By Prof. Nikos Avlonas
Adjunct Professor UIC
The landscape of ESG is certainly changing in Europe. ESG investing, climate change risk and the road to Net Zero are shaping global conversations. We have identified Seven Major Trends for 2023 and beyond that will shape the future in Europe.
Additionally we have taken under consideration the recent CSE’s Research findings that explore why ‘doing business as usual’ is no longer a valid option and the shift to ‘doing business in a sustainable way’ is the only way that will secure companies’ trust and financing.
Push for greater ESG -Climate Disclosure Standards
Regulation is spreading from the EU to other parts of the world. All industries are under more intense scrutiny and skepticism than ever. The most important climate disclosure standards introduced in 2022 globally were from the International Sustainability Standards Board (ISSB), the European Financial Reporting Advisory Group (EFRAG) and the U.S. Securities and Exchange Commission (SEC).
Companies in 2023 will focus on assessing what to report. The EU Sustainable Finance Disclosures Regulation (SFDR) comes into effect from January 1, 2023 and gives specific and complex detail on what should be reported, how, when and to whom. CSRD application will follow next.
ESG and Financing will become more interconnected
There is an increasing role in finance and as reported by Bloomberg, it is possible that ESG assets will hit a massive $53 trillion by 2025. 83% of institutional investors in Europe plan to increase their allocations to ESG products over the next year. Furthermore, regulators are determined to clean up any existing confusion around ESG fund labels while Banks will be more demanding on financing business with ESG criteria
Less focus on ESG Ratings
We have seen a widespread adoption of ESG ratings in investment processes in 2022. They are a useful starting point for companies to better manage and disclose a wider range of external impacts. The ratings awareness has increased along with companies’ knowledge on them. ESG ratings will lose the central stage in 2023 and they will be starting to surpassed by other ESG and Climate related requirements and legislations
Greenwashing Scrutiny and Transparency will be increased
Increased disclosures can lead to more accusations of false or misleading statements. The EU’s Corporate Sustainability Reporting Directive (CSRD) aims to address shortcomings on transparency and disclosure of non-financial information. Greenwashing scrutiny will significantly increase and more companies will incur with fines.
COP27 has highlighted the importance of transparency in the fight against greenwashing and the role of the Enhanced Transparency Framework (ETF). Starting no later than 2024, all countries that have ratified the Paris Agreement need to follow a single, universal transparency process.
Net-Zero roadmaps & Energy transformation
According to Net Zero Tracker, 91% of the global economy and almost half of the 2,000 largest companies have net-zero pledges. However, UN experts in COP27 presented a rather disappointing report, as a great number of these pledges lacked scientific rigor and no real progress was achieved. In 2023, more investors will align with the standards defined under the SFDR Article 9 – funds that have sustainable investment or a reduction in carbon emissions as their goal.
On the other hand, the war in Ukraine has changed dramatically the European energy system. This will lead to an increase in the use of renewable energy, Green Hydrogen through new and existing capacities, and an acceleration of energy efficiency solutions. Transforming EU’s energy system will be the priority in 2023, making the move to a zero-carbon economy a secondary concern.
Scope 3 – The value chain emissions measuring challenge
The fact that many companies don’t fully count their Scope 3 emissions, or they use questionable measuring methodologies, has led to the growth of the Science-based Targets initiative, with the aim to set concrete emissions reduction goals. SBTi is also updating its Scope 3 target setting methods and criteria to ensure full alignment with its Net Zero Standard.
In 2023, reporting frameworks are expected to focus increasingly on scope 3 emissions. Emissions reporting will become a standard part of workflows, ensuring meaningful steps towards the reduction of carbon footprint. European regulation has introduced a four-year transition period for the inclusion of Scope 3 data and companies should soon include them in their Sustainability Reporting
Circular Economy and Zero Waste
Cutting down packaging waste is an important trend for 2023, which is set to introduce a range of new materials to the market. Nearly two thirds (59%) of consumers are making a conscious choice to purchase products that embrace greener alternatives. Technology will be at the forefront of change, providing opportunities to develop bioplastics, bio-derived materials or water-soluble packaging. EU has strengthened policies and guidelines on the circular treatment of materials and waste, including electronic waste.
CSE has an ambitious agenda for 2023 to continue pushing corporate sustainability globally. Stay tuned for our upcoming trainings in 2023 and insights, which start with the Certified Sustainability ESG Practitioner Program, Advanced Edition 2023 on February 22-23-24, 2023. Click here to review all our programs.
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