Sustainability

The 5 Key Corporate Sustainability Trends in 2022

  • Paul Endres
  • June 21, 2022

In today’s environment, business leaders are faced with a complex blend of social, environmental, market, and technological challenges. With so much to worry about, some executives have been slow to place sustainability at the forefront of their strategy. However,  a growing number of companies are going the extra mile to face ongoing sustainability challenges.

I work extensively with companies to help them prioritize ESG initiatives and respond to a rapidly shifting sustainability-focused world. These are the trends I advise my clients to look out for to drive meaningful action and change. 

A Global Shift Toward Sustainable Finance

The financial market’s view on sustainability is driving a lot of engagement in companies throughout the world. Financial market actors are paying more attention to what tends to drive their financial investments, and steering away from investments that don’t have a sustainability focus. Further, a growing number of investors aim to create impact just as much as return on investment. 

For example, in 2020, the CEO of BlackRock (the world’s largest asset manager) announced that they would divest from all organizations that have significant sustainability risks. At the same time, they recommended that all their investment companies begin sustainability reporting. Since then, more and more listed companies are facing explicit sustainability-related expectations from their investors. Right now, more than 80% of the world’s largest companies are reporting on ESG metrics and performance, and I expect to see that number rise. 

These changes will potentially affect all organizations. Companies will be incentivized to shape revenue strategy around sustainability best practices. This is particularly true in the banking industry, and financial institutions will be increasingly likely to provide financing options to organizations whose sustainability focus aligns with their own. Companies that have fallen behind may have trouble securing loans in the future. 

The Addition of a Sustainability Function

Sustainability is everyone’s job, but transformation needs to begin somewhere. A company’s responsibility as far as sustainability goes lies at the leadership level. Savvy business leaders know that they need to incorporate ESG practices into the very core of the company. Sustainability isn’t just an add-on or one-time initiative. 

In many cases, it makes sense to engage a formal sustainability function. Depending on the size of the company, this might be a Chief Sustainability Officer, or even a team. They should work with all departments in the organization and establish a reporting framework. If a full-time hire doesn’t make sense for your organization, consider bringing on a sustainability consultant to develop and implement a sustainability strategy. 

A New Era of Sustainability Reporting

Taking intentional measures that can be monitored will be crucial in the coming years. ESG reporting is mandatory for companies of a certain size, and more reporting is likely to be put in place. The Sustainable Finance Disclosure Regulation (the “SFDR”) came into force in December 2019 and began to apply across the EU from March 2021. In the US, the Securities and Exchange Commission proposed a 500-page rule that would mandate corporate disclosure of greenhouse gas emissions. The sustainability reporting directive is scheduled to begin in 2023 and will require 49,000 businesses in the EU to report on sustainability. The CSRD directive thus not only massively expands the group of companies that are obligated to report, but also places sustainability reporting on an equal footing with financial reporting. 

This will entail very narrowly defined reporting requirements, and significantly expand the responsibility for the validity of the data. Although companies are currently still faced with a confusing selection of different reporting standards from governmental and non-governmental organizations, things are set to change in the medium term. Various players are currently in the process of joining forces in pursuit of globally standardized sustainability reporting

Enhanced Carbon Management

Carbon reporting has been a hot issue for some time now, but overall carbon management will prove even more important. The whole global framework on how carbon emissions are treated and priced and traded between companies, and also between nations, is shifting.  At the last global climate summits, the international community agreed that the worst effects of climate change can only be prevented if the world becomes climate neutral by the middle of the century. While more than 130 countries and one-third of the world’s largest publicly traded companies will be forced to take action, the pressure on small and medium-sized enterprises to follow suit is increasing. 

One major obstacle to more companies setting net-zero goals and making these goals effective has been the absence of a standard that defines the terms  “net zero” or “carbon neutral”.

This is set to change with the introduction of the new net-zero framework recently issued by the Science-Based Targets initiative (SBTi), which will guide and certify corporate net-zero targets in line with the Paris Agreement.

Purpose-driven Recruiting

In a global competition for talent, employers need to understand the major recruitment drivers for employees. COVID-19 provided an opportunity for many people to take a close look at where they work and why. Individuals are more inclined to carefully consider not only the work they’re doing but also the companies they engage with. Younger generations, in particular, tend to look for employers whose values align with theirs. It’s common for job-seekers to put more emphasis on the mission and higher purposes of potential employers. Companies should openly share their vision and direction around sustainability so that their workforce can connect with them on a deeper level. 

The world is changing and corporate attitudes are shifting. In the near future, business leaders should expect a comprehensive shift toward sustainable finance, resulting in many companies investing in a formal sustainability function and intentional efforts to highlight sustainability in recruiting. We will all be a part of a new era of sustainability reporting and expanded carbon management measures. On a global level,  investing in sustainability is the future — and business leaders who ignore it risk falling behind.

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