What are the key trends of 2023 that we expect to shape sustainability in organisations?
- Sustainable governance will be a big driver of sustainability as companies start to navigate increasingly demanding legislation requirements.
- Greenwashing fines will make many companies reconsider their claims and move towards certification and transparency. But the fear of accusations could lead to the rise in ‘greenhushing’.
- The combination of legislation and ambitions to reach net zero will see companies invest heavily in engaging their supply chains, increasing pressure on SMEs to disclose emissions.
- Businesses will need to become more energy independent to weather economic uncertainty and be primed for net zero.
- Biodiversity will no longer be overshadowed by reducing carbon emissions, with companies seeking to ensure momentum towards the new nature milestones as set out the UN Biodiversity Conference.
Governance
While research indicates that boards are increasingly recognising the importance of sustainability in driving long-term value, issues remain about how far it has been embedded into the company’s overall strategy, financial planning and the accountability of board members. Without a robust approach, there could be a significant gap between intention and tangible action.
One example is ensuring short and long-term value creation remains a focal point. With the sustainability agenda moving fast, there is a risk that organisations will focus on the now rather than looking ahead. This will be crucial in meeting changing stakeholder demands, becoming resilient, and experiencing the growth opportunities that come with sustainability.
Questions that need to be asked include:
- Do we need to rethink our core operating model
- Can we respond to a fast-changing environment with tightening legislation and regulation
- Have we dedicated enough time and resources to the sustainability agenda
- Do we have the appropriate data to steer the business
- Are we equipped with the expertise, experience and perspective needed to advance sustainability
Many organisations will turn to external resources such as Planet Mark as they start to reflect on these questions.
With more companies beginning to understand the importance of an integrated and measurable approach, detailed environmental, social and governance (ESG) disclosures will be incorporated in reporting. This will help demonstrate how a company is driving value for all stakeholders including investors and customers.
As a result, we will see a closer relationship between finance leaders and sustainability leads, ensuring KPIs across the board are aligned. In the latest EY Global Corporate Reporting Survey, 74% of CFOs and finance leads have seen an increase in “the transition from traditional finance reporting to an enhanced reporting model encompassing financial and ESG reporting”
If sustainability is not at the heart of governance, the chances of long-term success will be undermined.
Greenwashing and Greenhushing
2022 saw the UK’s Competition and Markets Authority (CMA) and the Advertising Standard Authorities (ASA) clamp down on greenwashing and misleading environmental claims. Spurred by high-profile rulings involving Innocent Drinks, Oatly, Pepsi and HSBC, awareness of greenwashing has grown. As a result, we are likely to see less jargon on products and more certification, transparency, and evidence-based claims.
With carbon neutral and net zero now the most frequently used environmental claims in UK advertising, calls for greater clarity in corporate climate commitments will continue to grow. Most recently, COP27 saw an UN-appointed Expert Group called for an end to greenwashing and unclear net zero targets.
This will lead to greater scrutiny of corporate claims, with companies either taking actionable steps to publicly shed light on strategies and progress towards tackling the climate crisis or choosing not to publicise details because of fear of accusations of insincerity.
The latter is also known as ‘greenhushing’. It is when companies avoid talking about sustainability at all, even when they’re taking steps to improve. Instead, companies are choosing not to publish their commitments openly, opting for the bare-minimum government-mandated amount of transparency.
Planet Mark believe greenhushing will make it harder for others to assess whether companies are making real progress towards their goals, while also making it difficult for businesses to work together and encourage one another to be more ambitious. This is unattainable if progress is made in silence.
To be truly transparent, companies must leave the gatekeeper syndrome in the past and begin to make information as accessible as possible, even if it might be perceived as negative.
Supply Chain Engagement
Get ready to get very accountable when it comes to what you and your suppliers are producing. For many companies, at least 90% of their emissions are in the value chain. Therefore, to reduce their carbon footprint and reach net zero, companies must engage their suppliers.
Going forward, organisations will feel empowered to demand data-based targets and actionable evidence from their suppliers rather than merely asking them to reduce emissions. For example, global accounting firm Deloitte is set to include a sustainable delivery clause in contracts and engagement letters with clients to encourage commitment to reducing emissions. ‘Clause Zero’ is part of the firm’s wider efforts to ramp up progress on sustainability goals, including requirements around supplier relationships.
Larger organisations will act urgently to cascade action. And with small and medium-sized enterprises (SMEs) representing 99% of all UK limited companies, there will be increasing pressure to disclose and reduce their emissions, as well as align to net zero.
In a report by Barclays’ Corporate Banking arm, it found that British retailers have collectively cancelled £7.1bn in contracts with suppliers over the past 12 months over concerns regarding ethics and the environment. Retailers are also increasingly asking suppliers to join sustainability certification schemes to evidence they are meeting standards, the report reveals.
If organisations are to meet tightening regulatory requirements for sustainability, suppliers will have to be brought on the journey and at the earliest stage possible. Solutions such as Planet Mark’s Supplier Engagement Programme are helping organisations to facilitate the necessary conversations, enabling data sharing, and building capacity across companies’ value chain.
Renewable Energy
The combination of high costs associated with non-renewables and longstanding concerns about the environmental impact of fossil fuels has reframed renewables as a more economical, reliable, and cleaner source of energy. So much so that the first half of 2022 saw record investment globally in renewables, which reached £191bn. According to BloombergNEF, solar and wind were the most popular choices.
With the energy and cost of living crises squeezing businesses and consumer finances today, it comes as no surprise that there is a huge focus on reducing energy bills. This has been reflected in planned investments in onsite green energy generation, electric vehicle infrastructure and training staff in sustainability. Research by NatWest Group found that 7% of SMEs have already started to invest in onsite green energy generation, with most of this investment going towards battery storage and installing solar panels. This is forecasted to double in 2023, with one in six SMEs generating and storing their own green energy onsite.
Firms that switch long-term to clean energy now will be better placed to withstand future economic uncertainty and primed for net zero. It is important that more businesses become energy independent to keep costs low.
We are also likely to see more businesses invest in ensuring buildings are energy-efficient through measuring and monitoring usage, as well as conducting energy audits to highlight inefficiencies and implement cost saving opportunities.
Remember the cheapest energy you’ll ever use is the energy you don’t use.
Biodiversity
When it comes to tackling the climate crisis, addressing biodiversity loss has often been overshadowed by reducing emissions, but events of 2022 have pushed it into the forefront. From the latest UN Biodiversity Conference, COP15, we hope to see countries adopt a new set of targets to halt the rapid decline of biodiversity. Most prominent is the 30×30 goal, the commitment to protect at least 30% of land and sea for nature by 2030.
This will become high on the business agenda as companies seek to ensure momentum towards the new nature milestones and consider the role biodiversity plays in reaching net zero.
With more than half of the global Gross Domestic Product (GDP) dependent on a healthy ecosystem, businesses will begin to put more pressure on governments to protect nature, especially if a risk to their own value chain.
At the moment, only 3% of business monitor nature and biodiversity risks, according to the recent ONS survey. But as investors increasingly look beyond net zero to assess companies’ biodiversity policies, we will see a rise in mandatory and voluntary standards and guidance to which many businesses will be proactive and engaged.
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