ESG Trends: 2023
Is 2023 the year of sustainable commerce?
Environmental, Social and Governance – commonly known as ESG – are the current headings used to quantify a company’s commitment to sustainable business practices. ESG is becoming increasingly vital towards a positive and sustained corporate reputation and companies are flocking towards it to boost their sustainability credentials and position them as socially positive investments.
We’ve identified five emerging trends for 2023 to consider within your business for 2023:
1) Reassessment of Supply Chain Sustainability
Many large businesses and corporations have committed tremendous levels of resources towards sustainable operations, which has led to the decarbonisation of global supply side operations.
The CDP, a not-for-profit charity that runs the global disclosure system for investors and companies to manage their environmental impacts, estimates that multinational businesses generate 11 times more CO2 through their supply than any other parts of the business. Accordingly, firms are revaluating their practices across all areas to better meet ESG guidelines.
Furthermore, the war in Ukraine and the resulting energy crisis has conveyed the fragility of fossil fuel reliance. The importance of developing sustainable sources of energy cannot be overstated as finite, gatekept energy will become a topic of greater interest in 2023.
2) Climate Related Risk
Not only is geopolitics becoming an increasingly important factor in supply side management, but climate associated risks are also becoming apparent. Adverse environmental conditions are having tangible effects on the global supply chain, posing a greater risk to operations than ever before.
For example, insurers are having to reassess the terms and conditions of their policies to incorporate climate change as a potential risk, showing that it is now a very real economic variable.
This has instigated a shift of priority amongst firms towards crisis management – essentially, expecting the unexpected. As volatile variables, such as climate change, become more prevalent, crisis management will move to the foreground of effective business practice.
3) Litigation Surrounding ESG Failures
As ESG continues to take priority for businesses in 2023, litigation surrounding it is predicted to become more commonplace.
Mass claims concerning ESG related failures are starting to be heard in courts around the world, with issues such as environmental damage and the mischaracterisation of ‘green’ initiatives leading to real world harm.
Whilst environmental litigation has become relatively commonplace, such as the ongoing Deepwater Horizon case against BP, a landmark case in 2022 means English courts are now providing much greater access to environmental justice, whilst the British Law Commission has proposed new legislation that recognises a company’s ‘failure to prevent human rights abuses’, thus showing that ESG-centric litigation is becoming increasingly recognised.
5) Greater ‘Green’ Opportunities
Undoubtedly, ESG adherence is becoming a greater priority for firms. This will encourage a plethora of ‘green’ opportunities for investors, which satisfy their need for profit whilst ensuring a positive social impact. ESG performance data is now becoming a standard request by local authorities and potential investors, for example.
As firms continue to recognise the importance of ESG credentials to both their customers and their investors, greater resources across the whole supply chain will be committed to ESG related business, thus diversifying the types of investments available to institutions.
6) Stronger ESG Regulation & Government Intervention
As greater ESG investment opportunities become available, greater regulation and government intervention will occur.
One of the most notable trends from 2022 was pushback against the ‘greenwashing’ of initiatives and programmes that do not actually satisfy ESG guidelines. This will continue to be the case in 2023, with many governments across the globe looking to tackle the mischaracterisation of business opportunities as ESG compliant.
For example, Rishi Sunak, Prime Minster of the United Kingdom, pledged to introduce new regulation for large businesses in high emission sectors. This not only will redefine the criteria for ESG compliant operations, but it will also set out new guidelines for businesses looking to make the transition towards ‘net-zero’ commerce.
To conclude, ESG will have a greater role to play in determining the course of global trade in 2023. Whilst many trends from 2022 will continue to grow stronger throughout 2023 – such as the transition towards sustainable supply-side operations – greater exposure and attention will naturally bring with it scrutiny and regulation as governments and entities seek to ensure the financial safety of businesses, customers, and investors alike.