Major Sustainability Trends in 2023
2022 was without no doubt a significant year for businesses and also sustainability. We anticipate that 2023 will be no different, with even greater demand for sustainable solutions, transparency and accountability. We have highlighted four key sustainability trends to look out for in 2023.
1.Regulation and non-financial reporting
Businesses are increasingly required to comply with mandatory regulation on sustainability as part of ESG reporting, both in the EU and in the United States. In European Union, the Corporate Sustainability Reporting Directive (CSRD) is the latest EU Regulation regarding ESG and non-financial reporting, aiming to speed up EU progress on reaching Net-Zero. Building on the current EU Regulation the Non-Financial Reporting Directive (NFRD), it expands mandatory reporting duties from 11,600 to around 49,000 companies. The EU Taxonomy requirements also helped increase the focus of companies on sustainable activities and investments.
The CSRD reporting rules will apply from the financial year 2024 for companies already subject to the NFRD, and will gradually apply to large companies and all companies included on regulated markets (including small and medium-sized enterprises). Businesses will need to report on so called double materiality on how their business model affects their sustainability, as well as how external sustainability drives (such as climate change) impact their activities. In practice, companies will be subject to a more detailed reporting requirements on sustainability matters, such as environmental protection, social and human rights, and governance factors. Major focus for companies will be on:
- Climate – energy consumption and company carbon emissions
- Employment related topics
- Due diligence specifically with respect to human rights
In turn, this enhanced accountability from companies will give the public and other stakeholders better information about social responsibility of companies to guide their investment and purchasing decisions, essentially giving them more power over businesses.
2.Net-zero and reporting SCOPE 3 emissions
Up to now many companies were either not reporting their organizational carbon footprint or disclosed only Scope 1 and Scope 2 greenhouse gas emissions that occur onsite and are controlled by the company. In 2023 we expect a further push for the reporting of Scope 3 emissions (GHG emissions that are not produced directly from the reporting company but from the activities of its value chain). The UK has already brought in a law to make climate-related financial disclosures mandatory for larger companies (the first in the G20 to do so), and we expect the US and EU to make Scope 3 reporting mandatory too.
Linked to that more organization is expected to commit to a climate target and the Net zero goal. Net Zero as a goal means an effort to reduce organizational greenhouse-gas emissions as much as possible, ultimately towards zero, and to counter any remaining emissions through carbon offsetting solutions, whether nature-based (such as, planting trees or restoring mangroves) or technological (such as direct air capture). One of the main challenges of net zero is reducing scope 3 emissions, (indirect emissions by suppliers or consumers throughout an organization’s value chain). Scope 3 emission are the hardest part, as usually 90-99% of a company’s greenhouse gas emissions are Scope 3. Companies in 2023 will accelerate their focus on own supply-chain partner´s emissions and on how their products and services are effectively used by customers.
3. Strategizing and formalizing sustainability commitments
As ESG and sustainability strategies performance becomes a greater focus in top management of organizations, companies are having to consider how best to manage their commitments and hold themselves accountable. We see a boom and high demand for ESG and sustainability related roles and well as more companies tying leaders’ compensation to ESG metrics of some type. It is becoming critical to assign accountability and ensure sufficient governance oversight of sustainability agenda within formal organizational structure. Sustainability becomes a strategic agenda and as such must be managed as a strategic program including the proper resources, governance and integration into company strategy and execution planning.
4. Acceleration of the adoption of energy efficiency and renewable energy
Russia’s invasion of Ukraine disrupted energy supplies across Europe, creating energy insecurity, soaring costs, and a strong incentive for investment in renewable energy sources. These factors will lead to an increase in the use of renewable energy, through new and existing capacities. The potential of renewables has given rise to a new business models in the energy sector, renaissance of microgrids and community solar projects.
In the short term, businesses of all industries and sizes will look at energy-saving measures to reduce both costs and carbon emissions. To save on energy bills, firms will renovate buildings to prevent heating loss and implement digital solutions for temperature controls, shut off lighting and equipment when not in use, and replace less efficient outdated equipment. In the longer term, this will likely lead to increased adoption of new types of energy and fuels. Policy incentives will also continue to emerge to stimulate innovation, help tackle climate change and fund the shift to clean energy. Many companies will see an opportunity to accelerate the green energy transition, and the plans that were put in place before the war in Ukraine, as renewables become more cost competitive.