While many may have seen ESG as something of a buzzword before 2024, all indications are that sustainability will become a far more concrete concern for companies, investors and other stakeholders this year.
In 2024, the landscape of Environmental, Social, and Governance (ESG) is evolving rapidly, driven by a combination of technological advancements, regulatory changes, and shifting societal expectations.
ESG considerations are finding their way into corporate reporting standards and many regions around the world have taken tangible steps to articulate their policies and plans for ESG compliance.
Against this backdrop, it’s useful to get a sense of the key trends that are shaping ESG in 2024 and how these trends will play out in the coming months.
Key ESG regulatory trends in 2024
The ESG regulatory landscape is evolving rapidly, with new rules and standards aimed at promoting sustainability. The key target for regulators is improving “clarity and detail” in sustainability reporting while also providing reliable standards by which company disclosures can be evaluated.
The headlining regulatory developments in this respect are the IFRS S1 and S2 issued by the International Sustainability Standards Board (ISSB) in 2023. This year, we’ve seen various countries including Canada, Nigeria, Singapore, Australia and the UK commit to adopting the standards in their national law.
In the EU, the Corporate Sustainability Reporting Directive (CSRD) has also come into force, and is expected to have significant impact on reporting for companies in the regions. “The EU’s Corporate Sustainability Reporting Directive, or CSRD, moves the dial for non-financial reporting” says Thomas Voland, Clifford Chance partner. “It applies from 2024, with reporting deadlines being phased in over the next few years, depending on the listing of a company on a regulated EU market and on the size of the company. Already we are seeing large undertakings heavily involved in preparing their CSRD-compliant sustainability reports, the first of which are due in 2025.”
Other regulatory standards that have seen traction in 2024 include the UK Green Taxonomy, the US Securities and Exchange Commission’s climate-related disclosures, and various sustainability regulations in Asia and Australia.
Other key ESG trends to watch out for
Accelerating the energy transition
The push towards renewable energy is stronger than ever. Governments and businesses are investing heavily in solar, wind, and other renewable technologies to reduce reliance on fossil fuels. This transition is crucial for mitigating climate change and achieving sustainability goals. Innovations in energy storage and grid management are also playing a key role in making renewable energy more reliable and accessible.
Carbon Pricing
Carbon pricing mechanisms are being implemented to incentivize companies to reduce their greenhouse gas emissions. These systems put a price on carbon emissions, making it more expensive to pollute and providing a financial incentive for companies to cut their emissions. Carbon pricing can take various forms, including carbon taxes and cap-and-trade systems. This trend is driving companies to innovate and find cost-effective ways to reduce their carbon footprint.
AI and Circular Economy
Artificial Intelligence (AI) is becoming a powerful tool in ESG efforts. AI can analyze vast amounts of data to provide insights into environmental impact, social initiatives, and governance practices. It helps companies optimize their operations, reduce waste, and improve efficiency. The circular economy, which focuses on reusing and recycling materials, is also gaining traction. AI can enhance these efforts by identifying opportunities for material recovery and waste reduction.
While AI is also an environmental concern due to its significant energy requirements, there are ongoing efforts to mitigate this impact. For instance, green data centers and carbon offsetting have been implemented to reduce and offset the carbon footprint of AI computing in some cases. AI researchers are also developing more efficient algorithms that require less computing power, thereby conserving energy.
Supply Chain Management
Sustainable supply chain management is becoming a key priority for companies. Ensuring that suppliers adhere to environmental and social standards is crucial for achieving ESG goals. This includes reducing emissions, minimizing waste, and ensuring fair labor practices throughout the supply chain. Companies are using technology to monitor and manage their supply chains more effectively, ensuring transparency and accountability.
Conclusion
Ultimately, these ESG trends reflect a sharpening focus on sustainability, responsible business practices and reliable reporting on sustainability. We know that companies that embrace ESG are likely to be more resilient and successful in the long run. What remains to be seen is whether, by applying the emerging standards and embracing these trends, they can convince investors and critical stakeholders of their commitment towards sustainable business.
