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Every industry seems to do it in some way, shape, or form: try to predict the future for the year to come. At the start of 2024, this is no different for sustainability and ESG.
Now that we’re closing out January, many in the industry have shared their views. Let’s take stock of what key thought-leaders, practitioners, and experts believe to be the main focus areas for sustainability in 2024.
Greenwashing in the Spotlight
We can expect an accelerating focus on banning generic environmental claims and other misleading marketing tricks. Just last week, the European Parliament approved new legislation aimed at curbing greenwashing. The Directive on Empowering Consumers for the Green Transition bans exaggerated and unfounded claims relating to a company’s environmentally friendly actions, including carbon neutral claims.
Likewise, the Australian Competition and Consumer Commission (ACCC) is stepping up its greenwashing crackdown in 2024. With three court procedures launched in 2023, expect more action to follow this year. To avoid getting in the crosshairs of the ACCC, company’s should make sure to review its guide for business on making environmental claims. Doing so helps you understand how to make clear, evidence-based environmental claims that consumers can understand and trust.
Consolidation of Voluntary Disclosures
Last year we saw some significant progress in streamlining ESG reporting standards. The ISSB released their first IFRS S1 and S2 standards – consolidating and streamlining other successful standards: the TCFD recommendations, SASB, CDSB framework, integrated reporting framework, and the World Economic Forum Stakeholder Capitalism Metrics.
This process of harmonization leaves us in 2024 with two well-known voluntary reporting standards: the Global Reporting Initiative (GRI) – mostly used to report an organization’s impact; and the International Sustainability Standards Board (ISSB) Standards – used for investor-focused reporting on a company’s sustainability risks and opportunities.
Focus on Nature and Biodiversity
While the consolidation and interoperability of voluntary standards has been a big focus, some new players are entering the scene. Most importantly, we recommend keeping an eye on The Taskforce on Nature-related Financial Disclosures (TNFD) as nature and biodiversity are becoming increasingly important sustainability topics.
Not sure yet what TNFD exactly is? TNFD in a Box provides an overview why corporates and financial institutions need to consider nature as a strategic risk management issue and how they can identify, assess, manage and disclose their nature-related dependencies, impacts, risks and opportunities by adopting the TNFD recommendations.
A Wave of Mandatory Disclosures
Whereas sustainability reporting has long been exclusively a voluntary exercise, this year we can expect a wave of mandatory disclosures to wash over us at a global level. Front-runner in this is Europe, where various ESG/Sustainability legislation has already been introduced. Best known, and with the largest impact on foreign organizations with ties to the EU, is the Corporate Sustainability Reporting Directive (CSRD) with its mandatory double materiality approach. But the EU is far from done, so keep a close eye on additional requirements in the form of CBAM, CSDDD, Deforestation and Nature Restoration laws, and its ReFuel EU aviation initiative.
Materiality Wars are Heating Up
Materiality is the cornerstone of sustainability reporting. Work out what is relevant and important to report first, or get overwhelmed with endless ESG data collection and disclosures. Yet, two approaches have emerged. The ISSB’s (US-based) financial materiality focuses solely on information most relevant to investors – generally identifying material sustainability risks and opportunities a business faces. The approach taken by GRI (EU-based) does the opposite; identify the business’ material impacts on the external world (environment, people, society). Last year, the EU’s mandatory CSRD reporting brought together financial materiality and impact materiality in its double materiality approach. This approach, driven by CSRD, is set to become the Gold Standard for conducting a materiality assessment.
So how does CSRD-compliant double materiality work in practice? That’s what companies will be figuring out in 2024. The legislated requirements of the draft ESRS S1 General Requirements, together with EFRAG’s draft IG 1 Materiality assessment implementation guidance (MAIG), provide a solid framework. Yet, it still leaves substantial room for subjectivity (eg. in stakeholder engagement, setting materiality thresholds,etc.) in its implementation.
ESG Software Boom
Deloitte expects ESG reporting software sales to soar in 2024 due to EU and US reporting regulations taking effect. Emerging mandatory reporting requirements in Asia, Australia, and the UK will further drive the demand for systemized ESG materiality, tracking, and reporting software platforms and tools.
With this accelerating boom of sustainability software, it’s prudent for organizations looking for digital solutions to focus in 2024 on due diligence – what do you really need, and which solutions can deliver the right fit for your requirements (and at the right price point). This software boom will see a broad variety of entrepreneurs and new market entrants offer ESG software, so make sure to check if the solution on offer is functional, the right fit, and provides you the appropriate level of support. Solutions used and favored by the largest conglomerates are not always the best option for mid-market businesses, both from a price and functionality perspective.
The Rise and Risk of AI
Artificial Intelligence (AI) technologies have the potential to provide significant benefits to various industries, but also have the power to cause significant harm. The World Economic Forum’s Chief Risk Officers Outlook 2023, puts a spotlight on the risks associated with AI Technologies.
At the governance level, the lack of clarity about how AI works requires an expansion in the board role to include ethical AI conversations. Boards will need to upskill so they can grasp AI’s potential to enhance business value while being responsible for providing oversight of the societal risks tied to AI.
AI’s potential for implementing sustainability solutions is an emerging area, and expect the ESG software boom to embrace AI to help collect data, conduct analysis, and even write sustainability reports.
These are only some of the predictions made by ESG and sustainability experts and practitioners, there is much more emerging in the field – including, but not limited to green debt, citizen lawsuits, radical supply chain transparency, circular business models, evolving shades of activism, and integrated reporting.
And, beyond predictions there are even Sustainability Prophecies for 2024, courtesy of Solitaire Townsend.
For more insights on the ESG and sustainability trends to watch in 2024, see our webinar series.
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