The world is changing rapidly, and so are the expectations of investors, consumers, and stakeholders when it comes to Environmental Social Governance (ESG). In 2023, several major regulators and governments passed climate bills and reporting requirements into law, setting up 2024 to be an important year for ESG and corporate sustainability. As we look to the future, the finance services, materials, and retail sectors are poised for significant ESG transformations.
The aim of this article is to support ESG leaders and professionals to better understand the cutting-edge ESG trends set to shape the destiny of these industries.
ESG Trends to watch
Based on research, here are the top 3 ESG trends to watch:
- Mandated sustainability reporting for large companies: Large companies in the UK, US and Australia will have to adhere to sustainability measurements and reporting standards in 2024-25. In Australia, this applies to businesses with over 500 employees, revenues over $500 million and assets over $1 billion. Medium-sized and smaller-sized entities will meet new reporting requirements in a phased-approach.
- Greenwashing in the spotlight: Greenwashing will be supported by stronger legal definitions and consequences in 2024 and beyond. The EU has reached an agreement to ban greenwashing, which sets new rules for misleading advertisements and generic environmental claims without proof of recognised excellent environmental performance. The Australian Securities and Investment Commission (ASIC) has undertaken 35 inventions based on its surveillance of greenwashing activities. Compliance will become a key concern for ESG teams, which will need to work closely with communications and marketing teams to ensure environmental messages adhere to jurisdictional requirements.
- Scope 3 emissions and supply chain transparency: Consumers are calling for better transparency of product footprints and lifecycles. In 2024, companies will place more emphasis on their supply chains, both in supply chain mapping and scope 3 disclosures. This will involve establishing ESG-focused procurement policies by working with their suppliers and customers to improve on both data collection and environmental and social impact.
As we look at each sector for key trends, it is clear that ESG will no longer be simply an ‘add-on’, but rather a core part of business strategy.
1) Finance Services Sector
Consumer demand for sustainable products is growing
This is underpinned by younger consumers. The ongoing nature of the climate crisis and other environmental issues provide a backdrop for consumers to focus on living a more sustainable life, creating the conditions for further growth of ESG over the coming years.
Increased potential for profitable returns
Sustainable equity indices are achieving strong annual growth, as the MSCI World SRI index shows. Many banks are responding by providing a range of ESG-centric products and services that extend beyond investment products. This looks like green loans for environmental projects and green mortgages, which reward borrowers for buying or building property to make it more sustainable or energy efficient.
Stronger connection between finance and ESG
Financial services will need to prepare for inevitable shocks that will arise over the next 10 years. These include climate adaptation, additive manufacturing, the changing role of work, and reducing inequality. According to Deloitte, the financial services industry will be fundamental to:
- Facilitating value exchange and liquidity
- providing a means for the secure storage of wealth
- offering mechanisms for risk management
- facilitating investment across multiple parties
- maintaining trust and confidence to drive economic growth.
2) Materials Sector
Companies need to proactively change their practices
Mining and construction companies need to consider how the growing prevalence of ESG impacts their strategy and operations. This is especially the case as this capital-intensive sector requires funding from traditional lenders, private investors, and the market.
Clean energy technologies will mean increased demand for minerals
These technologies typically require much greater quantities of rare earth minerals and metals than their fossil fuel-based counterparts. Recent price spikes for many minerals have triggered a marked increase in investment in mineral exploration and production.
Energy transitions must also be people-centred and inclusive
Businesses, especially those engaged in supporting the transition, can make a positive contribution to sustainable development, but not without addressing potential adverse impacts linked to their activities. The IEA Global Commission on People-Centred Clean Energy Transitions echoed these considerations in its recommendations from October 2021.
3) Retail Sector
Human rights abuses in supply chains will be targeted
Forced labour, human trafficking and modern slavery have been found in multiple stages of the supply chain across industry sub-sectors. While once not necessarily seen as part of a business’s remit, the responsibility to ensure a clean supply chain is now being imposed on businesses through new regulations in many jurisdictions. Non-compliance with the new rules can result in heavy fines or civil liability.
Decarbonisation will mean increased costs
Decarbonisation refers to the transition to a low carbon economy by using energy sources that produce low levels of greenhouse gas emissions. Retailers will have to confront their own direct and indirect emissions, as well as those of their supply chain as part of the decarbonisation process. Over the next 5-10 years, retailers could see increases of 10-15% of costs to cover decarbonisation and funding their climate strategy. This cost will likely be borne by stakeholders such as vendors, suppliers, governments, regulators, and investors.
The global plant-based food industry is predicted to grow
Consumers are becoming increasingly aware of the environmental impact of meat consumption. Plant-based alternatives can play a vital role in reducing carbon emissions and therefore contribute to global sustainability targets. This trend could impact food retailers around the world.
Stay current and support your team
Whether you work in the finance services, materials, or retail sector, these trends are a call to action to innovate, adapt, and embrace ESG values.
Kineo’s ESG Training Suite, developed by respected specialists, caters to businesses genuinely interested in ESG practices. Encouraging effective team involvement in your ESG efforts enhances the likelihood of your employees embracing and actively participating in your sustainability initiatives.
Visit our library to learn more about our ESG courses or speak to a Kineo expert.