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Corporate sustainability trends to watch this year

The year 2022 had many defining moments that are expected to define corporate sustainability trends and shape events of 2023. Chief among these were the invasion of the Ukraine by Russia, which had diverse economic, pollical, geographical and environmental implications. Other events were the massive job cuts in the tech space, the changing sustainability reporting landscape, rising interest in the activities of corporate supply chains, circular economy solution and setting of net-zero strategies. Similarly, COP 27 and COP 15 were two highly-influential events of 2022 that is expected to shape corporate conversations and decisions in 2023.

The sustainability space is complex and dynamic. We expect the earlier highlighted events as well as some new themes to impact sustainability trends in business in 2023. From an analysis of the events of 2022 and the expected outcomes of 2023, below are our thoughts on the corporate sustainability trends to watch this year (2023).

Dynamic sustainability/ESG reporting landscape

With rising stakeholder interests in the non-financial performance of businesses, and with increasing light being shun on unethical practices such as greenwashing and social washing, it is expected that 2023 will be a year when more accountability will be demanded of businesses. This is also in line with the recent developments in reporting regulations in many regions, particularly Europe. Recently, there have been revisions to popular standards like the GRI. Additionally, other frameworks such as Corporate Sustainability Reporting Directive (CSRD), the Sustainability Disclosure Standards of the International Sustainability Standards Boards (ISSB), the Sustainable Finance Disclosure Regulation (SFDR), the European Sustainability Reporting Standards (ESRS), and the United States Securities and Exchange Commission (SEC) proposed Climate Disclosure Rule, have been recently released or in the final draft versions. These regulations and frameworks will drive trends in corporate sustainability reporting and ultimately increased reporting across different climes, sectors and industries. It is also expected that the evolving reporting space will be a key trend in corporate sustainability.

Positive emissions trajectory for Europe amidst the uncertainty in the energy space

The invasion of Ukraine by Russia has had a significant impact on the energy and emissions trajectory of many countries in Europe and Asia. Many countries have resorted to building local energy security using nuclear power, renewable energy and domestic fossil fuel production. For the renewable energy space, increasing uptake of solar energy presents an opportunity for cutting carbon emissions and broader achievement of net-zero ambitions. A study by SolarPower Europe revealed that in 2022, nearly 40 GW of solar PV capacity was installed in Europe. This signals a possible shift in carbon emissions. On the flip side, there have been discussions of the uptake of coal by some countries. Specifically, some countries have loosened restrictions, while others have increased the lifespans of coal and nuclear power plants. Irrespective of these, the general expectation is that the consumption of the world’s dirtiest fossil fuel will continue to fall.  

Rise in corporate ESG and climate strategies

Another business sustainability trends, is the rise in corporate ESG and climate strategies. As sustainability becomes of increasing concern to public and private institutions, stakeholders will look for ways to build ESG and climate strategies, as well as explore ways to integrate them to their business strategies. In a recent ESG Global Study by Harvard, ESG is building strong momentum across various sectors. Customer and investor demands are major push factors for increasing ESG adoption. Reduced scepticism about the motive of ESG asset managers is another factor, as fewer investors think that ESG is just a PR tool. A few other external factors such as regulation and compliance requirements also exist. In the Harvard study, more than a quarter of global investors say ESG is central to their investment approach. In another study by S&P Global, 53% of revenues of the 500 largest U.S. companies and 49% of revenues of the 1,200 largest global companies are generated in business activities that support SDGs. The development of climate mitigation and adaptation strategies is expected to spike in 2023. This is as a result of the increase in the number of climate-related commitments and regulations by countries and provinces. Furthermore, unpleasant events such as extreme heatwaves in UK and megadroughts in the US may compel corporate to take firmer actions on the climate crisis, hence taking up more climate and net-zero strategies.

Unprecedented growth in sustainable funds and investing

The financial sector is at the epicentre of the drive for a more sustainable world and this is expected to a defining Corporate ESG trend in 2023. Because of its role in financing ideas and innovation, the financial sector can either propagate or limit sustainable fund flow to the most impactful or critical aspects of society. 2022 data from across the global gives insights to what is to be expected in the ESG investing or the global sustainable fund space. Leading investment research company, Morningstar, defines global sustainable fund universe encompasses open-end funds and exchange-traded funds (ETFs) that, by prospectus or other regulatory filings, claim to focus on sustainability; impact; or environmental, social, and governance factors. In its Q4 2022 Global Sustainable Fund Flows Review, Morningstar revealed that global sustainable funds attracted USD 37 billion of net new money in the fourth quarter of 2022. Global sustainable fund assets also witnessed a recovery to hit USD 2.5 trillion at the end of December, from USD  2.24 trillion at the end of the third quarter. Another finding within the same report showed that global sustainable fund flows were resilient relative to broader market, which experienced USD 200 billion of net withdrawals over the fourth quarter.

High-paced yet balanced work environments

Another prominent corporate social responsibility (CSR) trends, is increasing need for a people-centric workplace. Within the social and human capital spheres, many events of 2022 are set to shape the dynamics of 2023. Notable among these events was “The Great Resignation”. Although the economic trend started after the COVID- 19 pandemic, the multiplier effect has and is still shaping workplace practices across many organisations. Labour issues such as health and well-being, culture, flexibility, benefits, employee engagements and experience are key deciding factors of whether employees will remain at of leave their jobs. The massive lay-offs of employees as a cost cutting measure by the big tech companies have signalled that workplaces will remain very high-paced. Amidst this trend, the general employment market is expected to be largely controlled by workers.

Technology-enabled products, services and projects

There is an expected spike in the number of companies seeking to use technology to enhance their sustainability performance. Some of these technologies can come in the form of a sustainability data management platform to house sustainability data. This is closely related to technology for reporting on sustainability performance or for monitoring compliance with sustainability regulations. There other technologies for assessing short to long-term sustainability and climate risks, as well as for implementing decarbonisation and net-zero strategies. On the resource efficiency side of things, technology will also be relevant in helping business reduce resource usage within their operations, improve waste management and recycling capabilities, cutting cost as work from home and reduced travel time due to virtual platforms become more commonplace among others. Irrespective of the many gains from technology, data security and privacy, and ethical implementation of technology continue to emerge as priority concerns for technology.

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