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Mid-year status report on this year’s ESG predictions

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

· 5 minute read

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

· 5 minute read

A mid-year review of ESG trends reveals growing pressure on companies to prioritize sustainability, with developments in regulatory reporting, private company disclosures, politicization, biodiversity, supply chain focus, and greenwashing claims shaping the future of corporate operations

At the beginning of the year, the Thomson Reuters Institute predicted six trends around environmental, social & governance (ESG) issues that will transform sustainability into a core business issue in 2024. Halfway through the year, here is a summary of the latest trends and developments around ESG as it becomes a core operational issue for companies.

1. Corporate finance continues to prepare for ESG regulatory reporting

In mid-2024, evidence emerged that corporate finance functions were preparing for ESG reporting. For example, a survey of 600 middle-market CFOs revealed that 53% said they have integrated or are in the process of integrating sustainability principles into their core business strategy. In addition, Deloitte and Accounting4Sustainability in May hosted three workshops for finance professionals on ESG controller teams concerning the implementation of the European Union’s Corporate Sustainability Reporting Directive (CSRD).

2. Pressure grows on private companies to share sustainability information

The EU Council adopted the Corporate Sustainability Due Diligence Directive (CSDDD) in late-May, which will impact private companies and will be phased in over five years. In addition, pressure for private companies to disclose ESG reporting is likely to increase, coming from employees, consumers, and large corporate customers. In fact, a recent Deloitte survey of 2,000 C-Suite business leaders found that more than 60% of respondents said they felt pressure to act on climate change coming from consumers and clients, employees, and civil society.

3. Politicization of ESG likely to pick up in second half of 2024

ESG continues to have a major presence in politics, and this is likely to increase during the second half of the year as the elections in the EU, the United Kingdom, and United States get closer. Unfortunately, there are signs that ESG progress could stall. For example, the renewable energy sector in France says far-right victories in recent elections could slow progress. In addition, the U.S. House of Representatives found that asset management firms “colluded” with corporations to curb emissions in its latest efforts to use antitrust laws to stifle corporate advancements to combat climate change.

4. Biodiversity and nature continue to gain in importance among corporations

More than 320 companies and financial institutions have committed to reporting principles created by the Taskforce for Nature-Related Financial Disclosures (TNFD). Moreover, the International Sustainability Standards Board, which is the most widely accepted financial reporting standards on sustainability, agreed in April to commence work on nature-related issues drawing on TNFD recommendations. With research showing that about 55% of the world’s GDP, which is estimated to be around US$58 trillion, relies on the health and proper functioning of ecosystem services to a moderate or significant extent. Further, the global economy has incurred costs exceeding US$5 trillion per year due to the detrimental effects of business activities on nature and vital ecosystem services.

5. Focus on supply chains in ESG efforts escalates

The EU adoption of CSDDD requires companies to conduct environmental and human rights due diligence on its supply chains. Operational risks from climate change will cause investors and other stakeholders of food and beverage companies and those industries relying on precious metals to increase resilience of their supply chains through more transparency. Indeed, foods such as coffee, chocolate, olive oil, and wine are already seeing spikes in prices from extreme weather brought on by climate change, and the fight for natural resources will only get more intense in the future as increased demand seeks fewer products.

6. Greenwashing claims continue to ascend

The term greenwashing — often used to describe the insufficient or misleading sustainability practices and disclosures by companies — is becoming more clearly defined legally, while organizations that engage in greenwashing are facing more serious repercussions. Even with these developments, however, it appears its staying power as a concern for companies will continue. Recent legislation from the UK and the EU’s move to create guidelines on when investment funds can label themselves as sustainable indicates greenwashing is still a growing concern. Meanwhile, the exponential increase in sustainability reporting requirements, such those outlined in the CSRD, will also likely spur a rise in greenwashing claims in 2024 and beyond. “Indeed, claimants and their lawyers who leverage legal systems to ensure companies ethically create positive environmental and social outcomes in their operations will have plenty of public information to review for future potential legal action.”

Conclusion

As we reach the midpoint of the year, it’s evident that ESG factors have become integral to the core operations of companies, these emerging trends and latest developments underscore. This transition will bring about a comprehensive overhaul of design approaches, procurement strategies, financial processes, and marketing and communication practices across various ESG issues. However, opposition voices will continue to be heard.

As a result, ESG considerations will evolve from being a secondary factor to a core element consideration that helps drive many corporations’ overall business strategies.

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