The Year Ahead: 2024 in ESG Trends

As we look to the future and a new year, the Good.Lab team curated this new list of nine key ESG trends to watch for in 2024. We can’t see into the future, but we’ll try! From ESG standards converging to renewed focus on climate risks, here are some of our best predictions for what’s in store for ESG in the coming year.

But first, a quick look back at ESG trends from 2023. In many ways, 2023 was a critical year for ESG. New regulations and standards put pressure on companies to begin reporting their performance, and that pressure was subsequently passed down the supply chain to smaller companies not directly affected by the regulations. We also saw a host of new ESG standards and regulations bring consistency and comparability to ESG reporting.

Climate risks became more pronounced than ever as we experienced the hottest year since records began. Despite this, for some companies, action actually stalled as murky ESG investment scoring tools got conflated with companies actually trying to do good and improve ESG performance.

So, as we look forward to 2024 and prepare for another year, here are the nine ESG trends to consider while you prepare your ESG strategy for the new year.

1. Supply Chain Sustainability Becomes the De Facto Standard

Supply chain sustainability will become a critical focus, with businesses seeking to comply with new regulations and implement emissions reduction goals across their entire value chain.

In 2024, companies will be expected to begin reporting on Scope 3 and other supply chain sustainability factors according to most ESG regulations and the ISSB standards. As a result, more companies will embed supplier requirements around ESG and emissions data visibility into their codes of conduct as a mandatory practice. Microsoft, for example, already requires its suppliers to disclose complete, consistent, and accurate scope 1, 2, and 3 greenhouse gas (GHG) emissions data and has embedded ESG standards into its Supplier Code of Conduct. Amazon has also said that it would start requiring emissions data and decarbonization targets from suppliers beginning in 2024.

Companies now realize that low-risk, resilient supply chains are essential for business continuity. With Scope 3 (value chain) emissions accounting for the majority of companies’ carbon footprint (11.6 times their operational footprint, on average), large companies are looking to their supply chain partners to make the biggest impact on their overall footprint. More companies than ever are measuring Scope 3, and we anticipate that trend will accelerate in 2024.

A recent survey revealed that 92% of major companies will be requesting ESG data from their supply chain partners in 2024 and our own ESG Trends Survey found that 62% of C-suite respondents in the US mid-market consider ESG data requests from their customers to be the biggest motivating factor for them to launch ESG initiatives.

Key Takeaway: We continue to advance toward a future when customers award more business to the suppliers that have the best ESG performance. Whether driven by compliance, brand reputation, risk mitigation, or something else, 2024 will see the focus on Scope 3 emissions and reducing ESG-related supply chain risks become standard business practices. Companies of all sizes should prepare to share ESG data to stay competitive.

2. Climate Risks Take Center Stage

Climate risks will accelerate in the future as the frequency and severity of extreme weather events, regulatory changes, and market disruptions increase due to climate change. Climate-related risks can significantly impact a company’s financial performance and reputation and companies and investors are expected to place greater emphasis on assessing and disclosing climate-related risks and their financial implications. Scenario analysis and stress testing to understand climate risk impacts will become more widespread. The primary climate-related risks that companies should be able to assess going into 2024 fall into three buckets:

  • Transition Risk: This is a bad time to be in the muffler, spark plug, or oil filter business. Significant costs can arise as policies, regulations, technologies, and consumer preferences change. As sectors move away from activities that contribute to climate change, they risk being left with stranded assets. Transition risks can also lead to reputational risk as society changes its view on ethical business practices.  Consumers, investors, and regulators are now more than ever looking for companies to be transparent and accountable on ESG. Increasingly, companies that misstate or misrepresent their sustainability credentials are destroying their brand reputation. Companies have to factor in these changes, consider the costs of meeting new regulations, and invest in making their company more sustainable.
  • Liability Risk: With all of the new reporting regulations starting in the coming years and fines for non-compliance, companies will face growing legal risks in 2024 and beyond. Additionally, the number of companies facing sustainability-related lawsuits is also growing. In 2023, the SEC handed out the biggest-ever greenwashing fine, charging Deutsche Bank $19 million for misstatements on the integration of ESG factors in their investments. In 2024, some high-profile cases, like a Dutch case against Shell, which could make them adopt ambitious decarbonization targets, will reach a verdict. In 2024, companies’ marketing departments will have to be extremely cautious of the claims they make because greenwashing is increasingly moving to a legal issue.  
  • Physical Risk: 2023 was the hottest year ever. There is no sign the warming trend is going to stop in 2024. With the El Niño effect still in full swing and emissions at their highest ever in 2023, global warming isn’t going anywhere. With increased warming will come the physical risks of climate change, such as extreme weather, wildfires, droughts, and floods all of which will inevitably affect company assets and supply chains. Expect to see another year where multi-billion-dollar climate-related disasters increase and where wildfire smog chokes our cities.

