Environmental, social, and governance, or ESG, refers to the standards by which a business's ethical influence and sustainability are evaluated. Better regulatory pressure, more sustainability activities for smaller businesses, better supply chain openness, increasing demand for climate technologies, and decreased susceptibility to greenwashing and ESG-related hazards are some of the key ESG themes for 2024. Companies will be forced by these trends to include ESG in their operations, strategies, and communications to gain new competitive advantages and increase stakeholder engagement.
Businesses looking to comply with new rules and achieve emissions reduction goals across their whole value chain will make supply chain sustainability a top priority.
Reporting on supply chain sustainability will be mandatory for corporations starting in 2024, as per the ISSB guidelines and most ESG regulations. As a result, more businesses will make it necessary for suppliers to comply with their codes of conduct when it comes to ESG and emissions data visibility. For instance, Microsoft already mandates that its suppliers provide accurate, comprehensive, and scope 1-3 greenhouse gas (GHG) emissions data and has included ESG guidelines in its Code of Conduct for Suppliers. Additionally, Amazon has stated that starting in 2024, it will start to demand emissions statistics and decarbonization targets from its suppliers.
The most significant ESG regulatory disclosure of 2023 was the introduction of California's Climate Accountability Package, the nation's first climate disclosure law. This means that starting in 2026, more than 10,000 US public and private enterprises must get ready to submit their climate risk impact statement and carbon footprint.
From the standpoint of US ESG regulations, the other big development is that the SEC's climate disclosure bill is still pending. Additionally, the finalization of the Corporate Sustainability Reporting Directive (CSRD) criteria in Europe means that businesses will begin gathering data for their initial reporting in 2025. There are currently 29 distinct national and regional ESG disclosure laws in existence worldwide. Globally speaking, we should anticipate a large increase in the number of regulators issuing ISSB-aligned ESG disclosure rules by 2024.
For ESG reporting, the publication of the first two standards by the International Sustainability Standards Board (ISSB) in mid-2023 was revolutionary. It also marked the start of a new phase of ESG reporting standard alignment.
When businesses are allowed to start utilizing the ISSB to report on their ESG performance in 2024, the ISSB will:
More companies are reporting their ESG performance, leading to improved sustainability outcomes and ESG performance measurement techniques. The S&P 500 shares 98% of its sustainability reports, and ESG reporting is now available for 82% of the Russell 1000's bottom half. Businesses are also committing to high ESG goals, such as net zero emissions. In 2024, organizations are expected to focus on data quality to develop more effective strategies, improve risk assessment accuracy, and increase transparency and accountability in reporting.
Companies anticipate raising their ESG technology spending in 2024 to start reporting, minimize growing ESG risks, and stay up to date with new compliance needs.
Companies are looking to outside vendors and software technologies to meet their ESG challenges to quickly launch their ESG initiatives. According to a Reuters article, businesses intend to increase their spending on outside software providers and solutions to stay in compliance with impending laws. According to Bloomberg research, 92% of CEOs intend to spend 10% or more on ESG in 2024, and 18% aim to spend 50% or more.
Technology integration into ESG data practices is a business strategy, not merely a compliance measure. It gives businesses the potential to show their dedication to sustainability, draw in investors, lower risks, and obtain a competitive advantage in a market that is becoming more and more ESG-focused.
Companies that enhance their ESG performance will receive rewards, emphasizing concrete achievements rather than vague promises. This will incentivize improvement and help identify those falling short of goals. Focusing solely on reducing carbon footprints may lead to success, while others may struggle to cut emissions. However, studies show that many businesses will fall short of their climate commitments, with only 4% achieving high-quality net-zero aims. As of 2022, fewer businesses are expected to meet their emissions objectives. As a result, promises will become less important than performance, with businesses penalized for subpar work and rewarded for improved performance. This trend underscores the importance of adjusting to a low-carbon economy and having clear plans in place.
Measuring ESG performance is a fundamental change in how organizations will function in the coming years. ESG reporting will be more integrated, regulated, and visible in 2024 than it has ever been. Businesses that adopt an ESG approach will be in a better position to take advantage of opportunities, reduce risks, and improve their performance and reputation. There will be more scrutiny, criticism, and difficulties for those who reject or neglect ESG. For sustainability and long-term success, focusing on ESG is not just the moral, but also the prudent thing to do.