The talk on standards and reporting on environmental, social, and governance (ESG), which refers to the factors that investors measure when analysing an organisation's sustainability efforts from a holistic view, is becoming louder and louder in the market.
As leaders of the finance function, chief financial officers must be on top of the topic for better decision-making and risk management. Strategies must then also be aligned with the trends coming in in terms of ESG.
The following are the anticipated developments to watch out for in 2024:
ESG is becoming a considerable growth factor, not just a “regulatory nuisance”
ESG is emerging as a substantial growth driver rather than a mere regulatory nuisance, with this change towards sustainable practices, ethical governance, and social responsibility serving as a catalyst for long-term success and value creation.
Beyond regulatory compliance, businesses are now acknowledging that robust ESG practices boost operational efficiency, mitigate risks, attract conscientious investors, and foster positive stakeholder relationships.
Biodiversity as a key ESG focus
Biodiversity, crucial for life on earth, encompasses the variety of living organisms within ecosystems, including species, genes, and ecosystems, playing a vital role in sustaining ecosystems, providing essential services like pollination and climate regulation.
Biodiversity loss will gain prominence as an ESG topic, with global initiatives, investment funds, and the Task Force on Nature-related Financial Disclosures contributing to its mainstream recognition.
Governments are likely to adopt standardised frameworks for corporate reporting, aligning with evolving nature-related dependencies and opportunities.
ESG integration in finance
Sustainability will be deeply ingrained in organisations’ financial foundations, with CFOs increasingly considering the potential impacts of climate change on financial outcomes.
The integration of ESG into asset valuation and financial reporting protocols will see the rise of ESG controller positions to oversee this integration, highlighting the interconnectedness of sustainability and financial stability.
Rise in ESG-related disputes
As ESG will play a more important role in contracts, there will be a commensurate increase in ESG-related disputes. Organisations will need to improve when it comes to international dispute resolution.
It should be noted then that ESG is not just the future – ESG is now. Organisations have to understand ESG not merely for compliance or risk management, but as an opportunity to explore new opportunities or adapt their business models.
