As we approach 2024, we see the significant changes in the ESG. With the rising awareness of responsible investing among consumers and investors, ESG is expected to be pushed further into the limelight of the financial landscape in 2024. Here are the insights of Bolder Group’s ESG Specialist Ana Prada on the key ESG trends to watch out for in 2024.
Will ESG play a bigger role in investment and purchase decision-making?
Ana: “DEFINITELY YES. Many countries are following the European model under the sustainable finance plan and developing legislation focusing on sustainable financial products, e.g., Singapore, Hong Kong, South Africa and the United Arab Emirates. Other countries are encouraging investment in green energy funds, such as Chile, Canada and the US. Also, financial authorities are starting to monitor the performance of financial market participants on ESG issues. Not to mention that financial rating agencies are becoming more involved in this area as many investors demand more information. And not only investors, but all financial market participants are becoming increasingly aware of the legal and reputational risks of taking ESG issues into account.”
Which of the E, S and G factors will be more prominent in business decisions?
Ana: “The environmental aspect is a major focus of sustainability and corporate social responsibility in general. At the European level, however, there is a tendency to push regulation on social issues, which are the most difficult to measure and have been slower to be put into practice, but, recently, the EU has proposed the Directive on corporate sustainability due diligence (CSDDD). This includes mechanisms that companies must implement to prevent and manage human rights and environmental risks. This legislation includes a regulatory body to ensure that companies implement these mechanisms, and what is new is that it includes sanctions in the event of non-compliance, so it is very important that companies are aware of the regulation.
Some countries have already implemented a number of due diligence preparation initiatives or even have such a mechanism in place in countries such as Germany or Switzerland.
Diversity issues are also important for authorities, especially board members.
Another important thing is that many of the ESG regulations in the EU will be implemented progressively, so maybe this year is only applicable for big companies, but in the near future, it will be implemented for medium and small enterprises, like the case of the corporate sustainable reporting directive. So, it is important always to be vigilant.”
How do regulators push for ESG practices in the finance industry and among businesses?
Ana: “It depends on the country, but the financial supervisory bodies are the entities in charge of supervising the ESG practices according to internal regulations. In the case of Luxembourg, the CSSF and the recently developed platform for financial participants can incorporate their ESG disclosure according to the EU sustainable finance directive. In the case of Spain, the CNMV yearly produces a report resuming good and bad practices of the stock exchange participants. The AFM in NL has actively participated in different forums, providing feedback on ESG matters. These entities will progressively implement more control over companies and ask for information on ESG risk management.”
Which significant ESG-related law is expected to enter into force next year, and how should businesses approach this change?
Ana: “The corporate sustainability reporting Directive is the amendment to the previous non-financial reporting directive. The first year (2024) will be applicable for big companies, but in the following years, it will be applicable for medium companies and companies with activities in Europe.
Different countries are implementing due diligence regulations to stay ahead of the EU directives, so many companies need to check internal regulations and requirements.
Most countries outside the EU are focused on sustainable finance, so it’s important to be aware of the advances of these regulations and how to start working on implementing ESG controls during the investing procedures.”
How will technology affect ESG data collection, analysis and reporting in the near future?
Ana: “Technology is a great tool to collect data. There are so many platforms nowadays that could be of great help because there is so much information to collect and analyse in order to report KPIs under the current legislation. One of the main obstacles for companies is data collection; they have to figure out how to obtain the data and analyse a measure.
This is a work in progress, so we will see how this evolves in the coming years. As an example, the EU is also working on a reporting standard. A few years ago, we used to work on Excel sheets and are still doing it, but we see more and more companies designing ESG platforms according to current regulations.”
What are the specific ESG challenges and opportunities within the financial services industry this 2024, and how can the companies in the sector address these challenges?
Ana: “It is the same challenge for the rest of the markets: the increasing regulation and controls. For that, companies must have control over these regulations and requirements. Many companies are incorporating specialists in-house. Remember that these regulations look for the same: transparency to avoid greenwashing and all types of washing.
One of the big challenges is the double materiality analysis of these aspects according to EU regulations. This includes not just how you affect your employees, communities and environment with your activity, but also how your activity is affected by aspects like global warming. It is an exercise that all companies will have to do.
This is also a great opportunity because regulation obliges you to have procedures and controls to avoid risks in ESG matters. Also, I always recommend following an ESG framework and subscribing to initiatives on financial sustainability because this can guide you to start implementing an ESG strategy and working on addressing ESG risks.”
What are the emerging ESG-related risks that companies need to be aware of in 2024?
Ana: “ESG involves a wide number of aspects; in the case of financial activity, you need to be vigilant not only in your direct activity but in what your providers are doing, if they are compliant with ESG regulations, if they are not involved in bad practices, same for investment practices, you have to make sure the companies where you are investing are not involved in human rights abuses or affecting the land where they have their activities.
Investors require ESG reports because they know their importance, so you must implement risk prevention measures. So, you have to be transparent and report your risks and advantages on these topics, always considering that misinformation can lead you to greenwashing. You will be in the public eye and can be involved in judicial claims for this, like what recently happened with KLM and their campaign saying that they are reducing their carbon emissions, and this couldn’t be proved, so they were accused of greenwashing.
And my final words are regulation, regulation and more regulation. You need to analyse and understand the law requirements on ESG matters because we see that law is increasing, same as controls by authorities. Even if you are not obliged to report, my advice for companies is to start checking the regulatory standards approved by the EU, contact experts, see what your peers are doing on this work, your ESG strategy, how you affect your stakeholders, hear them and speak with them. And consider how your business can be affected by environmental and social aspects.”
Why work with Bolder
Looking ahead to the promising developments of ESG in 2024, the sector is about to undergo a significant transformation that will bring about increased awareness, more robust regulations and investor focus. Considering these ESG trends in 2024, private companies that proactively address their main ESG concerns will be better equipped to manage the market’s evolving expectations.
At Bolder Group, we keep our clients on top of the ever-changing ESG landscape. This 2024, Bolder Group is even more committed to assisting clients navigate key ESG trends and changes through our bespoke governance solutions. Contact our team to know more.