Prepare for the latest ESG trends and evolving ESG standards with digital transformation support designed for sustainability with SaaSCom.
ESG trends are everywhere as we head into 2024. Recently, interest in Environmental, Social, and Governance initiatives has increased drastically. Rising awareness of climate change and increasing social responsibility are influencing consumers and businesses alike.
For instance, more than 60% of people in one 2023 study said they base their purchasing behaviors on sustainability and ethical factors, and this trend is growing by 10% year-over-year. In 2024, ESG trends won’t just be shaped by consumer purchasing behaviors. They’ll also be driven by changing governance standards and regulations implemented globally.
2024 is the year of “sustainability” when new ESG standards and reporting requirements begin pushing every business to double down on ethical operations. Here’s a closer look at what we can expect from the ESG landscape throughout 2024 and beyond.
Why Businesses are Watching ESG Trends in 2024
In the past, monitoring ESG trends wasn’t a priority for many brands. While technology leaders and other innovators have paid close attention to the potential of sustainable, ethical business practices, ESG was often seen as “optional” rather than mandatory.
This is no longer the case. Consumers in the B2B and B2C landscape now hold the companies they work with to higher standards. Even investors focus more on the ESG initiatives of the brands they support. Business leaders need to adapt if they’re going to survive in this new world.
At the same time, organizations are beginning to recognize the wider business benefits of ESG initiatives. The right approach can improve your chances of attracting and retaining top talent in a skills-short environment and even reduce operational costs. Implementing sustainable technologies helps companies of all sizes navigate complexities like rising electricity and fuel costs in an uncertain economy by shifting the focus to renewable power.
The Evolution of ESG Standards in 2023
While there may be various new ESG Trends to watch in 2024, many will build on the trends that have already begun to develop in the last couple of years. In 2023, concepts like sustainability began driving more consumer purchasing decisions. For instance, sustainability-conscious shoppers represented 22% of all consumers in 2023, compared to 18% in 2022.
Brands began to focus more on supply chain resilience, particularly as geopolitical and macroeconomic issues created turmoil for global brands. Additionally, many countries, such as the US and the UK, began making efforts to drive the creation of sustainable initiatives in 2023, with the development of new jobs. America introduced the American Climate Corps Program, and the UK announced its Ten Point Plan for sustainability.
During 2023, new environmental regulations and reporting requirements began to emerge, too. The Security and Exchanges Commission introduced its “Climate Disclosure Rule,” and the European Union updated its CSRD initiative, requiring companies to report on their climate risks, emissions, and ethical practices.
What’s Next for ESG Standards in 2024?
Building on the rising focus on sustainability and ethics in 2023, 2024 promises to be a breakout year for ESG adoption. While it’s difficult to know for sure what the future will hold, we can already see some ESG trends beginning to take shape:
1. New ESG Standards and Requirements
In 2024, the ESG standards used to guide business operational decisions will continue to evolve. Experts believe 2024 will be the year of compliance, where sustainability reporting will shift from a voluntary process to a mandatory requirement.
As of January 2024, European companies complying with the Non-Financial Reporting Directive (NFRD) must share insights into their climate impact under the new CSRD rules. Brands must begin tracking their impact on climate change, pollution, and the circular economy. Additionally, EU legislation will lead to deeper speculation on biodiversity loss.
In 2024, larger companies trading in the EU will also begin to face the same regulations, meaning this year, many major companies will need to get serious about their data collection and reporting standards. Fortunately, KPMG’s 2022 study shows that 79% of the top 100 companies in all countries surveyed already report on sustainability.
It’s not just EU companies that will need to adapt. The California Senate Bills 253 and 261, along with the SEC Climate Disclosure rules, will force organizations throughout America to rethink their approach to sustainability.
2. Increased Focus on Supply Chain Transparency
Supply chain transparency was already one of the most significant ESG trends 2023. However, many companies creating voluntary climate reports have regularly avoided dealing with “scope 3” – which covers many of the emission produced in the supply chain. Studies suggest scope three accounts for over 90% of a company’s greenhouse gas footprint.
In 2024, updated reporting regulations like the California laws and CSRD mentioned above will push companies to invest in scope three reporting, bringing more focus to the supply chain. Business leaders will be expected to take a closer look at their supply chains and the scope three emissions created by shipping goods to and from different locations worldwide.
This year, we expect to see more companies prioritizing ethical material sourcing, adherence to fair labor standards, and initiatives focused on reducing environmental damage throughout the supply chain. We’ll also see companies thinking more carefully about how supply chains impact water and nature, drawing more attention to the “E” and “S” parts of ESG.
3. ESG and Financial Strategies Align
Another of the major ESG trends to watch in 2024 will be sustainability becoming deeply embedded in the financial foundations of organizations. Already, almost a third of CFOs are exploring the impact of climate change scenarios on financial outcomes, according to PWC.
This process began in 2023, as business leaders became more aware of the connection between their sustainability and ethical initiatives and their financial results. In addition, in 2023, more companies began creating ESG controller positions – roles that focus on overseeing and managing the integration of ESG issues into a company’s financial reporting protocols and operations.
