For years, companies have assembled reports to disclose data regarding diversity, equity, and inclusion. Focus on environmental, social, and governance issues is rising amid investor and regulator interest in the coming year. As ESG becomes a more prominent business priority, it will also become a growth opportunity for firms looking for new revenue streams.
Demand for action on ESG issues hasn’t been as urgent in the United States compared with Europe and some other parts of the world. With so many ESG topics for executives to consider, it is challenging for them to narrow their focus on the appropriate trends throughout the 2022. Here are the top insights to move into the new year:
Stakeholders apply pressure on companies to translate their talk into meaningful action. Regulators will also begin to turn the screw by enforcing mandatory disclosures that force companies to move beyond ‘Green’ marketing to meaningful action.
- Insurers will appoint Chief Sustainability Officers to lead ESG initiatives
A sign of the growing importance of ESG & Sustainability issues to global corporations is the appointment of Chief Sustainability / ESG officers to executive management teams. Some of the world’s largest insurers have already moved to installing these roles – in 2022 we will likely see other industry players following suit.
- Procurement and supply chain decision making
Companies can no longer focus solely on their own operations to mitigate ESG. To improve their supply chain resilience, they should focus on the analysis of the supply chain and procurement processes to identify areas of concern related to ESG risks. Given the complexity of the world’s largest companies’ supply chains, many are turning to external consulting services for help.
- Carbon offsetting
Companies are facing pressure from stakeholders to not only set net-zero targets for carbon emissions, but to demonstrate their progress towards meeting these targets too. One solution that many companies have started to implement is carbon offsetting, or the process of compensating for CO2 emissions by participating in schemes designed to make equivalent CO2 reductions from the atmosphere. Examples of such schemes are reforestation, methane capture at landfills, wastewater treatment facilities and investing in energy efficiency technology.
- ESG investment funds will push capital flows into Asia and emerging markets
ESG investing has dominated the world of finance over the past few years. To 2022, the flow of investment from ESG funds has been concentrated specifically in North America, but as the ESG investing landscape continues to become progressively more crowded, many ESG investors may switch their focus to Asia and emerging markets in search of returns. More transparency and reported data will keep on the challenge for sustainable investing high in North America, as it will be easier for investors to measure and manage risk.
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