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Six predictions for ESG in 2024: The year ESG emerged from fad to essential business

Natalie Runyon  Director / ESG content & Advisory Services / Thomson Reuters Institute

· 6 minute read

Natalie Runyon  Director / ESG content & Advisory Services / Thomson Reuters Institute

· 6 minute read

As ESG breaks through into the mainstream despite the challenges it faces, here are some predictions for 2024 on what we're likely to see in this area

This year, 2024, will be the one in which companies will begin to take environmental, social & governance (ESG) activities seriously, proving once and for all that ESG is here to stay. While it is true that this trend started as the result of the need to comply with regulations and risk management, by this year, companies will fundamentally overhaul their business structures. ESG issues will transition from being optional extras to integral elements of corporate strategy, essential for generating sustained value.

Here are six of the most important ways that ESG will play an impactful role in 2024:

1. ESG gets f(in)ancy

In 2024, sustainability will become deeply embedded in the financial foundations of companies. Already, nearly one-third of CFOs are examining the potential effects of climate change scenarios on financial outcomes in 2023, according to PwC. Indeed, finance professionals’ consideration of sustainability on the valuation of tangible assets and the valuation of goodwill and other intangible assets were some of the ways that the integration of ESG was already occurring. In addition, more organizations are creating ESG controller positions, a role that oversees and manages the integration of ESG issues into an organization’s operations and financial reporting protocols.

The amalgamation of sustainability, finance, and business strategy reflects growing recognition that sustainability and financial stability are not opposing goals but are fundamentally intertwined. As a result, closer integration of finances and sustainability will grow as a priority in the domain of CFOs, financial controllers, and corporate finance and accounting professionals.

2. ESG goes private

Sustainability reporting will expand to include private firms because of Scope 3 rules, which require reporting companies to monitor all indirect emissions that occur throughout the supply chain and among third-party vendors, particularly as the result of California and European Union regulations. This means that regardless of public disclosure, private firms of all sizes that supply to major public or private corporations will probably need to initiate or improve their greenhouse gas accounting methods.

Scope 3 requirements will drive significant transformations across all sectors, as every company in a field strives to meet the standards set by the largest players in their industry. For example, managing partners of law firms have begun mentioning for the first time their need to calculate their carbon footprint.

3. Politicized environment around ESG will remain

Like throughout much of 2023, ESG will remain a partisan topic this coming year. Companies will need to remain cautious about how they discuss sustainability externally amid presidential and congressional elections and expectations for an increase in pro- and anti-ESG legislation in the United States, and in the wake of 50 countries and regional bodies experiencing elections in 2024. There are several potential solutions available for companies on how to approach those officials with polarized pro- and anti-ESG viewpoints, which include using stakeholder mapping on divisive issues and focusing on (or even rebranding) individual initiatives that fall underneath the ESG umbrella that may be less polarizing than the term ESG.

4. Biodiversity will emerge as a mainstream ESG topic

While the topic of biodiversity loss was gaining steam last year, that trend continues. Indeed, nature and land use were included as a 2030 global deforestation goal at the global environmental conference Cop28 in December. In addition, investment funds that focus on biodiversity and nature are rapidly increasing in number and assets, as evidenced by a four-fold growth in assets under management in European funds dedicated to biodiversity.

Further, the Task Force on Nature-related Financial Disclosures (TNFD), which finalized its disclosure recommendations in September, has highlighted evolving nature-related dependencies, impacts, risks, and opportunities that are aligned around four pillars. Now, many governments are considering the adoption of these standards, which are consistent with other frameworks and standards to enable corporate reporting. In 2024, many more governments are likely to follow.

5. Supply chains at the center of the “E” and “S

Several recent laws mandating Scope 3 reporting — including new laws in California and the EU’s Corporate Sustainability Reporting Directive, combined with evolving expectations of stakeholders — are driving companies to prioritize ethical material sourcing, adherence to fair labor standards, and initiatives aimed at reducing environmental damage across the entire supply chain.

In fact, supply chains are where the intersection of environmental and social concerns are taking shape, a development that is likely to accelerate in 2024. Indeed, another pending EU regulation — the Corporate Sustainability Due Diligence Directive — if passed, would require EU and non-EU companies to conduct environmental and human rights due diligence across their operations, subsidiaries, and supply chains.

In the coming year, we are likely to see the integration of environmental and social parts of ESG — the E and the S — converge on how company supply chains can impact both water and nature because of TNFD’s inclusion of nature-related reporting in relation to both upstream and downstream supply chains.

6. Increase sophistication of greenwashing claims

Moving forward into 2024 and beyond, the notion of greenwashing — a term frequently employed to call out insufficient or misleading sustainability efforts and disclosures by corporations — is expected to be more clearly defined legally and carry weightier repercussions.

Greenwashing carries with it reputational, regulatory, and litigation risks; and with no consistent legal definition, the concept of greenwashing will vary by product, service, regulator, and jurisdiction. The EU, meanwhile, is making considerable progress in eradicating greenwashing, encompassing the development of new rules designed to limit false advertising and to offer consumers enhanced information about products.

In 2024, businesses are expected to embrace ESG criteria not just for compliance or risk management, but as a chance to fundamentally transform their business models with the full understanding and acceptance of the need to account for increasingly complex external risks that may be occurring simultaneously.

This shift will make mainstream a thorough revision of design processes, procurement strategies, financial management, and marketing and communication practices across a number of ESG-related issues, but opponents will remain vocal. While at the same time, ESG will transition from being a peripheral element to a central component of overall corporate business strategies.

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