What does 2023 have in store for your company’s ESG agenda?
The subject of ESG has matured a lot over the last couple of years and continues to do.
Expectations around the need for focussed, credible ESG strategy and disclosure have increased significantly. We see first hand how transformative it can be for companies to embrace the principles of ESG. They find themselves altogether more resilient, with an engaged workforce, and a supportive investor network.
2022 saw the introduction of mandatory climate disclosure for large UK businesses (following guidelines published by the Taskforce on Climate-related Financial Disclosure), bringing a new level of awareness to the risks and opportunities that the future holds.
There was also a global clampdown and several legal cases brought to combat corporate ‘greenwashing’, leaving reputational damage in their wake.
What can we expect in 2023?
The Cost of living crisis ranks as the #1 short term risk in the ‘2023 World Economic Forum Global Risk Report’ and is expected to dominate corporate agendas for at least another year. From an ESG perspective, this impacts both social and environmental agendas as operational costs escalate, staff redundancies become essential and alternative sources of energy are sought for price and source stability.
Keeping your ESG agenda relevant: know what’s material to YOUR business
Are you clear about the biggest issues facing your business and your stakeholders?
Are they the same as last year?
Whilst they are likely to be similar, we are now operating in a very different economic context to 1 year ago. How do these conditions affect your stakeholders and therefore your business?
We know that investors, customers, employees, regulators, and other key stakeholders continue to demand a corporate response on ESG issues.
They want to understand how companies are responding to the issues that matter most to their business and that begins with a Materiality Assessment. This exercise considers where the highest impacts lie and therefore where the ESG strategy should focus.
Armed with this knowledge companies are able to tailor 2023 ESG disclosures for efficient communication with each stakeholder group.
Climate: Emissions + Nature = progress
Climate remains at the top of the ESG agenda, with regulators increasingly conscious of the role they need to play alongside governments in ensuring companies and countries meet their climate-related obligations.
Investors are now looking for detailed net-zero transition plans: a simple commitment to net-zero means little without this. Understanding and tackling the emissions that arise from your company’s supply chain plays a critical part in this transition story (also known as Scope 3 emissions). However, we have seen that investors also have realistic expectations around this area. They recognise that there is no quick or easy solution for companies when it comes to minimising emissions. The word ‘transition’ is therefore key; this is a mid-term project but you need proof that you have credible plans in place and are making progress against them.
Following COP15, held in Canada in December 2022, there’s an increased focus on the essential role that nature plays in keeping our planet in balance and a subsequent rise of biodiversity disclosures led by Taskforce on Nature-related Financial Disclosures (TNFD).
War on talent
Covid, an aging population and a shift in employee expectations of a ‘job’ have led to a global labour shortage. Companies who fail to inspire, support and develop the workforce they have will face a vicious cycle of failing to retain their current employees, struggling to replace them and therefore having to carry out the same amount of work with an increasingly stretched, stressed and unmotivated team.
Market conditions may be tough but there are very few businesses that can survive, let alone thrive, without a committed and motivated workforce so ensuring your employees are (and feel) supported will be critical in 2023.
Making your Governance processes clear
How you manage ESG is just as important as tracking and reporting on your company’s progress against targets.
At a leadership level, you need to be able to explain your decision making process, detailing how your leadership team keeps ESG on track.
Governance underpins everything that happens in your business.
Every company we speak to likes to think they have Governance covered, and they probably do, but often the hard part is explaining and demonstrating exactly how their business is governed.
Investors want to understand how a company assesses risk and makes decisions.
It’s worth asking yourselves if you can explain your corporate decision making processes and if your Board and Senior Leadership Team are clear on their ESG responsibilities.
Developing legislation and reporting
With the recent introduction of regulation in the US, EU and UK, ESG reporting is now mandatory for the largest companies and their supply chains across the world.
The content of these reports is under increased scrutiny, especially from the investor community. As the global clampdown on greenwashing continues and expectations increase, , ESG reports full of hot air, spin and empty promises will not meet the mark. Putting it bluntly, unbacked, unsupported claims of good intent will no longer be accepted.
This requirement for evidence and data within ESG reports highlights the need to base reporting on a recognised sustainability framework such as the Global Reporting Initiative (GRI) and/or the Sustainability Standards Accounting Board (SASB). Another development we will hopefully see this year is the consolidation of disclosure frameworks into the International Sustainability Standards Board (ISSB) to make the process and outputs more simple, comparable and impactful. The aim is to release the standards in ‘early’ 2023 so watch this space.