The exciting future of ESG – once a burden, now a benefit

 

 Dr Michelle de Jongh, Managing Director: ESG Services, Inspired PLC

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2024 was a pivotal year for ESG developments. On one hand, we have seen corporate ESG reporting requirements take significant strides forward, especially with the launch of the Corporate Sustainability Reporting Directive (CSRD) in Europe and the adoption of the International Financial Reporting Standards for Sustainability (IFRS) across several countries. These advancements signify a robust commitment to sustainability at the corporate level. On the other hand, while high-profile summits such as COP16 and 29 provided a platform for dialogue, the outcome was mixed, highlighting a gap between corporate climate efforts and governmental actions.

 

Some companies perceive the demands of ESG reporting as burdensome, particularly when juggling diverse requirements across multiple jurisdictions, each with its own intricacies. This complexity can sometimes lead to increased compliance costs and frustration. However, there’s an encouraging outlook as 2025 is anticipated to bring about consolidation efforts, with the EU working towards an “omnibus” regulation. This aims to unify the CSRD, the EU Taxonomy Regulation and the Corporate Sustainability Due Diligence Directive into a more streamlined framework. With CSRD and ISSB emerging as pivotal standards, they pave the way for transparent and comparable ESG reporting.

 

Environmental, social and governance (ESG) reporting is undergoing a dynamic transformation – and while this shift may appear challenging for companies, it also presents a wealth of opportunities for growth and unique market positioning:

• ESG as a competitive edge. By embracing ESG principles, companies can truly stand out, capturing the attention of consumers and investors alike. This commitment not only enhances brand loyalty but also contributes to overall business success.
• Consolidation of standards. The next few years promise an exciting development in reporting standards, and we anticipate a phase of consolidation following a period of rapid expansion. This will streamline processes and enhance clarity across the board.
• Engagement in Scope 3 emissions. The focus on Scope 3 emissions will emphasise engagement within supply chains, fostering collaboration and innovation. Despite some reservations, it’s clear that ESG practices are here to stay, encouraging businesses to take proactive measures.
• Stepping up for climate action. As the tangible effects of climate change increase, ESG initiatives will continue to take centre stage. Companies are poised to lead the charge in reducing emissions and adapting to evolving climatic conditions, marking a new era of corporate responsibility.
• Driving climate initiatives. Excitingly, we are witnessing a shift where businesses are increasingly spearheading climate action, rather than relying solely on government mandates. This proactive approach reflects a growing awareness of the important role companies play in combating climate issues.

As we navigate the reality of rising global temperatures, nearing a 1.5°C increase in the next decade, we can expect more climate-related events, such as extreme heat, flooding and wildfires. This backdrop might be exacerbated by global phenomena such as El Niño, underscoring the urgent need for companies to be proactive. While immediate risks can already be seen, such as increased flooding, other challenges such as rising sea levels will take more time to unfold.

 

In response to these evolving challenges, governments are expected to implement new policies to further solidify a focus on ESG compliance, emission reductions and adaptation efforts. The Task Force on Climate-related Financial Disclosures (TCFD), established in 2015, laid the groundwork for premium and main market-listed companies in the UK, and this framework expanded in 2022 to include additional companies, promoting wider accountability across the board.

 

As the ESG landscape continues to evolve, staying informed is essential for businesses to mitigate the risks of litigation and protect their reputations. To navigate these complexities, many companies are increasingly turning to third-party ESG consultants or bolstering their internal resources, embracing an insightful approach to meet the challenges ahead.

 

The positive energy surrounding ESG initiatives is palpable. With a collective commitment to sustainability, the future holds great promise. By actively participating in this journey, companies not only contribute to a healthier planet but also unlock endless possibilities for innovation and growth. Let’s embrace the transformative power of ESG and step confidently into a sustainable future together!

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