Environmental, Social, and Governance (ESG) criteria have become central to corporate strategies and investment decisions over the past few years — so much so that in 2022, 98% of S&P 500® Companies published a sustainability report.
As we make our way into 2024, several key ESG trends are poised to shape the future of sustainable business practices and investment portfolios. Here are five trends to monitor closely in 2024 and beyond:
1. Increased Regulatory Scrutiny and Standardisation
Governments and regulatory bodies worldwide are intensifying their focus on ESG reporting and disclosures. According to S&P Global, new regulations will aim to standardise ESG metrics and reporting frameworks in 2024, enhancing transparency and comparability. Key developments include:
- The European Union’s Corporate Sustainability Reporting Directive (CSRD), which will require more detailed and standardised ESG disclosures.
- The U.S. Securities and Exchange Commission (SEC) implementing more stringent climate disclosure requirements.
These regulatory changes will allow investors to make more informed decisions based on standardised ESG data. The focus will also increasingly shift towards the supply chain — an area where even large companies may struggle to collect and assess relevant information.
Whilst many companies can readily provide data about their direct operations, the complexities of their supply chains will demand additional support to ensure comprehensive ESG reporting. This shift is crucial, as the supply chain often contains significant ESG risks that need to be addressed to provide a complete picture of a company’s sustainability performance.
2. Advancements in Climate Tech
The fight against climate change is driving innovation in technology, particularly in climate tech. In 2024, significant advancements are expected in technologies aimed at reducing carbon footprints, enhancing energy efficiency, and promoting renewable energy adoption. According to MIT Sloan Management Review, key innovations include:
- Carbon capture and storage (CCS).
- Next-generation solar and wind technologies.
- Advancements in battery storage.
Companies investing in and adopting these technologies will not only reduce their environmental impact but also position themselves as leaders in the transition to a low-carbon economy.
3. Focus on Biodiversity and Natural Capital
Beyond climate change, the focus is expanding to include biodiversity and natural capital. According to MSCI, businesses and investors are increasingly recognising the importance of preserving ecosystems and natural resources. This trend is driven by the growing awareness that biodiversity loss and ecosystem degradation can have severe economic and social consequences. Key actions will include:
- Comprehensive biodiversity assessments.
- Conservation initiatives.
- Aligning investment portfolios with practices that protect and restore natural ecosystems.
4. Social Impact and Equity
The “S” in ESG will continue to gain prominence, with a stronger emphasis on social impact and equity. According to ESG Global Advisors, issues such as diversity, equity, and inclusion (DEI), labour rights, and community engagement will be at the forefront of corporate agendas. Companies will be expected to demonstrate tangible progress in:
- Fostering inclusive workplaces.
- Supporting fair labour practices.
- Contributing positively to communities
In 2024, stakeholder expectations will push businesses to move beyond mere statements of intent and showcase measurable outcomes in their social impact initiatives. Capturing and measuring data will be crucial in this shift, as it allows companies to provide concrete evidence of their efforts and achievements.
For SMEs within the supply chain, this presents an opportunity to add significant value to the projects they are involved in. By effectively tracking and reporting on their social impact, these smaller enterprises can enhance their contributions and strengthen relationships with clients who are increasingly focused on leading with purpose and accountability.
5. Enhanced ESG Integration in Investment Strategies
Investment strategies will increasingly integrate ESG considerations as investors seek to manage risks and identify opportunities. According to Harvard Law School’s Corporate Governance blog, ESG integration will become more sophisticated, moving beyond negative screening and exclusionary practices to more nuanced approaches such as:
- Thematic investing.
- Impact investing.
- Active ownership.
A critical aspect of this evolution will be the emphasis on sustainability measurement and assessment to prevent greenwashing. The EU Taxonomy, a classification system for sustainable activities, addresses this issue by providing clear criteria for what qualifies as environmentally sustainable. By aligning with the EU Taxonomy, companies can ensure that their ESG claims are credible, and investors can have greater confidence in the sustainability of their investments.
Navigating the Future of ESG: Key Takeaways
The trends outlined above underscore the dynamic and evolving nature of the ESG landscape. As regulatory frameworks become more robust, technological innovations drive environmental solutions, and social considerations take centre stage, businesses and investors alike will need to stay agile and proactive. Monitoring and adapting to these trends will be crucial for organisations aiming to thrive in a future where sustainability is not just a buzzword but a fundamental component of success. In 2024 and beyond, the integration of ESG principles will continue to shape the corporate and investment world, driving positive change and contributing to a more sustainable and equitable global economy.
Alex Minett is the Head of Global New Markets at Veriforce CHAS, the UK’s leading health and safety assessment scheme and provider of risk mitigation, compliance, and supply chain management services. With a working history in the audit and management consulting industry, Alex is experienced in implementing visions and strategies. Skilled in negotiation, management and business development, he is passionate about driving CHAS in its mission to safeguard organisations from risk in the UK.
LinkedIn: Alex Minett
