ESG and sustainability agenda: 2024’s priorities

First, there is the legal requirement. For example, EU law requires all large companies and listed companies to report on the risks and opportunities arising from social and environmental issues. They also need to quantify the impact of their activities on people and the environment.

The European Sustainability Reporting Standards (ESRS) have now been approved and came into force on 1 January 2024. This requires organisations to collect and collate data to fulfil the rules set out in the Corporate Sustainability Reporting Directive (CSRD).

Then there is the opportunity cost: customers, stakeholders and investors want to see evidence that you are fully engaging with the ESG agenda. This is for a variety of reasons. Customers and employees want to see that your organisation stands by its purpose and targets and is not using ESG as an exercise in corporate “greenwashing”.

Investors and stakeholders need to see evidence that you fully appreciate the business risk and economic implications of ESG and that you are future-proofing your business model and strategy to make the most of the opportunities and challenges that will arise.

If your policies on ESG are vague, rooted in the past or merely a box-ticking exercise, then this will become apparent to employees, customers and investors. In order to receive private, stock market or government funding you need a robust ESG strategy that you can defend and back up with quality data and reporting. There is no option now not to engage with ESG, and “going green” can potentially save significant costs and revolutionise your business model.

What are the new ESG reporting rules?

“EU laws mandating ESG disclosure for corporations have been in effect since 2014,” says Marcos Taboada Espiño, associate ESG for Holtara, the ESG arm of Apex Group Financial Services, and leader of CSRD initiatives within the team. “Failure to comply not only exposes companies and their board members to economic fines, but also entails implications for reputation and long-term business viability in an increasingly sustainability-focused landscape.”

However, the newly enacted Corporate Sustainability Reporting Directive, effective as of 2024, intensifies these regulations, placing greater legal responsibilities on board members concerning the timeliness and adequacy of ESG data provided to the market. Marcos Taboada Espiño says there are enormous opportunities in terms of reputation, brand building, business resilience and compliance that can come as a result of getting to grips with social and environmental issues.

“Traditionally, much emphasis has been placed on the reputational and brand-building benefits of a consistent commitment to ESG,” he says. “However, it is crucial to recognise that ESG is not peripheral to business operations. Instead, it is intrinsic to the business model and essential for strategic planning.”

Indeed, growing public concern and new regulations around environmental, social, and corporate governance (ESG) have made tracking and reporting on ESG metrics a top business priority for many global organisations, says Pat McCarthy, CRO at Precisely, a software company specialising in data integrity tools.

“In fact, ESG data management and reporting has adopted a whole new meaning in 2024, with the application of the European Union (EU)’s Corporate Sustainability Reporting Directive (CSRD), which started on 1 January,” he says. “The CSRD elevates and standardises corporate sustainability like never before, impacting nearly 50,000 companies, including organisations with operations in the EU. The implications are widespread, and sustainability data will now be treated and governed with a similar level of rigour to financials, sales and customer data.”

Jonathan Jones, founder and CEO of Green Ibex Ltd, a climate strategy company, says there are “myriad unpleasant consequences” of not complying with ever-tightening ESG legislation and climate regulation. “Not only are there legal repercussions, but you could be losing market share, too. It is not about compliance anymore – businesses that can’t show sustainability say that they miss out on both private and government funding.”

Shifting emphasis for global companies

Similar to the traditional approach to business, a well-managed company minimises risks, seizes opportunities and prioritises positive impacts on stakeholders, whether they are consumers or employees, says Marcos Taboada Espiño. ESG adds another dimension to this approach, highlighting how environmental and social factors significantly contribute to business resilience and long-term shareholder value creation while positively impacting society.

“We are witnessing a shift where investors increasingly acknowledge this reality and consumers across various sectors are increasingly willing to pay a premium for sustainable products or services,” he says. “This convergence presents a compelling catalyst for businesses to embark on their sustainable transformation.”

Pat McCarthy says that in order to create meaningful ESG targets and meet ESG reporting standards, businesses need to implement robust data strategies to ensure the accuracy, consistency and context of their data. “Without this in place, many organisations face challenges with data that lives in silos, is incomplete, unstandardised or lacks the detail required to make it fit for purpose,” he says. This is not sufficient for the thorough level of insight required to comply with ESG policy and monitor outcomes.

