"...the world of ESG remains a highly complex and evolving space as companies and their stakeholders get to grips with the risks and opportunities of adopting a sustainable business approach."
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From Larry Fink’s annual letter to CEOs, to the mass shift of retail investors and consumers into the sustainability space, Environmental, Social and Governance (ESG) issues have hit the mainstream.
Businesses are looking beyond box-ticking reporting against ESG regulatory requirements. Instead they are setting out a vision for ‘stakeholder capitalism’, that challenges the primacy of shareholders and acknowledges the link between resilient financial profits and companies that create value for all their stakeholder groups. Against this backdrop, a focus on ESG has gone far beyond a “nice to have” and towards the expectation for it to be “business as usual” for companies of all sizes in every economic sector.
Embracing ESG
Understanding of ESG – why it’s important, how to measure it and what issues are material for which sectors – continues to improve. This is in large part driven by the coalescence of reporting standards around a few key initiatives, including the new European Union Taxonomy for sustainable activities, the EU/UK Sustainable Finance Directive (SFDR/SDR) and the formation of the International Sustainability Standards Board (ISSB).
ESG trends in 2022
But the world of ESG remains a highly complex and evolving space as companies and their stakeholders get to grips with the risks and opportunities of adopting a sustainable business approach. Here, we outline the 8 trends that we see dominating discussions with our clients throughout 2022 to ensure they’re preparing for long-term future success.
In 2020, the UK government announced its intent to make reporting against the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) mandatory. Premium-listed companies are the first to be impacted via a Listing Rule introduced by the FCA, and we’ll see the first round of mandatory disclosures in spring 2022.
Read more in Design Portfolio’s research report, Navigating TCFD and get in touch to talk more about TCFD.
More than half of the world’s economic output – US$44tn of economic value generation – is moderately or highly dependent on nature. Through initiatives such as the Taskforce on Nature-related Financial Disclosures (TNFD), regulators, investors and companies alike are waking up to the need for better information to incorporate nature-related risks and opportunities into strategic planning, risk management and asset allocation decisions.
Read Design Portfolio’s research report, Uncovering Nature and Biodiversity and get in touch to talk more about biodiversity.
The digitisation of the economy has accelerated efficiencies and enabled new opportunities that have improved lives in numerous ways. However, there is a widening gap between those that benefit from this and those that don’t, which exacerbates existing inequalities, introduces new ones, and represents a big risk and opportunity for business.
The acute disruption to supply chains triggered by the COVID-19 pandemic has sparked greater scrutiny of how companies build their resilience to such impacts. There’s now more appreciation that many of these global supply chain risks fall within the scope of ESG, with issues such as modern slavery and a company’s Scope 3 emissions coming under scrutiny.
Despite an increasing body of evidence showing the link between diversity and inclusion and positive business outcomes, many companies’ progress is stalling, confined to one strand of diversity or focusing on one area of the business. This has not escaped the attention of regulators, who are beginning to signal their intention to regulate in this area to drive quicker progress.
While COVID-19 accelerated the trend towards more flexible ways of working, the full impact of this new paradigm is yet to be fully appreciated. The mental and physical impacts of remote working on employees must still be considered to ensure gains in this space aren’t lost. The net impacts of WFH on the climate are still under review, and with early reports suggesting that men are returning to the office in greater numbers than women, prominent figures have already warned that the new hybrid way of working may hurt the career prospects of women.
A robust and responsible corporate culture is the foundation for the delivery of both corporate strategy and sustainability commitments. Measuring culture is quickly becoming one of the strongest indicators of a company’s likelihood of success and there is a growing need to better define and measure the characteristics and qualities inherent in a strong corporate culture.
In an increasingly unequal global society, regulatory pressure is building on large multinationals to provide more transparency around their tax practices as a fundamental pillar to doing business responsibly. Recent research uncovered that over half of large global companies make no material disclosure on their tax practices, highlighting this as an area that is much less developed than other ESG-related topics, but one that is now firmly on the radar of regulators and investors.
What to do next
At DP Sustainability, we are here to help you take on the next big challenges in the sustainability space. From an ESG Health Check through to a full-scale sustainability strategy development project, we are the on-hand experts to guide you through your ESG journey. Get in touch with Lindsay Davis and Martha McPherson to speak about all things sustainability.