10 years. In fact, using a standard quintile analysis on MSCI ESG scores (controlled for sectors, regions and company size), MSCI found that companies with higher MSCI ESG Ratings outperformed their lower-rated counterparts across both the MSCI ACWI Index and the MSCI World Index over the study periods. Is this a compelling reason for firms to embed sustainability, impact and ESG in every strategic decision? I would say so.
• #Board of directors. Brace for a change on the composition of the board of directors in the coming years. This is a topic I am particularly interested in, as boards will need to bring more #Diversity and out-of-the-box thinking in addition to the traditional focus on financials, industry expertise and risk management. In my view, skills such as cyber security/tech, marketing, innovation and digital innovation will be on demand for more effective boards.

Is 2024 a tipping point? 

2024 is the year when businesses, industries, governments, citizens and investors will continue their transition while clarifying terminologies, labels, defining more tangible goals, and intentions. With half of the planet’s population expected to vote in 2024, elections (and our choices) will certainly shape the speed of sustainability and climate actions. It’s in everyone’s power to do what’s right for the planet and society whilst ensuring our individual sustainability initiatives maintain their credibility.

* Thank you to MSCI Inc. for compiling the report ‘Sustainability and Climate Trends to Watch for 2024‘, which can be accessed here.