Sustainability and ESG are hot topics across most industries these days. Yet, it seems everyone has a different definition of these trends. In short, Sustainability and ESG are styles of management that take into account environmental and social issues when making major decisions.
With our communities feeling the increased effects of climate change through extreme weather events, and increased pressure from society on businesses to address their contributions to global greenhouse gas emissions, it is more important than ever for businesses to keep ESG and Sustainability at the forefront of their attention.
Sustainability and ESG are Here to Stay
In a recent study, it was shown that over 60% of consumers take into account the Sustainability of the company that they are considering purchasing from or doing business with. This has increased the demand for companies to publish Sustainability and ESG scores.
Currently, there are a variety of ways of demonstrating that a company is committed to improving its Sustainability. Organizations like GRI, B-Lab, SASB, and CDP all have systems that companies can use to demonstrate that they are measuring and managing their global impact.
As we continue through the decade and net-zero carbon targets loom, there will be increased public pressure and likely governmental regulations that will require companies to take a closer look that their Sustainability and ESG data.
This increased attention to sustainability and ESG issues has caused several trends to become apparent. One such trend is the increase in public sustainability reporting. Increasingly, more companies are publishing in-depth accounting of their global impacts, as well as their plans to manage them.
This is driven in part by the increased use of ESG scoring in portfolio management. Many brokerages provide to their clients with an ESG score based on available data about a company’s environmental and social impact.
Carbon Accounting is Powering Positive Change
Another growing trend has been the increased inclusion of environmental impacts and social concerns when analyzing supply chains. There are three types of carbon emissions that companies are responsible for tracking: scopes one, two, and three.
Scope one emissions are emissions that a company creates on their own properties by their own operations, like heating or manufacturing processes. Scope two emissions are the emissions associated with purchased electricity, and scope three emissions are associated with supply chain, procurement, and commuting.
Currently, companies can report minimal scope three carbon emissions because the accounting skills to track the entirety of scope three have lagged behind the other two scopes. However, the trend in carbon accounting is moving towards comprehensive scope 3 emissions tracking which will require companies to take a serious look at their supply chains and procurement practices. This includes fair wage and labor practices by entities up and down the supply chain.
The adoption of green procurement and green office policies by many businesses has been shown not only to lead to a large decrease in scope 3 carbon emissions but also decreases in office-related overhead. Competitions and professional training seminars, like those offered by Ethos Sustainability Solutions, have a larger increase in the reduction of office-based carbon emissions than signage and policy alone.
However, the most important sustainability trend that business leaders must follow is the inclusion of ESG and Sustainability goals in their strategic planning. Including Sustainability topics in strategic planning increases efficiency, reduces risk, and creates brand appeal.
Many of the trends that are associated with the movement towards sustainable operations, like the use of electric vehicles, electrification of fossil fuel-powered systems, renewable energy sourcing, and water efficiency strategies have the double benefit of reducing overall environmental impact while also saving money in the long run.
Even simple steps like replacing light bulbs with LEDs and using motion-sensing switches can have upwards of a 10% impact on both carbon emissions and overall operational costs of corporate-style offices.
Tracking And Managing Sustainability Performance
As companies continue to add net-zero commitments to their strategic planning, an additional trend that we are seeing in Sustainability and ESG reporting is the realization that businesses cannot reach their net-zero targets without purchasing carbon offsets.
Carbon offsets are credits a company can buy that fund carbon reduction or removal technology meant to offset or balance carbon that is emitted by the company. Carbon offsets are meant to be a part of a portfolio of green energy options and not a company’s main solution to achieving net zero carbon emissions.
However, many businesses plan to rely entirely or nearly entirely on offsets to meet their net-zero targets. There are several flaws to this thinking. Perhaps most pressing is that currently there is a trend of increased scrutiny of carbon credits, which up until now has been a mainly unregulated market.
As 2030 looms, and companies approach their net-zero target dates, expect the use of carbon offsets and the scrutiny thereof to increase. While there are organizations that certify carbon offsets, even these have seen an increase in public concern for their validity. All organizations that have set net-zero targets must begin thinking about how they will achieve those targets sooner rather than later.
A final trend that business leaders must be aware of is the consolidation and cooperation of differing ESG reporting methodologies. Currently, the most used science-based approaches are GRI, SASB, and B-Lab. While B lab is the preferred option for consumer-facing companies, GRI and SASB are popular with larger more carbon intense organizations.
Because the trend is for these carbon management systems to become more similar, business leaders should be aware of all of them and keep an eye out for emerging frameworks such as those that are based on the United Nations Sustainable Development Goals and niche frameworks like the Catholic Church’s Laudato Si’.
Sustainability and ESG management is a rapidly changing field. That is why Ethos has professionals who keep track of emerging trends to ensure that our clients are always producing state-of-the-art sustainability and ESG reports and are tracking the data points that the public and regulators expect. Carbon targets outlined in international treaties like the Paris Climate Agreement, that guide many in the public and private sectors, are rapidly approaching.
Making the changes necessary to achieve these targets takes time, so it is important that businesses begin the process of assessing their footprints now.
If you have questions about how your company can update an existing sustainability plan, or is interested and creating a new one, please reach out to us for a free consultation.