Businesses navigating the ever-evolving world of ESG (Environmental, Social, and Governance) need to stay ahead of the curve. We highlight key trends for 2024 to keep on your radar.

 

Environmental, Social, and Governance (ESG) considerations are no longer a niche area that might be specific to select businesses or industries. In 2024, ESG is a central theme for investors, regulators, and consumers to assess businesses. However, like many other areas, ESG is evolving; so it is vital to keep abreast of emerging developments and trends to determine how best to optimise your organisation’s ESG framework.

 

A quick primer on ESG and why it matters

ESG is a framework organisations can use to measure their impact on the world beyond just financial performance and comprises the following three pillars:

  • Environmental, which considers an organisation’s impact on the planet, including energy consumption, pollution levels, waste management, and climate change strategies.
  • Social, which focuses on an organisation’s relationship with its workforce, community, and stakeholders. It includes factors like labour practices, diversity and inclusion, and human rights.
  • Governance, whichassesses an organisation’s leadership, transparency, accountability, and risk management practices.

Increasingly, organisations are expected to be socially and environmentally aware, and these factors are considered part of an organisation’s brand. Moreover, younger consumers in particular expect organisations they support to share similar values to them, and ESG provides a construct that can be applied.

A positive ESG reputation can also help organisations attract and retain talent. Once again, it boils down to brand image as well as perceived alignment in values by potential recruits

Further, proactive ESG management can help organisations mitigate environmental and social risks and address matters related to their long-term sustainability. In focusing almost exclusively on the present, all too often, organisations leave themselves exposed and unable to adjust efficiently and effectively to changing dynamics or changes in their industry. Integrating ESG into their operations can assist in future-proofing them against changes that inevitably will arise.

Finally, studies such as those published by McKinsey and New York University, suggest that well-developed ESG practices can lead to lower operating costs and increased operational efficiency. Further, there appears to be a growing trend of investors relying on strong ESG practices as a sign of good management and potentially higher returns, thus improving access to capital.

 

Top 5 ESG trends to watch in 2024

This year and into the foreseeable future, political and economic uncertainty and rising geopolitical tensions are expected to persist. Similar to our experiences during the COVID-19 pandemic, supply chain challenges, inflation and increasing cost of doing business are likely considerations. Climate change and the environment are also on the agenda, which in turn are driving conversations on sustainability, financing and resilience. However, below are key trends shaping the ESG landscape in 2024:

  1. Climate risk management. Extreme weather events are becoming more common. In the Caribbean region, many countries and even the United States are dealing with the impact of Hurricane Beryl. There have also been droughts and higher-than-normal temperatures that are affecting energy consumption and cost. Companies must assess and mitigate climate-related risks to their operations and assets. Depending on your location, expect stricter regulations on climate risk disclosures.
  2. Standardisation of ESG reporting. Historically, there has been a jumble of different ESG reporting frameworks. From some reports, there are upward of 600 reporting frameworks, though well-known ones include the Global Reporting Initiative (GRI), the Task Force on Climate-Related Financial Disclosures (TCFD), the United Nations Principles for Responsible Investment (PRI), Sustainability Accounting Standards Board (SASB), and the International Integrated Reporting Council (IIRC). However, It appears that these existing frameworks are aligning themselves with the International Sustainability Standards Board (ISSB) standards, thus making ESG data more comparable and reliable for investors and regulators.
  3. Technological solutions for ESG integration. A rise in ESG-focused technologies like artificial intelligence (AI) and data analytics is anticipated to streamline reporting, track progress towards sustainability goals, and identify emerging ESG risks. However, it is incumbent on organisations to implement the requisite systems to generate and collect the data that can be processed by these technologies.
  4. ESG data quality and measurement. As reporting becomes standardised, regulators and investors will demand higher-quality data and more robust ESG measurement methods. Moreover, the increasing use of AI and other technologies is leading to a more rigorous interrogation of all aspects of the methodology applied and the data presented.  Hence, greenwashing (making misleading claims about sustainability), for example, will be increasingly scrutinised and could result in sanctions or other punitive measures.
  5. Supply chain sustainability. Finally, consumers and investors are demanding transparency throughout an organisation’s entire supply chain. Thanks to social media, organisations are directly connected with consumers, resulting in expectations of greater transparency to show that the brand values and ethos are in fact being incorporated into and implemented. In recent years, we have seen companies, such as Nike, Apple, Google and Levi, have come under fire for the treatment of workers by their suppliers. Hence, organisations will need to ensure their suppliers are environmentally and socially responsible as it does reflect on their brand, image and even value.

By staying informed about these trends and proactively integrating ESG into your organisation’s strategies, you can ensure it is well-positioned for a sustainable and successful future.

 

 

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