A new report (1) on the environmental, social &  governance (ESG) landscape suggests that there are growing pressures for companies to make sustainability a priority.

The Thomson Reuters Institute (TRI) reports in its mid-year review of ESG trends that developments in regulatory reporting, private company disclosures, politicisation, biodiversity, supply chain focus, and greenwashing claims are shaping the future of corporate operations.

The institute predicted six trends at the beginning of 2024 around ESG that could fuel this process, and midway through the year the new report takes stock of developments. (2)

Trend 1:  The TRI  advises that there is emerging evidence of  ESG reporting preparations by  corporate finance functions. It quotes a survey of 600 middle-market CFOs3 where 53% said they have integrated or are in the process of integrating sustainability principles into their core business strategy. The TRI report also pointed to three workshops for ESG controller teams in May, organised by Deloitte and Accounting4Sustainability, around the implementation of the European Union’s Corporate Sustainability Reporting Directive (CSRD).

Trend 2:  Private companies face more pressures to share sustainability information. The TRI highlights that the EU Council adopted the Corporate Sustainability Due Diligence Directive (CSDDD) in late-May, which will affect private companies, being phased in over five years. The TRI suggests that pressures from employees, consumers and large corporate customers on private companies to disclose ESG reporting is likely to increase.

TRI further notes that a Deloitte survey of 2,000 C-Suite business leaders4 found that more than 60% of respondents said they felt pressure to act on climate change coming from consumers and clients, employees, and civil society.

Trend 3: Increased politicisation. ESG continues to have a major presence in politics, amplified by elections in a number of countries, with effects on ESG progress. Around this, a report by Republican-controlled U.S. House of Representatives found that asset management firms “colluded” with corporations to curb emissions, in its latest efforts to use antitrust laws to stifle corporate advancements to combat climate change. (5)

Trend 4: Biodiversity and nature. The TRI advised that more than 320 companies and financial institutions have committed to reporting principles set by the Taskforce for Nature-Related Financial Disclosures (TNFD) (6). Also, the International Sustainability Standards Board agreed in April to start work on nature-related issues drawing on TNFD recommendations. (7)  

The TRI also points to research showing that about 55% of the world’s GDP, estimated at around US$58 trillion, relies on the health and proper functioning of ecosystem services to a moderate or significant extent8. The global economy has seen costs exceed US$5 trillion annually through detrimental effects of business activities on nature and vital ecosystem services. (8)

Trend 5. Greater ESG focus on supply chains. The new EU directive requires companies to carry out due diligence on environmental and human rights in its supply chains. The TRI report advises that operational risks from climate change could cause investors and other stakeholders in food and beverage companies along with industries that rely  on precious metals to increase resilience of their supply chains through more transparency. It notes that foods such as coffee, chocolate, olive oil, and wine are seeing spikes in prices from extreme weather brought on by climate change. (9)

Trend 6: Increase in greenwashing claims. Misleading or insufficient sustainability practices and disclosures by companies – greenwashing - has greater legal clarity, according to the report which notes that organisations engaging in greenwashing now face more serious repercussions but that the practice is a continued cause for concern. The TRI points to  “anti-greenwashing” legislation in the UK governing the financial sector (10), and similar new EU guidelines for investment funds11 as indications on levels of concern.

The TRI report also takes the view that the increase in sustainability reporting requirements could lead to an acceleration of contested greenwashing claims. The report advises that “claimants and their lawyers who leverage legal systems to ensure companies ethically create positive environmental and social outcomes in their operations will have plenty of public information to review for future potential legal action.”

SaveMoneyCutCarbon viewpoint

The TRI report indicates that the numerous new pressures on companies to be more publicly accountable in environmental, social and governance areas might spur rapid change in a wide range of corporate practices in finance, supply chain management and marketing over the next five years. In our own experience, clients are increasingly seeking advice on how to develop the most effective and sustainable ESG practice, which is swiftly becoming a dominant focus.

Sources

1 Thomson Reuters (Accessed August 2024) Mid-year status report on this year’s ESG predictions  https://www.thomsonreuters.com/en-us/posts/esg/mid-year-status-report/

2 Thomson Reuters (Accessed August 2024) Six predictions for ESG in 2024: The year ESG emerged from fad to essential business https://www.thomsonreuters.com/en-us/posts/esg/esg-predictions-2024/

3 BDO (Accessed August 2024) 2024 BDO CFO Outlook Survey https://insights.bdo.com/2024-BDO-CFO-Outlook-Survey.html

4 Deloitte (Accessed August 2024) Deloitte 2023 CxO Sustainability Report https://www.deloitte.com/global/en/issues/climate/content/deloitte-cxo-sustainability-report.html

5 Reuters (Accessed August 2024) US House panel finds Wall St 'colluded' to curb emissions https://www.reuters.com/sustainability/us-house-committee-report-finds-wall-street-colluded-curb-emissions-2024-06-11/

6 TFND (Accessed August 2024) 320 companies and financial institutions to start TNFD nature-related corporate reporting https://tnfd.global/320-companies-and-financial-institutions-to-start-tnfd-nature-related-corporate-reporting/

7 TFND (Accessed August 2024) TNFD welcomes the ISSB’s decision to commence work on nature-related issues https://tnfd.global/tnfd-welcomes-the-issbs-decision-to-commence-work-on-nature-related-issues/

8 PwC (Accessed August 2024) PwC boosts global nature and biodiversity capabilities with new Centre for Nature Positive Business, as new research finds 55% of the world’s GDP - equivalent to $58 trillion - is exposed to material nature risk without immediate action https://www.pwc.com/gx/en/news-room/press-releases/2023/pwcboosts-global-nature-and-biodiversity-capabilities.html

9 WSJ (Accessed August 2024) Climate Change Is Coming for the Finer Things in Life https://www.wsj.com/world/climate-change-is-coming-for-the-finer-things-in-life-6d7efeaa

10 Reuters (Accessed August 2024) Britain's anti-greenwashing rule for finance takes effect on May 31 https://www.reuters.com/sustainability/sustainable-finance-reporting/britains-anti-greenwashing-rule-finance-start-may-31-2024-04-23/

11 Reuters (Accessed August 2024) EU finalises investment fund labels to combat greenwashing https://www.reuters.com/business/environment/eu-finalises-investment-fund-labels-combat-greenwashing-2024-05-14/