Investors are betting big on companies focusing on sustainable transition, and they expect the entire value chain to meet high ESG standards, committed to sustainable procurement
In the last decade, sustainability has taken centre stage across industries. However, a refined push towards Environmental, Social, and Governance (ESG) put measurable aspects in the spotlight during 2020 and 2022. This has prompted international discussions at several levels in 2023. With a focus on dedicated policies and programs, ESG is at the forefront of driving profitability and gaining access to resources to drive higher business value.
With investors and other stakeholders pushing companies to disclose material concerns and progress to achieve positive impact, ESG has become critical while drafting, developing, and refining ESG-based strategies.
Now that there are proven and demonstrated cases to support risk management effectively while embracing ESG across the sectors, companies are more likely to implement sustainable practices and build an ESG ecosystem that benefits all.
A dive deeper into the ESG journey spanning the globe shows a few key trends to watch out for:
Cascading ESG at all strategic levels within the organisation
It has increasingly become essential to integrate ESG into every level of an organisation. This means building awareness across functions within the business and having clear areas of expertise and responsibility. To realise the ESG integration to a large extent requires outcome-driven sustainability roadmaps to be put in place. To implement an ESG strategy within the core business decision-making, a measurable shift must be monitored over time. Companies that do not have in-house expertise in sustainability are engaging external services to achieve long-term sustainable improvement. Investors are betting big on companies focusing on sustainable transition, and they expect the entire value chain to meet high ESG standards, committed to sustainable procurement.
Low carbon economy to lead the ladder
One of the most important ESG trends to watch out for in 2023 is the incremental focus on transitioning to a low-carbon economy. Companies acknowledge that climate change is a significant threat that could impact their operations and are working proactively to alleviate these risks. This includes setting ambitious targets for reducing greenhouse gas emissions, investing in renewable energy, and developing sustainable products and services. This will ensure lower costs and greater operational resilience. The voluntary market for carbon credits continues to grow significantly as businesses seek offsets for their carbon emissions and increasing numbers sign up for 'net zero' commitments. Global policies and frameworks requiring net zero business commitments are developing and evolving.
Responsible investing
Stakeholders are increasingly looking for companies that are committed to ESG principles and are incorporating ESG criteria into their investment decisions. This includes investing in companies focused on renewable energy, sustainable products and services, and ethical business practices. To analyse a company’s ESG risks, as well as assess its opportunities and progress, investors are now using ESG data and fundamental insights, to make informed decisions for the allocation of capital.
Circular economy
The concept of circular economy is an upcoming trend in 2023. Companies are recognising that the traditional linear model of consumption and disposal is unsustainable and are adopting a circular approach that emphasises reuse and recycling. This includes designing products for circularity, investing in recycling infrastructure, and working with suppliers to reduce waste. United Nations Conference on Trade and Development (UNCTAD), in its report, notes, “The goods of today are the resources of tomorrow at yesterday's resource prices.” In a world where most trade happens in parts and components in highly globalized value chains, promoting global resource circularity goes through international rules and cooperation, as well as individuals and consumers empowered with awareness and knowledge on developing technologies.
Corporate governance
Organisations now realise that effective corporate governance is essential for building trust with investors, customers, and other stakeholders. This includes ensuring that boards of directors are diverse and independent and that effective mechanisms are in place for oversight, accountability, trust, and responsibility. Implementing good governance under the ESG framework ensures sustainable business continuity and a better capability to manage risks.
To conclude, 2023 looks like a year to gain pivotal momentum and strengthen ESG across sectors. With an unprecedented increase in events like floods, droughts, rampant fires, etc., the world has gained a new insight into realising the impact of sustainability. Focus from the different stakeholders has brought ESG to various leadership tables and formed a part of strong discussions to formalise the organisational strategies. To measure the outcome of a much broader idea, focusing on a company’s role in society, how it creates value by managing its environmental and social impacts (both positive and negative), and how its actions affect a wide range of stakeholders, ESG promises a bigger role in driving sustainable businesses.
(Parika Mahajan is Global ESG & CSR Lead, Happiest Minds Technologies Limited.)