ESG is a term that, if you aren’t already familiar with it, you will likely be by the end of 2023. The acronym stands for environment, social, and governance. It refers to company standards and policies related to things like climate change. As far as the social element, this can refer to how a company manages relationships with employees and customers, and governance is focused on leadership, audits, internal controls, and similar concepts.
The framework helps key stakeholders understand how sustainably an organization is operating.
For example, some companies have started using waste heat recovery, which would be a component of ESG. Waste heat recovery is when a company recycles heat energy that would otherwise be wasted. It can increase energy efficiency, lower CO2 emissions, and reduce energy costs.
The integration of waste heat recovery is just one ESG trend that businesses should keep an eye on for the upcoming new year. Others are detailed below.
Accountability
Businesses are going to have to be especially accountable going forward, and they’re going to have to think about not just their operations but the operations of their suppliers.
The U.S. Securities and Exchange Commission’s proposed mandatory climate-risk disclosure rule is set to launch in 2023 if it gets approval. That means that all filers will have to disclose both Scope 1 and Scope 2 greenhouse gas emissions occurring onsite, controlled by the company.
Reporting Scope 3 emissions will be a requirement for some companies too. Scope 3 emissions are the ones that aren’t directly produced by the reporting company but rather activities related to its value chain.
If your company goal is net-zero emissions, and you include Scope 3, then you’re going to have to work with your suppliers and customers to get there.
Insured Emissions
Insured emissions would let insurance and reinsurance companies measure and then disclose greenhouse gas emissions with their underwriting portfolios.
Insurers in 2023 may start assessing different business models and the emissions of the organizations and entities they insure.
Deforestation Restrictions
Even though there’s been a vocal commitment to stopping forest loss, in 2021, there was tree cover loss that was equal to an area larger than Great Britain around the world. In 2022, there were also wildfires that were active around the world, which burned more of those forests.
For 2023, businesses and regulators will both be putting their attention on the companies most exposed to deforestation and looking at ways they can improve their supply chain monitoring and due diligence to keep access to key markets.
New Regulations
Corporations are going to see regulation finding its way to new areas. In the EU, 2023 is set to usher in a new law that will require all the commodities products coming in be able to demonstrate they weren’t produced in a way leading to new deforestation.
Mining Old Electronics
In the past few years, the EU and China have made policies and guidelines stronger on the circular treatment of waste and materials. This includes electronic waste, also called e-waste. In September 2022, the U.S. followed by passing a bill related to recycling batteries from electric vehicles.
There’s a push to extract materials from e-waste efficiently to reduce the dependence on emissions and mining.
Companies might begin to ramp up efforts to mine secondary metals from electronic waste to satisfy regulators and also improve access to the metals that are necessary for clean energy technology.
Better Clothing Materials
Cotton makes up more than 25% of the clothes people wear around the world, but there’s concern about the effects of producing cotton products. For example, there are issues with water consumption and soil degradation, so there’s a demand for more eco-friendly options.
Apparel retailers have been responding by working with third-party certification organizations for sustainable cotton, as well as looking at alternatives.
Unfortunately, the flooding in Pakistan, paired with some certification withdrawals in China, has created issues as far as this is concerned.
Forward-thinking clothing companies and retailers might start to increasingly back alternative and new fiber options in 2023 and beyond.
The Impact Of Opposition
Finally, there’s plenty of opposition to climate initiatives as well, which is also going to factor into what things look like in 2023.
According to one report, more investors voted against strategies related to corporate climate initatives in 2022 compared to the year before, especially when the emissions trajectory of an organization wasn’t in alignment with global targets for temperature.
What to watch for in 2023 is whether the opposition to corporate climate strategies will keep going or if more investors are going to lean into climate plans, especially with challenging market conditions.