“More than ever before, companies require trustworthy data to make confident decisions, set goals and track the progress of sustainability initiatives before communicating this with staff, customers and stakeholders,” he says. “If companies aren’t already investing in the integrity of their data, they are already behind the curve and any new ESG regulations introduced will only continue to widen that gap.”Marcos Taboada Espiño lists three key components of a successful ESG strategy in terms of communication and implementation:

• Communication: Effective internal communication is crucial for sustainability decisions, aligning employees with company values. Employees play a key role as advocates for ESG commitments, necessitating alignment and bottom-up engagement in decision-making.
• Credibility: This is paramount in customer communication amid greenwashing concerns. Honesty in environmental claims is vital and terms like “organic” should be substantiated with data to maintain significance.
• Data collection: Compliance with CSRD is a significant challenge due to its extensive scope and rigorous data requirements. Businesses need to understand ESG impact, risks and opportunities, and build sustainability into all the business decisions they make.

The consequences of not having a clear and coordinated ESG policy and monitoring outcomes can be very serious for organisations, he says. Investors may perceive the company as incapable of managing material risks, jeopardising long-term growth and value generation. Employees, especially those from Gen Z or Millennials, increasingly value corporate culture and sustainability commitments and they may become disengaged with the company if it is failing on its promises.

What’s more, consumers are becoming much more aware of the impact that companies make on the environment and may favour other companies that are better aligned with their environmental and social goals. Your stakeholders may view your failure to fully engage with ESG as an indication that your organisation is ill-prepared for the business challenges ahead and your organisation could miss out in funding rounds.

New priorities for ESG reporting in 2024

Every company is different. Some are more mature and established than others. However, there are three key areas that every business should prioritise in 2024, regardless of their stage in the sustainability journey, says Marcos Taboada Espiño:

1. Introspection:Understand your business model, purpose and value chain. By reflecting on purpose, risks, opportunities and impacts within your organisation, you can direct resources to maximise positive impacts and create long-term value.
2. Monitoring and data quality:Reliable data is crucial for informed decision-making. ESG is no exception. Robust ESG data monitoring enables accurate assessments, realistic target-setting and efficient progress reviews.
3. True transparency:As regulatory requirements and investor scrutiny increase, transparency through ESG reporting becomes essential. Communication of ESG strategy, commitments and progress is vital for fundraising, brand building and access to capital. Reports should be based on robust methodologies and traceable data to ensure integrity and credibility.

“Data quality will only come with years of sustained effort, but the improvement over the last decade has been exponential,” he says. “Authenticity is key, adhering to recognised reporting standards and fostering honesty in claims.”

Jonathan Jones points to research from 2023 that shows ESG metrics are now either the only or the primary consideration for business leaders when they make decisions about procurement, product development, employee benefits, selecting energy providers and so on. “It is no longer an annex to your strategy. ESG and sustainability are fast becoming the trajectory that all financial decisions need to align with,” he explains.

In the last 50 years alone, the number of adverse climate events has increased by a factor of five, causing billions of dollars in damages to businesses (as high as £280 billion). This is a very high cost that can easily force a small or medium business to shut down. “On the flip side, businesses can benefit from huge cost savings just by switching energy suppliers, for example,” he says. “It is a very real and tangible benefit. Renewable energy is now more affordable and available, and not exposed to the same price volatility and risks that fossil fuels are subject to.”

He says there are huge reputational and brand-enhancing benefits of going green, and most businesses are aware of that. However, there has been a shift in the industry. If previously, sustainability was in the hands of the marketing team, it now increasingly sits with newly formed sustainability teams whose focus is on real carbon-reduction in the value chain and across operations.

“The KPIs of these teams and individuals are closely tied with the organisation’s ESG targets, so they’re more motivated to deliver transformations. But the next level up, which is even better, is completely cannibalising your business model and replacing it with a better, net-zero model. It is the only way to ensure your business remains resilient and sustainable at the core – by rethinking how you make money in the first place. We’re seeing some examples of this with businesses adopting circular models, but they’re still few and far between.”

He says the top priority should be building the capability in your business so it is resilient for the future. “The clients we work with we encourage to do it right the first time by doing an ‘x-ray’ of their business,” he says. “What is it that you want to achieve? What can you achieve with the resources you have? What are some trade-offs you will have to make? What are some quick wins that will have a big impact you can implement immediately? If you do this heavy lifting at the start and really think strategically about it, you are more likely to have a smoother path to hitting your ESG goals. This also helps prepare people for what’s coming and you get to communicate and get input early on.”

It is important not to underestimate the challenge, however. An important part of a leader’s remit is to communicate the changes to staff and stakeholders. “We all know how tricky an organisational change is to pull off and transitioning to sustainability is, in fact, just that,” he says. “When business leaders recognise that, they’re much more successful and efficient.”