As in 2023, environment, social and governance (ESG) will remain a partisan topic this year, given the elections to be held in the US and many other countries, according to predictions from Thomson Reuters.
As in 2023, environment, social and governance (ESG) will remain a partisan topic this year, given the elections to be held in the US and many other countries, according to predictions from Thomson Reuters.It notes that companies will need to remain cautious about how they discuss sustainability externally amid presidential and congressional elections.
They should also expect an increase in pro- and anti-ESG legislation in the country as well as in 50 other countries experiencing elections in 2024.
Thomson Reuters notes that there are several potential solutions available for companies on how to approach those officials with polarised viewpoints.
These include using stakeholder mapping on divisive issues and focusing on or even rebranding individual initiatives that fall underneath the ESG umbrella that may be less polarising than the term ESG.
The ruptures in the US have been well documented. The Republicans have launched several campaigns against ESG investing, with multiple state governments trying to penalise or divest from firms that consider ESG in their investment process.
Last March, President Joe Biden used his veto power for the first time to block a bill that would have stopped fund managers basing investment decisions on ESG factors.
Earlier in 2023, Florida’s Senate approved a bill banning state and local governments from using ESG criteria when selling debt or investing public money in April 2023.
The state’s governor, Ron DeSantis formed an alliance with 18 other US states – Alabama, Alaska, Arkansas, Georgia, Idaho, Iowa, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Oklahoma, South Dakota, Tennessee, Utah, West Virginia, Virginia and Wyoming – to pushback against the The Department of Labour’s new rule allowing climate-aligned funds in 401(k) retirement plans, passed in 2022.
Thomson Reuters believes though that greenwashing will be more clearly defined legally and impose weightier repercussions.
Greenwashing carries reputational, regulatory, and litigation risks, but has no consistent legal definition and varies by product, service, regulator, and jurisdiction.
The European Union has been praised for its considerable progress in eradicating greenwashing. This is due to the development of new rules designed to limit false advertising and to offer consumers enhanced information about products.
As for other forecasts, Thomson Reuters says businesses are expected to embrace ESG criteria not just for compliance or risk management, “but as a chance to fundamentally transform their business models with the full understanding and acceptance of the need to account for increasingly complex external risks that may be occurring simultaneously.”
In other words, ESG will transition from being a peripheral element to a central component of overall corporate business strategies.
It says that this shift will make mainstream a thorough revision of design processes, procurement strategies, financial management, and marketing and communication practices across a number of ESG-related issues. However, opponents will remain vocal.
This year should also see the topic of biodiversity continue to gain momentum as nature and land use were included as a 2030 global deforestation goal at COP 28.
In addition, investment funds that focus on biodiversity and nature will rapidly increase in number and assets. Figures from the European Securities and Markets Authority showed assets under management in European funds targeting biodiversity quadrupled in the 12 months to September 2023 to €845 million.
Although these funds still represent a tiny fraction of the market, it is a significant jump from the less than €50 million in June 2021. Around two thirds of the funds have been launched since 2022.
Moreover, the Task Force on Nature-related Financial Disclosures (TNFD), which finalised its disclosure recommendations last September, has highlighted evolving nature-related dependencies, impacts, risks, and opportunities that are aligned around four pillars.
Currently several governments are considering the adoption of these standards, which are consistent with other frameworks and standards to enable corporate reporting.
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