ESG encompasses almost all areas of a company’s business: from its operations to its environmental practices and employee policies, to how it is affecting communities and managing risk. Ultimately, ESG criteria can give savvy investors, regulators and customers an insider’s look into the non-financial issues that make or break a company.
Amidst the myriad of ESG topics companies are called to report on, it is easy to get overwhelmed and lack focus. The following 4 trends have been driving the agenda in the last years and will continue to do so for years to come:
- Climate change adaptation, mitigation and transition continue to be on the top of the ESG agenda, with heatwaves, droughts and floods affecting millions of people and businesses all over the world. Excessive heat is affecting 70% of the global workforce (International Labour Organization, 2024) with 19,000 heat-related deaths every year. Companies are called to reduce their carbon emissions and at the same time follow an adaptation plan on how to cope with it.
- Demand for data transparency, regulation and standardization of ESG reporting, aiming to fight greenwashing. EU’s Corporate Social Responsibility Directive (read more about it in our publication here) and the International Financial Reporting Standards (IFRS) S1 and S2 are important steps towards this direction. The CSRD especially, which is estimated to affect over 50,000 companies in the EU in the first years of application, is not only legally mandatory but also requires external verification of submitted ESG reports by qualified auditors.
- The ESG risks of Artificial Intelligence are becoming increasingly pressing for investors, corporates and regulators, as AI is making its way more and more into the workplace. The use of AI in industries such as insurance, banking, healthcare and recruitment has raised questions regarding data privacy, safety, quality management and bias. For example, AI systems have been found to give women lower credit-card limits than their husbands, according to the Wall Street Journal (Bousquette, 2023).
- Supply chain management and due diligence are becoming more important for companies across all industries. Under the Corporate Social Due Dilligence Directive (CSDDD), affected companies are called to identify negative human rights and environmental impacts in the company’s value chain, whether actual or potential. Also, companies that fall under the CSRD must report on their Scope 3 emissions, indirectly produced by their suppliers and customers and which can comprise up to 70% of their total emissions (Valdre and Hawkins, 2023) and present major challenges in measuring them accurately.
References:
Bousquette, I. (2023, March 9). Rise of AI Puts Spotlight on Bias in Algorithms. The Wall Street Journal. https://www.wsj.com/articles/rise-of-ai-puts-spotlight-on-bias-in-algorithms-26ee6cc9
International Labour Organization. (2024, July 25). Heat at work: Implications for safety and health. https://www.ilo.org/publications/heat-work-implications-safety-and-health
Valdre, P., & Hawkins, J. (2023, September 19). Scope 3 emissions are key to decarbonization – but what are they and how do we tackle them? World Economic Forum. https://www.weforum.org/stories/2023/09/scope-3-emissions-are-key-to-decarbonization-but-what-are-they-and-how-do-we-tackle-them/#:~:text=Scope%203%20upstream%20can%20represent,than%2050%25%20of%20global%20emissions.
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