05 Jan Sustainability Focus for 2024: looking beyond carbon
The importance of tackling climate change and environmental degradation is more of an issue than ever. As new policies and regulations emerge, businesses must rethink where to invest and how to communicate their plans.
Over the last few years, businesses have experienced many challenges, from the pandemic to geopolitical events causing rising inflation and expenditures, leaving many companies facing difficulties in maintaining profitability. As a consequence of these pressures, many businesses have lost some momentum with sustainability, but it’s clear that climate change remains a significant challenge. This year will be crucial for companies to establish a long-term sustainability strategy that recognises new and emerging regulations concerning ESG reporting and transparency.
Adapting to new sustainability measures
Governments worldwide are implementing and updating sustainability regulations. New measures will come into play shortly, and businesses must be ready. Levent Ergin, chief ESG sustainability strategist at Informatica, believes we are nearing a tipping point with ESG. While companies have struggled to access ESG data, new regulations promise clarity and accuracy in ESG data, which is critical to making strategic and responsible decisions. Many of these regulations focus on making data and sustainability activities transparent and accepted. The corporate sustainability reporting directive will standardise non-financial reporting.
The corporate sustainability reporting directive, for example, intends to standardise non-financial reporting. By addressing larger organisations, the directive will support them by publishing regular environmental and social reports to guide investors and customers in assessing their overall performance.
These planned regulations mean businesses must provide new data points, KPIs and measurements around sustainability. Adapting to new standards will be difficult for organisations lacking an innovative approach to ESG data management and governance. While adapting to these new measures, those without a robust approach towards ESG data will have a definitive advantage in the future.
The core focus for most governments and businesses has been primarily on reducing carbon emissions, but there is a growing recognition that moving away from fossil fuels is critical, it represents only one element of tackling the climate challenge, and efforts must incorporate multiple aspects to tackle the existing and future impacts of climate change.
At the recent COP28, more emphasis was on reducing methane emissions, a gas that is significantly more harmful than carbon dioxide. A shift away from fossil fuels will help, but reducing materials going to landfill sites is a prime focus area. The importance of nature and biodiversity has also become a growing priority, thanks to its focus at COP28. Approximately 30% of Europe’s largest businesses have established targets to tackle deforestation and protect biodiversity.
The 2019 World Economic Forum estimated that over half of our global economic value was moderately or very dependent on natural resources. Nature and healthy ecosystems play a critical role in managing greenhouse gases, maintaining temperature increases and reducing the natural weather impacts on our planet. A growing trend recognises the connection between nature and biodiversity, rather than primarily focusing on carbon management and reduction.
Today, more businesses voluntarily disclose nature-related financial risks, indicating a change in how businesses recognise their business impacts on nature.Recent studies concerning progress on ESG measures indicate that those experiencing higher pressures and lower margins
will invest less in ESG, despite other studies suggesting that a stronger focus on ESG can deliver a distinctive competitive advantage.
Research suggests that when companies experience short-term challenges, leaders often focus on short-term measures, pushing aside long-term focus areas like sustainability. Studies show that those companies that invest for the long term will outperform those focusing on the short-term measures. The trend for this year will be about balancing long-term requirements, such as investing in sustainability, with the short-term needs to boost revenues.
Another area that business leaders must prioritise this year is communication. Companies must adhere to stricter communication plans concerning their environmental and sustainability claims. Today, there is more scrutiny from customers and policymakers when a business is claiming its environmental and sustainability activities.
As the IPCC has warned, we are close to passing the 1.5C threshold agreed at the Paris Agreement in 2015. This year, businesses must focus on long-term plans, adapt to new regulations and look beyond carbon. Sustainability must become a critical factor in every business decision.
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