Key Takeaway: ESG in 2024 will see another year when the risks of climate change become more pronounced. It’s essential to proactively evaluate and disclose climate-related risks and their financial implications. By conducting thorough climate risk assessments and integrating climate-related disclosures into financial reporting and ESG strategies, businesses not only check the box on compliance but also gain strategic visibility into long-term sustainability and value creation.

3. A New Wave of ESG Disclosure Regulations

The release of the US’s first climate disclosure regulation – California’s Climate Accountability Package – was the biggest ESG regulatory revelation of 2023. For over 10,000 public and private US companies this means getting ready now to share your carbon footprint and climate risk impact statement beginning in 2026.

The other major news from a US ESG regulatory perspective is that the SEC’s climate disclosure bill still has not been released. And, in Europe, the Corporate Sustainability Reporting Directive’s (CSRD) standards were finalized, and companies will start collecting data for their first reporting in 2025. Globally, there are now 29 different national and regional ESG disclosure regulations. From a global perspective, in 2024, we can expect the number of regulators making ISSB-aligned ESG disclosure mandates to increase significantly.

In 2024, we expect to see more details on the California Law and the publication of the SEC’s climate disclosure rule. While the California bills are unlikely to change, the final version of the SEC climate rule is still unknown. The good news for companies subject to both is that they are both based on the TCFD, so preparing for the California bills will also help meet the SEC’s climate disclosure rule.

Key Takeaway: If you have a medium to large-sized company, you are eventually going to be affected by a climate disclosure regulation, whether you are public or private. 2024 is the last year you have to prepare for California’s climate bills before you have to start collecting data (in 2025) to report on in 2026.

4. ESG Reporting Standards Align

Finally? The release of the International Sustainability Standards Board’s (ISSB) first two standards in mid-2023 was a groundbreaking moment for ESG reporting. It signaled the beginning of a new period of alignment in ESG reporting standards.

Historically, the ‘alphabet soup’ of ESG reporting made for a range of inconsistent and incomparable ESG standards Now, with so many of these frameworks being integrated into the ISSB, and some countries pledging to use the ISSB as the baseline for mandatory reporting, the future looks rosy for corporate ESG reporting.

In 2024, when companies can begin reporting using the ISSB to report on their ESG performance, the ISSB will:

  1. Increase alignment in the reporting landscape by taking over the responsibilities of the Taskforce on Climate-related Financial Disclosures (TCFD)
  2. Be integrated into the CDP climate disclosure questionnaire
  3. Be interoperable with the Global Reporting Initiative (GRI), the European Sustainability Reporting Standards (ESRS), and all other major global reporting standards

Key Takeaway: Beginning in 2024, no matter what reporting framework your company uses, your reporting should be comparable with any other companies and be compliant with any ESG reporting regulations you face. This consistency is a key step in unlocking the market forces that will soon reward top ESG performers.

5. Higher Quality ESG Measurement and Reporting

With more companies than ever reporting their ESG performance, improved methods for measuring and reporting ESG performance and sustainability outcomes will emerge, providing stakeholders with more accurate and comprehensive data.

Almost all the S&P 500 (98%) share some sort of public sustainability report, and smaller companies are catching up. 82% of the bottom half of the Russel 1000 are reporting ESG, up from 68% in 2021. In addition to that, more companies than ever are setting ambitious ESG targets like net zero emissions commitments.

Moving forward, the focus on setting bold commitments will shift to the transition plans supporting these ambitious targets, the ability to meet these ESG goals, and the quality of the content in the reports. In 2024, expect companies to focus more on the quality of the data they collect to build more effective strategies, assess risk more accurately, and be more transparent and accountable in their reporting.

Key Takeaway: Although the number of companies reporting their ESG and making ambitious ESG targets increased in 2023, a trend that is likely to continue. In 2024, the focus will shift to quality as companies prepare to meet disclosure regulations and be more transparent and accountable.

6. Increased Investment in ESG Technology

To keep up with the new compliance requirements, mitigate growing ESG risks, and begin reporting, companies are anticipating that their ESG technology spending will increase in 2024.

To get their ESG programs off the ground quickly, companies are looking to external vendors and software tools to meet their ESG challenges. A report from Reuters reveals that companies are planning to invest more in third-party software solutions and vendors to ensure they stay compliant with upcoming regulations. A Bloomberg report suggests that 92% of executives plan to increase their ESG spending by 10% or more in 2024, and 18% plan to increase spending by 50% or more.

ESG Trends 2024 ESG spending

Our ESG Trends Survey of US mid-market firms found that smaller companies are also expanding their budgets in 2024 and beyond. More than half (54%) of our survey respondents claimed that their ESG spend will be $100,000 or more in the next 1-3 years.  Incorporating technology into ESG data practices isn’t just about compliance; it’s a strategic move for businesses. It enables them to demonstrate commitment to sustainability, attract investors, reduce risks, and gain a competitive edge in an increasingly ESG-focused market.

