ESG Continues To Drive Sustainability

The United Nations’ Global Sustainable Development Report (GSDR) 2023 paints a sobering picture. It categorically highlights that even though sustainability in businesses has become mainstream, unfortunately, it is not impactful enough—that incremental and scattered change won't cut it for achieving the Sustainable Development Goals (SDGs) in the next seven years on the road to the 2030 Agenda for Sustainable Development. 

As we stand on the precipice of a pivotal year, the compass of global businesses is recalibrating, aligning itself with the winds of sustainability. The urgency is clear, sustainability must not merely linger on the sidelines but take centre stage for governments, businesses, and consumers alike. In the face of an escalating climate crisis, the call to transition towards a low-carbon future has never been more pronounced.

Let us dive into a few trends that will set the stage for the sustainability movement in the months ahead.

ESG investing will chart the course for responsible returns

ESG (Environment, Social, and Governance) investing stands as a guiding compass for modern and sustainable investment strategies.  It is predicted that there will be a substantial increase in ESG-focused institutional investment, reaching $33.9 trillion by 2026.

Companies that prioritise ESG concerns are generally seen as lower-risk and high-return investments. But how does an ESG portfolio make financial sense? Some studies suggest that it promotes top-line growth, reduces expenses, minimises legal and regulatory intrusions, increases employees' productivity, and leads to better capital expenditures and investments. 

Consumers will be more conscious of ESG-based products and communications

As businesses navigate the currents of consumer choices, a distinct shift is apparent in the market. Consumers are increasingly demanding sustainable products. The growing awareness of environmental impact is steering consumer choices towards products and services that promote sustainability. This change is not merely a ripple; rather, it is a tidal wave reshaping market dynamics.

HBR (Harvard Business Review) highlights that the demand for sustainability is shifting from something “nice to have” to largely defining the major product decisions. The moment is quickly approaching when purchasing decisions will be made primarily based on sustainability, so businesses should start preparing now. In the sea of conscious consumerism, offering recycled or responsibly sourced products is slowly becoming a competitive advantage.

Regulations and policies will govern the acceleration towards sustainability 

In the regulatory landscape, the spotlight on ESG reporting is becoming more stringent. At the forefront is the Business Responsibility and Sustainability Report (BRSR), a mandatory requirement for the top 250 listed companies in India by market capitalisation. As mandated by the Securities and Exchange Board of India (SEBI), these companies must divulge the performance of the BRSR Core within their value chain in their annual reports.

This entails disclosing performance parameters related to ESG (Environmental, Social, and Governance) including greenhouse gas emissions, water consumption, energy consumption, waste management, employee wellbeing and safety, gender diversity, and inclusive development.

Tackling Scope 3 emissions

Up until now, companies have traditionally focused on reducing emissions from their owned operations or purchased energy (Scope 1 and 2 emissions). However, the narrative is expanding to embrace Scope 3 emissions, that specifically include emissions from supply chain operations.

To fully comprehend the environmental impact, companies must track these kinds of emissions in depth. Tracking Scope 3 emissions demands companies radiate sustainability standards through vendor and supplier networks. Investing in traceability solutions and carbon accounting becomes paramount for an accurate measurement of Scope 3 impact.

While tighter Scope 3 monitoring will likely reveal inconvenient truths, it is a critical stride towards decarbonisation across entire value chains.  Embracing AI technology to analyse and manage emissions data is no longer a distant dream but a practical necessity. The potential for AI to mitigate global greenhouse gas emissions is estimated to be around 5–10 percent by 2030, marking a promising avenue in the fight against climate change. 

AI and digital technologies will do their bit to drive sustainability

In the world of sustainability, digital solutions emerge as vital catalysts, pushing businesses towards a more eco-conscious future. Artificial intelligence (AI) is slated to take centre stage, steering the course of many sustainable projects.

For example, energy optimisation in buildings, predicting biodiversity threats with analytical precision, fine-tuning the efficiency of renewable energy assets, etc., can be achieved on the back of AI technology. Blockchain technology stands as a pillar, supporting transparent supply chain traceability and decentralised carbon trading platforms.

The symbiotic relationship between 5G connectivity and the Internet of Things (IoTs) presents smart city solutions and grid modernisation. Additionally, a wave of start-ups, riding on the crest of innovation, is ushering in AI-based solutions tailored for carbon accounting and ESG management. As digital transformation surges, these tech-driven sustainability solutions are poised not just to enter but to seamlessly integrate into the heart of mainstream practices.

Now onwards, businesses need to pay attention to the linked components of humanity's impact on the environment, such as the health of our soil, the well-being of our oceans, the preservation of biodiversity, sustainable urbanisation, and healthy communities.

Last year recorded an amazing feat: the world spent more than $1 trillion in green technology, higher than investment in fossil fuels for the very first time. But on the other hand, we also witnessed never-seen-before heat records, poor air quality, and a series of natural calamities. 

As the work towards sustainability gains momentum, both established and emerging businesses need to invest in a deeper understanding of their ecological footprints and create a concrete action plan for a sustainable future for future generations and our planet. 

(Vipul Kumar is a senior partner at Xynteo.)