In recent years, there has been a growing recognition of the importance of Environmental, Social, and Governance (ESG) issues in business and investment decisions. As a result, ESG programs have become increasingly popular, with companies and investors alike prioritizing sustainability, social responsibility, and ethical governance practices.
Organizations that focus on ESG programs can improve their financial performance, drive innovation, reduce reputational risk, improve their reputation, and increase customer loyalty—all factors stakeholders and investors value.
Here are four emerging ESG program trends worth watching, as summarized from two SAI360 webinars—Transforming EHS&S to be a Strategic ESG Partner and to Support the C-Level—with Connor Taylor, ESG Analyst at Verdantix, and Prepare for the Corporate Sustainability Reporting Directive, CSRD—with Gabriela Troncoso Alarcon, Expert Support Services Manager at Enhesa.
These four trends are shaping the future of ESG programs. Understanding these trends is critical for companies and investors seeking to implement effective ESG programs that align with their values and goals.
Four ESG Program Trends to Watch
1. Climate Change Policy Developments are a Top Priority for Firms
Managing climate change policy developments—which are intrinsically linked with net zero and decarbonization goals—is the number one priority for firms. Of primary importance for firms is driving toward net zero. From a corporate perspective, more firms are especially eager to be recognized for playing an active role in decarbonizing the economy.
When SAI360 surveyed over 300 EHS professionals, respondents expressed they are increasingly aware of how the environment impacts their business—not surprising given how climate change and net zero have recently become top organizational priorities. Twenty percent consider tackling the impact of climate change to be a top safety priority, with 36 percent ranking it second and 43 percent ranking it in third place.
Climate change policy developments are important for firms to focus on due to associated risks and opportunities and increasing stakeholder pressure to address ESG issues.
For example, investors are increasingly considering ESG factors when making investment decisions. Climate change is one of the most significant ESG risks that investors face. Indeed, investors are urging companies to take action to reduce their carbon footprint and demonstrate their commitment to sustainability.
Therefore, firms face increasing pressure from both stakeholders and regulatory demands, especially as the importance of net zero is something becoming increasingly embedded in regulations over time. Nonetheless, EH&S teams must understand how they can support this initiative.
2. TCFD Underpins Many Firms’ Current EHS&S and ESG Strategies
The Task Force on Climate-related Financial Disclosures (TCFD) is a framework for companies to disclose climate-related financial risks and opportunities. TCFD is a system of recommendations designed to be incorporated into regulation and legislation so investors can better understand what their risk exposure looks like. Following TCFD recommendations allows companies to provide better information to assess climate risks and opportunities, making more informed decisions.
Additionally, TCFD provides a consistent approach to reporting on climate risks and opportunities. This includes four main pillars: governance, strategy, risk management, and metrics and targets.
Here are a few components of these four pillars:
- Governance includes describing the Board’s oversight of climate-related risks and opportunities and identifying the organization’s governance involving challenges and potential wins. And identifying how management can assess and address climate-related wins and losses.
- Strategy involves identifying how resilient an organization’s strategy is while taking various climate-related situations into account. And identifying which actual and plausible climate risks and opportunities may impact a business’s financial future.
- Risk management involves highlighting how an organization is working to identify, manage, and assess climate-related risks.
- Metrics and targets include disclosing Scope 1, Scope 2, and Scope 3 if relevant to Green House Gas Protocol (GHC) emissions and associated risks.
These four pillars cover a broad range of actions. Therefore, TCFD remains a pressing regulatory issue for C-suite members and is rapidly being integrated into global legislation.
For example, in the United Kingdom in 2024, firms of a certain size will need to begin reporting ESG information. In Europe, the EU Non-Financial Reporting Directive requires certain large companies to disclose non-financial information, including climate-related disclosures, in their annual reports. The UK has also introduced similar requirements through its Streamlined Energy and Carbon Reporting (SECR) regulations.
For other global regions, this reporting must be conducted even sooner. Nonetheless, across the C-suite, TCFD remains a top priority as the most pressing regulatory issue. Fundamentally good governance is key to avoiding compliance issues and ensuring ESG initiatives are deployed effectively and efficiently.
3. SBTi is a Good Indicator of Firms’ Priorities
The Science Based Targets initiative (SBTi) is a global partnership between several organizations that helps companies set science-based targets to reduce greenhouse gas emissions and limit global warming to well-below 2°C/35.6°F above pre-industrial levels.
This voluntary initiative provides a framework for companies to set targets based on climate science. By setting science-based targets, companies can contribute to the global effort to address climate change.
Additionally, SBTi serves as a good indicator of what firms are doing ESG-wise and what their key priorities are.
Of the top ten industries with SBTi commitments and targets, the top three are:
- Professional services
- Food and beverage
Ultimately, SBTi is a good indicator of firms’ priorities in addressing climate change. Companies that have committed to SBTi targets are demonstrating their commitment to sustainability and their willingness to take action on climate change.
4. CSRD Demands Immediate Preparation
The Corporate Sustainability Reporting Directive (CSRD) is a new European Union (EU) regulation that will require large companies to report on their sustainability performance. The CSRD will go into effect in 2023 and will require companies to fully report in the year 2024.
Companies must begin preparing for CSRD now to ensure compliance. Here are some specific things that companies need to do to prepare for CSRD:
- Identify which sustainability issues are relevant to their business
- Collect data on their sustainability performance
- Develop a sustainability reporting framework
By taking these steps, companies can ensure they are compliant with the CSRD and they can demonstrate their commitment to sustainability to stakeholders.
As these trends—and many others that continue to emerge in time—evolve, it is important for companies to stay ahead of the curve and implement effective ESG programs that align with their values and goals. By doing so, companies can position themselves for long-term success and create value for all stakeholders.
For more information, watch SAI360’s webinar with Verdantix here: Transforming EHS&S to be a Strategic ESG Partner and to Support the C-Level.
SAI360 offers a personalized, customizable, and comprehensive EHS&S software solution that can help you improve compliance, reduce risk, and boost efficiency. Let’s start a conversation: https://www.sai360.com/request-demo/request-demo-ehs