Key Takeaway: As companies try to meet new compliance requirements and improve their transparency and accountability around climate change and ESG, they will increase their ESG spending in 2024. They will look to invest in technology and third-party experts to accelerate their ESG programs.

7. CPAs Role in ESG Data Reporting and Assurance Expands

In 2024, we can expect Certified Public Accountants (CPAs) to play an increasingly critical role in ESG reporting, as businesses seek expert guidance in navigating complex ESG data assurance and attestation requirements. This trend will not only broaden the scope of services offered by CPAs but also position them as pivotal players in advancing corporate sustainability and transparency initiatives.

ESG accounting specialists will verify the accuracy and reliability of ESG data reported by organizations, ensuring compliance with evolving regulatory frameworks and industry standards. They will also play a crucial role in integrating ESG data into overall corporate reporting. This means ensuring that ESG information is not treated as a separate entity but is seamlessly woven into financial reports to provide a holistic view of a company’s performance.

More companies may turn to accountants for assurance as their needs mature and broaden. At present, many companies that are seeking assurance for the first time are focusing largely on GHG or other emissions, according to a study of global sustainability practice by the International Federation of Accountants (IFAC) and the AICPA & CIMA. As assurance mandates grow, companies will likely seek assurance over a wider scope of topics—within other environmental topics and in social and governance areas.

The most recent data available shows expected growth in demand for ESG assurance from CPAs who will also offer advisory services to help organizations improve their ESG practices and reporting. CPAs will play a pivotal role in ensuring that organizations comply with regulations, reducing their risk of non-compliance and associated penalties.

Key Takeaway: CPAs will play a pivotal role in ESG data reporting and assurance in the future, ensuring the reliability of ESG information and compliance with regulations and helping businesses harness the strategic value of ESG practices. As ESG considerations become increasingly central to corporate decision-making and investment, the role of CPAs in this domain will be instrumental in building trust and credibility.

8. Product Environmental Performance Becomes Key Purchasing Criteria

The trend towards prioritizing product environmental performance is set to make a significant impact on businesses, especially in the context of the EU’s evolving regulatory landscape. New rules on batteries, focused on ensuring sustainability throughout their entire lifecycle and measuring their carbon footprint, along with the Carbon Border Adjustment Mechanism (CBAM), which aims to price the carbon emissions of carbon-intensive products fairly, are key examples of this shift.

This is particularly relevant in industries like steel, which accounts for about 7% of global CO2 emissions, as the European steel industry seeks to gain green credentials. These developments highlight a broader trend where businesses must adapt to increasing regulatory and consumer demands for environmental responsibility and sustainability in their products and gain full visibility into product-level carbon intensity.

Key Takeaway: Businesses need to adapt by prioritizing environmental considerations in their product development strategies, not only to meet consumer demand but also to comply with evolving regulatory landscapes. This adaptation could be a defining factor in maintaining market relevance and competitive edge.

9. Rewarding ESG Performance Improvement

Companies will be rewarded for improving their ESG performance. The real focus will shift from vague promises to measurable, quantifiable ESG performance. Companies that take this seriously will be rewarded for improving and this will make it even easier to spot the companies that aren’t meeting their targets.

Looking narrowly at carbon footprint reduction, some winners will emerge, and some companies will crack the code on how to reduce their emissions.

For businesses, this trend underscores the importance of adapting to a low-carbon economy with concrete plans to achieve those goals. Unfortunately, two studies released this year revealed that many companies will fail to meet their ambitious climate targets. Net Zero Tracker found that although more companies than ever had set net-zero targets, only 4% of companies meet all of the criteria that would indicate good-quality, achievable net-zero targets.  And this BCG study found that fewer companies are on track to meet their emissions targets than in 2022.  

The bottom line here is that the focus will shift from promises to performance, and companies will be rewarded for improving performance and penalized for their lack of performance.

Key Takeaway: Companies should prioritize investments in measuring greenhouse gas emissions and setting realistic targets for reduction, then align their operations to achieve these goals. Not only does this help in meeting regulatory requirements, but it also positions businesses competitively in a market increasingly driven by environmental considerations.

As we move into 2024, the ESG landscape is set to undergo significant changes, with a focus on integrating sustainability more deeply into business operations. Key trends include the alignment of ESG reporting standards, increased emphasis on supply chain sustainability, and the growing importance of managing climate risks.

With new regulations for climate-risk disclosures on the horizon, it’s more crucial than ever for your company to take proactive measures to prepare for this shift and we’re here to help. Connect with our team to learn more about our end-to-end ESG solutions and to discuss your ESG performance plans for 2024.

Disclaimer: Good.Lab does not provide tax, legal, or accounting advice through this website. Our goal is to provide timely, research-informed material prepared by subject-matter experts and is for informational purposes only. All external references are linked directly in the text to trusted third-party sources.

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