Environmental, Social and Governance (ESG) compliance is near the top of many organisations’ priorities in 2023, and it will become even more important in the coming months and years.
ESG evaluates a company’s impact on the environment and on society, dealing with complex and ever-changing issues such as climate change, human rights, morality, and community impact. It doesn’t matter what you do, what you sell, or how big you are, if you’re running a business in 2023, ESG compliance can’t be overlooked.
But what does the near and far future have in store regarding ESG?
Dealing with the Climate Crisis
For several decades, it felt like the world was sleeping on climate issues. Floods and droughts became more common, and efforts were increased to combat the underlying issues, but just when it felt like we were making progress, we had a pandemic and a war to deal with.
The first year of the pandemic produced over 26,000 tons of plastic waste. It also diverted government efforts away from climate issues and toward health issues. The war seems to have had the opposite effect, with many European governments now desperate to decrease their use of fossil fuels and thus reduce their reliance on Russian oil and gas.
In 2023, we’ll likely see more movement toward a cleaner, greener future. It won’t be easy, as the energy crisis means that millions can’t afford to heat their homes and businesses are being forced to close. But it’s clear that green energy solutions can’t wait.
Major brands are already committing to using renewable energy and becoming carbon neutral. Shell, for instance, has committed to net-zero emissions by 2050 while Microsoft claims it will get there 20 years earlier.
Government regulators, customers, and the world at large are asking more from major organisations, and those expectations will only increase in the coming years.
Sustainable Food and Farming
The European Green Deal is an EU initiative that was approved in 2020 and aims to make the union completely climate neutral by 2050. It covers a set of policies aimed at promoting sustainable practices, and a major part of that involves promoting sustainable businesses.
For instance, the “From Farm to Fork” initiative focuses on making food sustainable by encouraging farmers to use less chemical pesticides and increase the availability of healthy food options.
By investing in forward-thinking farmers and encouraging others to follow suit, it’s hoped that there will be more organic food on the market, thus making it more accessible to everyone. At the same time, it could reverse the decline of pollinators, protect forests and rivers, and greatly reduce food waste.
Companies involved with the production and sale of food will likely face more regulations as they are asked to consider sustainability, as well as nutrition.
More Transparent Supply Chains
Do you know where your products come from? Do you know where they are grown/manufactured, how they are packaged, and where they are shipped?
Many of the products that we use every day—from expensive electronics to cheap clothing—go through several countries and many hands before they make it onto retail shelves. The customers rarely know where they come from and the retailers aren’t always informed.
In the coming years, this could change as regulatory authorities and customers demand more clarity and transparency.
If you don’t know where a product comes from, there’s no way you can guarantee that the supply chain doesn’t involve sanctioned entities and hasn’t been created using illegal or immoral labour practices. A clear and transparent supply chain should also mitigate the sort of issues seen with the horse meat scandal or even the recent UK beef scandal, where meat marketed as “British beef” is alleged to have been sourced from other countries.
Sustainable Finance
The aforementioned European Green Deal also focuses on the financial system. More money will be invested in green companies and initiatives, with less going toward those who can’t make the sort of commitments promised by the likes of Shell and Microsoft.
It includes something known as a green bond or climate bond, which is a type of loan issued specifically to assist in the foundation, development, and continued growth of environmentally-friendly practices.
In the past, governments have been criticised for not investing enough in eco-friendly initiatives and being too lenient on the fossil fuel industry. But that could be set to change as they promote forward-thinking companies and place tighter restrictions and regulations on those that refuse to adapt.
Labour Practices and Human Capital
The pandemic changed the way that people think about work. Many employees spent months working from home while others were forced to choose between their jobs and their health, giving them a new perspective.
It led to something that experts dubbed the “great resignation”, as employees left in their droves. The result is that many companies were forced to pay more attention to their workers, focusing on their mental health, physical health, and general contentment as well as their paycheques.
Modern organisations can no longer expect employees to stick around just because they keep signing those cheques every month. They must develop strategies for keeping employees content and ensuring they work productively.
The UK is also considering proposals that will allow employees to sue their employers if customers offend them, such as if they are harassed by a customer while serving in a coffee shop or talking on the phone. If passed, this amendment to the Equality Act would place an even greater strain on organisations and demand an unprecedented level of transparency and control.
Summary: ESG Compliance for 2023
The world is at a pivotal point. It’s clear that a lot of work needs to be done if we’re going to reverse the social and environmental damage caused over the last few years. You will play a big part in that—both as an individual and a company. We all will.
Need more information on how to stay compliant in 2023? Take a look at our guide to compliance trends for leaders in 2023. For some direct assistance, check out our risk intelligence and data aggregation services.
