Sustainability trends from 2022 - 2023
With the end of the Financial Year, we take a look at the trends seen at a global scale in the sustainability domain. Ongoing pandemic recovery, signals of a global Economic slowdown, conflict and other factors came together to showcase how organisations have to consider long term solutions to cope by implementing sustainability as a business strategy.
Closing the Loop on the Circular Economy
A major trend in focus is the implementation of a circular economy. An area where Europe leads the way as compared to other countries, wherein companies and regulators have become more carbon emissions (and, increasingly, water)-focused.
New regulations are being implemented throughout Europe and the world to reduce plastic waste, increase recycling and reuse efforts and overall improve circularity and waste efforts.
More retailers like IKEA, Levi’s, Lululemon, and North Face have also made progress in reducing waste, utilizing recyclable and recycled materials and processes and incentivise their customers to participate in their efforts to move in this direction.
As recycling technology, re-use options and reusable packing options continue to improve, we expect to see more companies include circularity as a key operational sustainability initiative in 2023. We’re also seeing an overall rise in re-use and circularity-native brands and business models, as well as more circularity-as-a-service providers.
Sustainability and ESG Reporting Standards Consolidation
The International Sustainability Standards Board (ISSB), under International Financial Reporting Standards (IFRS), is building out comprehensive, global ISSB sustainability reporting standards using SASB, TCFD, and GHG Protocol as a base for an integrated, consolidated set of new standards.
These standards will likely be finalised in 2023, encouraging more clear, consistent sustainability reporting from companies and for investors. They should also more closely align sustainability and finance teams around sustainability data and reporting.
We also hope governing bodies will continue to consult with ISSB to align their rules and regulations with these new global standards. For example, the European Sustainability Reporting Standards group is working closely with both Global Reporting Initiative (GRI) and ISSB to make sure that their standards for CSRD (ESRS) are aligned to reduce duplication for organisations.
From Supply Chains to Supply Change
The importance of Supply Chain management was highlighted in the past year and continues to be a focal point from an ESG and sustainability perspective for companies, investors, and regulators in 2023. It has been seen that there’s a lack of visibility into organizations’ supply chains and environmental impacts, especially when it comes to indirect and Tier 2+ levels.
With regard to the environment, understanding an organization’s supply chain is gaining importance as it makes up the majority of Scope 3 emissions and other environmental impacts. From a social perspective, knowing how stakeholders in the value chain are treated can help ensure that they are paid and treated fairly.
Sustainability = Business Model + Value Chain, ESG = Compliance + Investment + Risk
Companies that neglect ESG considerations across their business strategy and structure are at a statistically higher risk of experiencing controversies, reputation hits, and governance failings. According to a recent Sustainalytics report, public companies that experience high to severe ESG incidents lose an average of 6% of their market capitalization. These concerns have a direct and tangible monetary, financial and macroeconomic impact on markets.
As such, companies have become more aware about their sustainability needs and the importance of being integrated into their business strategies and core operational practices. Similarly, 2023 will see more companies recognize that ESG needs to be addressed as a core risk and compliance discipline too.
As new laws and standards integrate new benchmarks, ‘double materiality’ approach to ESG and sustainability reporting is taken a lead. Double materiality means companies must report on how ESG risks are managed within the company but also how companies are taking responsibility for ESG risks associated with their business that have an impact on people and the planet.
This method of thinking highlights the inherent risks both organizations and society faces from various ESG issues. Some policies are implementing penalties for organizations that do not report on their ESG and sustainability strategies (as well as climate risk planning and exposure), making ESG a compliance issue for companies.
Looking Ahead -
Based on Deloitte’s CXO sustainability report, when asked to rank the issues most pressing to their organizations, many company leaders have rated climate change as a “top three issue.”
Climate change ranked ahead of seven others, including innovation, competition for talent, and supply chain challenges. In fact, only economic outlook ranked slightly higher.
Many of them (61%) said climate change will have a high/very high impact on their organization’s strategy and operations over the next three years.
Some 75% said their organizations have increased their sustainability investments over the past year, nearly 20% of whom say they’ve increased investments significantly.
Business leaders have expressed careful optimism about climate action:
62% said they feel concerned about climate change all or most of the time.
Almost all respondents indicated their companies were negatively impacted by climate change in some way over the last year, and 82% of CxOs have been personally impacted.
Yet, 78% feel somewhat or extremely optimistic that the world will take sufficient steps to avoid the worst impacts of climate change.
Fiscal year 2023 - 2024 presents itself to be a strong year with major initiatives (corporate and regulatory) coming together to define the evolving global business landscape. While borne out of necessity, the innovations being incorporated come together to form a stronger framework for a more sustainable world.