Talking with colleagues and friends, I often get asked what I think is coming down the pike in the sustainability space. As ESG is becoming increasingly important to companies, investors, and consumers, it’s important to stay up to date on the latest developments in this rapidly evolving field. Here are the top five ESG trends and rising start we at GPM see in the coming year, along with the benefits and possible/perceived hurdles of each.
(Note, these are listed in random order.)
#1 Increased focus on diversity, equity, and inclusion
There is a growing recognition of the importance of diversity, equity, and inclusion in the workplace and society. This trend is expected to continue in 2023, with companies placing a greater emphasis on promoting diversity and addressing issues of inequality within their organizations.
Benefit: Promoting diversity and inclusion can lead to a more positive and inclusive company culture, which can in turn lead to better employee retention and satisfaction. It can also help a company appeal to a wider range of customers and stakeholders.
Possible Hurdle: Implementing diversity, equity, and inclusion initiatives can require significant time and resources, and there may be initial costs associated with training and education. There is also the risk of backlash from those who may resist change. Truth be told, if any organization used this as an excuse, it should cease to exist.
#2 Increased demand for sustainable products and services
Consumers are becoming increasingly aware of the environmental and social impact of their purchases and are looking for products and services that are sustainably produced. This trend is expected to continue in 2023, with companies competing to offer more sustainable options to meet consumer demand.
Benefit: Offering sustainable products and services can help a company appeal to environmentally and socially conscious consumers, and it can also lead to cost savings through the use of more efficient processes and materials.
Possible Hurdle: Developing and producing sustainable products and services can require significant time and resources, and there may be initial costs associated with research and development. There is also the risk of consumer skepticism, as some may be skeptical of greenwashing claims.
#3 Greater transparency and accountability
Companies are under increasing pressure to be transparent about their environmental and social practices, as well as their impact on stakeholders. This trend is expected to continue in 2023, with investors and consumers demanding greater accountability from companies in order to make informed decisions about their investments and purchases.
Benefit: Greater transparency and accountability can help build trust with investors, employees, and other stakeholders, and it can also help a company identify and address any potential risks or challenges.
Possible Hurdle: Being transparent and accountable can require significant time and resources, as a company may need to collect and share a large amount of data. There is also the risk of negative publicity if a company is found to be lacking in these areas.
#4 Rise of green bonds:
As concerns about climate change continue to grow, there is expected to be a surge in the issuance of green bonds in 2023. These bonds are issued by companies and governments to finance projects that have a positive environmental or social impact, and they offer investors the opportunity to align their investments with their values.
Benefit: Green bonds can provide a way for investors to support environmentally and socially responsible projects, and they can also help companies access new sources of funding for such initiatives.
Possible Hurdle: Green bonds may have a higher risk profile than traditional bonds, as they are often issued by smaller, less established companies or for projects that may be less mature. There is also the risk of greenwashing, as some issuers may use the term “green bond” without meeting strict criteria.
#5 Growing importance of ESG data
The demand for accurate and comprehensive data on the environmental, social, and governance (ESG) performance of companies is expected to continue to grow in 2023. This trend is driven by the increasing importance of ESG issues to investors, consumers, and other stakeholders, who rely on such data to make informed decisions about their investments and purchases.
Benefit: Accurate and comprehensive ESG data can help investors and other stakeholders make informed decisions about their investments and purchases, and it can also help companies identify and address any potential risks or challenges related to their ESG performance.
Possible Hurdle: Developing and maintaining reliable ESG data can require significant time and resources, as it may involve collecting and analyzing a large amount of data. There is also the risk of data inconsistencies or inaccuracies, which could lead to confusion or mistrust among investors and other stakeholders.
Rising Star: Bio-Diversity Factors
Human mismanagement of the environment through resource extraction, intensive agriculture, and climate change — is precipitating a sixth great extinction of plants and animals in Earth’s history. Loss of biodiversity is now considered as serious as climate change, and investors are increasingly realizing that they have an important role to play in conserving it. As a result, biodiversity will continue its fastest ascent as an ESG theme in global capital markets.
It is important to note though that Governments and regulators will be looking at how they can translate the COP15 agreement into national action, with business key to delivering the pledges in practice. This will mean increasing focus on local nature preservation, policies that encourage sustainable use of biodiversity and a move to mandatory disclosures by large organizations. There is also likely to be increasing standardization of methodologies and frameworks to help organizations deliver on these requirements.
All sectors and organizations are likely to be impacted by these changes, whether directly or through your value chain. Conservation alone will not be enough to reverse biodiversity loss: a transition to sustainable consumption and production models will be required.
More to come!
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