As we leave 2021 behind, the acceleration of commitments to ESG (Environmental, Social, and Governance) and sustainability continues. It is indisputable that sustainability has taken a centre stage for thousands of companies, forming an integral part of countless business models or a high priority for many at least.
With the awareness of sustainability-related issues growing rapidly, now more than ever it is vital to take a tangible approach as simply highlighting the importance of being sustainable is not enough. This blog provides an insight into some major themes we are likely to see in 2022.
From Stakeholder-centric to Shareholder-centric
Impressing shareholders is no longer the only priority when it comes to companies demonstrating their long-term effect on the environment and corporate governance. At a growing rate, more and more stakeholders are viewing companies through a sustainability lens, from consumers to investors to employees, forcing businesses to swiftly adapt to increasingly strong attitudes. Notably, millennials are considered the most sustainable-conscious generation to date, and are hence paving the way for widespread adoption of sustainable behaviours.
Net-Zero Company Pledges Put to the Test
Thousands of corporations have rushed to declare their commitments to net-zero emissions targets and have set highly optimistic goals. Though numerous companies have embraced such increased climate targets, many claim that they are only aspirations rather than science-based commitments that align with the Paris Agreement. This safeguards companies against the failure of meeting highly over-optimistic goals, yet greatly undermines both the integrity of businesses and, perhaps more importantly, the meaning of a sustainable business.
This draws predominantly from the concept of greenwashing, which describes the process of creating a false impression or providing misleading information about the environmental sustainability of a business. Frequently, greenwashing is observed when entities attempt to capitalise on the growing demand for greener products or services by exaggerating their claims with the intent to mislead consumers.
The Net Zero Tracker, compiled by a team of non-profit organisations and research labs, assesses companies’ environmental commitments. It recently found that 622 of the 2,000 largest publicly traded companies in the world by revenue have technically committed to a net-zero strategy. However, it also established that the actual policies of many of these companies undermine any real change for them to achieve zero-carbon operations. This is often because they depend on unreliable or unproven strategies to offset their carbon production.
This paints a perfect picture of the concept of greenwashing, a phenomenon that is likely to become more prevalent as more companies who deliver empty promises will be exposed.
The Push for Transparency
As already mentioned, the commitment to sustainability has become almost “fashionable” and a growing feature of many corporations’ CSR pages. Yet, data disclosure must follow.
The UK is likely to enforce mandatory climate-related financial reporting for the first time in 2022. Specifically, the UK will become the first G20 country to enshrine in law mandatory TCFD-aligned requirements for Britain’s largest companies and financial institutions to report on climate-related risks and opportunities.
From 6 April 2022, over 1,300 of the largest UK-registered companies and financial institutions will have to disclose climate-related financial information on a mandatory basis – in line with recommendations from the Task Force on Climate-Related Financial Disclosures.
This may provide the ultimate test for large businesses in committing to achieve their established goals and implement ESG initiatives.
China and India have already declared mandatory reporting emissions rules. While many requirements are not obligatory, further improvements in mandatory disclosures are expected, as well as new and improved methods of streamlining information related to ESG.
Such regulations could provide an effective solution by eliminating greenwashers, as companies are becoming increasingly pressured to live up to their grand pledges to decarbonise. However, ultimately, countries enacting such regulations are driving the promotion of global consistency and comparability in sustainability reporting, and we should expect more countries to follow in 2022.
The Growing Significance of Data Analytics
“It’s not enough for leaders to incorporate the concept of sustainability—they also need to execute their ideas based on the data”. – according to professor Tai-Yuan Chen, Associate Dean of MBA programs at HKUST Business School.
It’s all about data. Data will serve as a primary source of information to induce change. Predominantly by measuring the impact on sustainability, data-driven technologies will play a major role in achieving the transparency demanded by governmental organisations globally.
It is clear that the data analytics lifecycle is becoming more nuanced. As advancing technologies and data platforms, including AI, become an integral component of business models, companies will accurately quantify their ESG results. We can thus expect to see a wave of companies with a stronger focus on translating their goals into such concrete and tangible measures.
This may culminate in a survival of the fittest phenomenon. Without the ability to manipulate data or inflate results with almost unyielding tech, thousands of under-delivering businesses will be uncovered.
Hence, we have yet to discover which companies will fulfil their sustainability goals and which will not. Could the interruption of data-driven technologies or regulations provide the ultimate stress test for businesses? Or perhaps businesses falling behind on their sustainability metrics will face high unsystematic risks in the years to come.
OCI’s View
OCI is committed to exploring the latest sustainability-related news and sharing insights. This is a top priority for us and we continue to invest in our people and resources to accelerate the progression towards our sustainability goals.
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