2024 is set to be a pivotal year in the ever-evolving landscape of sustainability and environmental, social and governance (ESG) reporting, bringing in new mandates, policies and regulations. As businesses work to adapt to a rapidly changing world, here are five key sustainability and ESG trends to watch in 2024.
1. Tracking Sustainability Efforts Beyond Controlled Operations
Sustainability reporting now extends beyond direct emissions and energy usage, with a focus on measuring environmental and social metrics across the entire value chain – including diversity KPIs and employee health & inclusion in an increasingly remote working world.
Companies are specifically facing the challenge of handling Scope 3 emissions – which commonly represent the majority of their overall emissions and originate outside of the organization. Creating a robust Scope 3 reporting strategy has become business-critical for companies to set credible sustainability targets, achieve net-zero ambitions, and adhere to international reporting frameworks.
Supply chain engagement is one of the biggest hurdles in Scope 3 reporting. According to CDP data, emissions from supply chains are on average 11.4x higher than operational emissions. Many organizations have complex supply chains, so it is tricky to collect quality data, engage with suppliers around the world, select a calculation method, and track progress against targets.
Despite challenges, reporting on Scope 3 emissions is critical as it presents the biggest opportunity for meaningful reductions. To implement a supplier engagement program, organizations should look to assess their current data collection and reporting procedures, ensuring there is a centralized place for this data. They can then utilize guidance and resources like GHG protocols and analysis to assess the relevance of the Scope 3 categories, conducting screenings to understand what data is applicable and can be collected. From there, organizations can look to engage with suppliers and understand what data is needed from them for reporting and how to establish a regular communication channel.
2. The Importance of Materiality in an Evolving Reporting Landscape
In today’s ESG reporting landscape, identifying, managing and reporting what is material to companies has become crucial and this will continue into 2024 and beyond. Materiality is based on the idea that not all sustainability issues are equally important and that companies should focus their reporting efforts on the issues that are most material to their business and stakeholders.
There are different types of materiality, including single materiality, impact materiality, and double materiality, each with its benefits and limitations. Single materiality considers the impact of issues on a company’s financial performance, impact materiality considers what impacts the company’s stakeholders and broader society, and double materiality evaluates both the impact on the financial performance and the broader economy and society.
Specific data points required by current and upcoming regulations (such as CSRD) are now blending with an embedded sustainability approach that assesses what is material for a particular industry or company. The CSRD incorporates the concept of double materiality, requiring companies to report on how sustainability issues might create financial risks for the company, as well as the company’s impacts on people and the environment.
By understanding and focusing on the material issues, companies ensure that their reporting is relevant to stakeholders – building trust and credibility. Materiality also becomes a key driver for long-term value creation, facilitating continuous improvements and encouraging organizations to focus efforts on pressing challenges for a more sustainable future.
3. The Financial Lens on Sustainability and ESG
Investors are using ESG performance metrics to shape investment decisions, manage risk and promote long-term value creation now more than ever. With more regulation and investor pressure, there is no doubt that companies will need a process to produce high-quality, defensible ESG data that is more aligned with financial reporting requirements.
Frameworks like the European Commission’s Sustainable Finance Disclosure Regulation (SFDR) and the Task Force on Climate-Related Financial Disclosures (TCFD) establish a common language and set of standards for sustainable finance and reporting. With these clearer definitions, a more transparent and efficient capital market can be created, allowing investors to easily compare data across organizations and confidently make well-informed investment decisions.
For investors, a company’s ESG performance is only as good as its data quality. Bad quality data can result in inaccurate reporting, lack of transparency, and potential backlash from stakeholders if your efforts are deemed unreliable. Demanding data transparency is the way investors can ensure that the ESG information provided is accurate and not misleading.
4. The Role of Technology in Sustainability Efforts
Sustainability reporting now involves centralizing metrics from diverse sources and systems across an organization’s activities. This requires data interoperability for effective mapping across frameworks and regulations.
To facilitate this, a comprehensive software solution that captures all EHS and ESG information is key. This will ensure that the data collection process is streamlined, automatically identifying trends across the organization, reducing risk of calculation errors, and providing a holistic view of progress towards goals.
Advances in technology and software solutions to enable in-depth ESG data analysis are increasing the expectations for ESG data quality and transparency. Once good quality primary data is collected, software solutions enable ESG performance data to be aggregated, compared and benchmarked across various global metrics, KPIs and frameworks.
Artificial intelligence can also help accelerate sustainability reporting by analysing large datasets, making predictions and automating decision-making. These outputs can be leveraged by ESG and EHS professionals in their business plans and strategies.
5. The Interconnectivity of EHS and ESG in Responsible Business
The integration of EHS and ESG initiatives shows how connected environmental and social goals are. Organizations are recognizing the importance of centralizing all risk and compliance data into one unified platform and the increased need for collaboration between the two groups.
EHS program data can support sustainability decision-making and enhance the visibility of the role of health & safety data on the social side of ESG reporting. As ESG goals are defined, EHS teams are instrumental in operationalizing change – engaging with stakeholders, sharing information with internal teams, and setting holistic objectives.
Responsible business management requires improved management practices, collaborative transfer of data, and reliable digital solutions that can successfully accommodate all the nuances of data management. Moreover, responsible businesses must find impactful and meaningful ways to take their insights from the field and into the boardroom. And in doing so, both EHS and ESG programs earn themselves a seat at the table.
As businesses navigate the complex terrain of sustainability and ESG reporting in 2024, these five key trends will play a pivotal role in shaping corporate strategies. From embracing a holistic approach to sustainability, leveraging expertise, and adopting a financial lens, to harnessing the power of technology and fostering collaboration between EHS and ESG professionals, organizations that embrace these trends are likely to emerge as leaders in sustainability.