The growing connection between business strategy, finance, and sustainability reflects the new knowledge that sustainability and financial stability aren’t opposing concepts. They’re deeply intertwined. Companies investing in digital transformation in 2024 and looking for ways to reduce costs and increase revenue will need to take a more sustainable approach.
4. Reporting Expands to Private Firms
Much of the reporting requirements around ESG initiatives have focused on collecting insights from public companies in the past. However, Scope 3 rules now require reporting companies to monitor all indirect emissions throughout the supply chain, among third-party vendors. The new California and EU regulations will require private firms of all sizes to begin investing in ESG initiatives too.
Throughout 2024, Scope 3 requirements will drive significant transformations and changes in priorities across all organizations as companies in every field strive to meet the new standards set for ethical and sustainable practices.
However, it’s not just the changing regulations that will push more companies to invest in reporting and communicating about their sustainability efforts. For a range of reasons, more than half of investors plan on increasing their ESG-oriented investments in 2024.
Studies are beginning to demonstrate that companies with robust environmental, social, and government practices will be better equipped to handle regulatory changes, operational challenges, and reputational risks. Therefore, investors are naturally more drawn to ESG investments to help fortify their portfolios against unforeseen dangers.
5. The Expanding Role of Technology
Evolving ESG trends and digital transformation trends will be closely connected in the next couple of years. Integrating technology and data analytics has already begun to transform how investors assess ESG risks and opportunities. Advanced platforms and tools powered by AI and automation are helping companies examine large amounts of ESG data for decision-making strategies.
Companies employ machine learning algorithms to analyze vast datasets, leveraging real-time insights into their ESG performance. In 2024, these innovations will help identify risks and opportunities for evolving brands and areas of improvement.
Technology will also enhance reporting initiatives. Companies are beginning to adopt digital platforms to streamline the reporting process, automating the collection and analysis of data. Blockchain solutions could even help organizations with tactics linked to supply chain tracking and verifying sustainability claims.
6. Biodiversity Enters the Mainstream
For a few years now, much of the focus from businesses and governments in ESG has been on carbon emissions and finding ways to reduce them. However, many groups are beginning to recognize the need for a broader approach to protect the planet’s future. The view of sustainability is now broadening from a purely environmental perspective and into the social landscape, too.
At COP in December 2023, a greater focus was placed on reducing methane emissions – a substance 28 times more potent than carbon dioxide at trapping atmospheric heat. Biodiversity is also becoming an important consideration. Only around a third of the biggest companies in Europe have set targets to reduce deforestation and protect biodiversity.
However, allowing nature to to degrade will pose significant risks to businesses and consumers in the future. In 2020, the World Economic Forum revealed around half of the world’s GDP is either partially or highly dependent on natural resources. As ESG trends evolve, more companies may differentiate themselves by reporting on nature-related activities.
7. Cracking Down on Greenwashing
In 2023, the notion of greenwashing was already getting significant attention. An asset manager was even charged $19 million for misleading ESG disclosures. Greenwashing is the term used to refer to companies that share misleading or insufficient information about their sustainability efforts.
Countless consumers have already boycotted companies for this activity, but the repercussions will likely be even greater in 2024. The EU has already banned greenwashing, and political groups impose strict fines on companies that fail to share realistic information about their goals. As a result, we’re likely to see fewer companies making lofty and unrealistic claims about their initiatives.
In 2024, ESG trends will focus on transparency and accountability. Businesses will embrace ESG criteria not just for compliance, risk management, or box-checking but to fundamentally transform their business models. The greenwashing trend will disappear, leading to more transparency and credibility in the wider world.
8. The Carbon Fight Continues
Finally, while companies and government groups investing in ESG initiatives are looking at more than just carbon in today’s world, the fight against carbon is still ongoing. The key to success will be to avoid looking at carbon offsetting as a silver bullet for all climate change problems.
Instead, carbon offsetting should be considered part of a comprehensive strategy for more sustainable business practices. Many governments, businesses, and corporations have already made pledges to become carbon neutral by 2030, which aligns with the Paris Agreement.
As we approach 2030, the pressure to reduce carbon footprints will grow, forcing companies to live up to the promises they’ve already made. At the same time, consumers, investors, and governments will be looking to businesses to prove that they’re doing more to actively protect the planet and the communities they serve.
Exploring ESG Trends in 2024
ESG trends are worth watching this year. If 2023 was the year that we saw more focus on ESG from the mainstream media, 2024 will prove that ESG is more than just a “buzzword”, it’s a concept that will define the future of business operations worldwide. The rollout of mandatory climate disclosures and new standardized frameworks, along with changing expectations for ethical business practices, will require everyone to play their part in a brighter future.
ESG can no longer be just an “add-on” concept in a company’s business strategy. It needs to be a foundational element guiding everything your organization does. If you’re ready to move into the new age of ESG trends, contact SaaSCom today to learn how we can help you take a sustainable approach to digital transformation.
