10 ESG trends to watch in the coming years
Environmental, social and governance (ESG) isn’t just a trend; it is now an integral part of good corporate governance. However, within ESG, many trends are emerging, and here are ten trends we can expect to see grow in the near future.
1: If business leaders fail to act, they may suffer consequences
If you are a director of a company that is failing to act on climate change or actively and knowingly damaging the planet and its people, you will most likely – in the future – face consequences. In the same way that the #MeToo movement eventually caught up with high-profile abusers of the past, so too will the #ClimateEmergency movement catch up with eco-vandals in the future.
Future generations will punish today’s poor social and environmental governance. Directors are, even today, being held accountable for acts of environmental destruction.
A recent high profile case involving the world’s largest mining company’s chief executive saw him forced to resign for environmental and cultural vandalism. Jean-Sébastien Jacques and two other executives had to leave the mining giant Rio Tinto following a shareholder backlash over the firm’s decision to blast ancient rock shelters in Australia that were in the way of an iron ore mine. The caves were 46,000 years old.
In the future, as the planet and its inhabitants suffer more due to climate change, we can expect to see mass movements of people seeking to prosecute the companies and their leaders who ‘twiddled their thumbs while Rome burned’.
2: There will be a convergence of governance and standards
The convergence of ESG terminology, standards, and initiatives, which began in 2020, is likely to be an area of focus for the foreseeable future.
For example, a standard reporting procedure for climate change matters was introduced by the TCFD.
There is a consultation underway by the EU on sustainable corporate governance, and its conclusions are likely to affect other major economies as well. A significant development in this trend will be clarifying fiduciary duties that affect directors and trustees.
- The International Financial Reporting Standards Foundation is developing a global ESG standard.
- The World Economic Forum is collaborating with the Big 4 accounting firms to establish standards for ESG reporting metrics and disclosures.
- The International Organisation of Securities Commissions is working to support convergence among securities regulators.
3: Sustainable products will become the norm
Sectors like fast fashion are quickly becoming very uncool. Young people are leading the way by purchasing more sustainable products. Millennials and Gen-Z are more aware than any other generation of the impact of climate change, the loss of biodiversity, and the need to take action. As Gen Z enters the workforce, they will have more purchasing power, so you need to ensure your organisation adheres to environmental and sustainability standards if you want to attract them.
4: Working from home is here to stay
This is one of the more notable trends in sustainability, but it is surprisingly popular. It turned out that working remotely is also very beneficial for the environment.
Having people work from home reduces greenhouse gas emissions and fossil fuel consumption because fewer cars are on the road, and less energy is used in office buildings. Commuting less is the fastest, easiest, and cheapest way for people and employers to reduce their carbon footprints. We can expect more innovations in remote working in the future and the old fashioned (and frankly ludicrous) tradition of thousands of people desperately trying to commute to a city centre office block at the same time every day will cease.
5: Carbon offsetting will get better
The term “carbon offsetting” refers to making up for the emissions of greenhouse gases like CO2. Companies and organisations that fund carbon offset projects aim to clean up greenhouse gas emissions or prevent the release of harmful gases into the atmosphere.
As net-zero emissions become more prevalent in ESG circles, carbon offsets will become mainstream. Many people consider offsets to be greenwashing, but perceptions will change as more credible alternatives emerge, allowing quality offset projects to flourish.
6: ‘Climate positive’ becomes the new ‘net-zero’
With carbon offsets, organisations can reach ‘net-zero’ goals, but we can expect things to go a step further in the coming years. Net-zero will be surpassed by ‘climate positivity’ as the next big ESG trend. This is where a companies’ activities actually reduce the amount of carbon dioxide added to the atmosphere.
7: Organisations will have to disclose any climate risks they are responsible for
Companies, big and small, will soon have to report on their ESG initiatives and disclose any climate risks they may be responsible for creating. This will lead to significant changes for firms in terms of share prices, attracting talent, customer loyalty and investor goodwill.
8: Greenwashing will be punished
Publicly claiming that your organisation’s activities or products are more sustainable than they actually are is greenwashing. The most famous recent example was the VW emissions scandal, where the motor giant lied about its cars’ level of diesel emissions.
The moral of the story is very simple: do not lie to your investors or customers; they are bright and will find out the truth eventually.
9: ESG investing will continue to rise
The ESG investing trend has become very popular since the pandemic began.
These challenging times have led investors and organisations to realise the importance of non-financial considerations and look beyond profits. The giant global asset manager BlackRock, for example, places sustainability at the centre of its investment strategy.
10: Renewable energy will become cheaper
In the past, fossil fuels were cheaper than renewable energy, and this is rapidly changing.
According to the IEA’s Renewables 2020, wind and solar energy have become 70% and 89% cheaper in the last ten years, and their capacity will surpass coal within five years.
Also, solar power is now cheaper than coal. You should discover what green energy procurement is all about and decide if it fits your organisation.