Eight Sustainability Trends for Corporate Directors to Watch for in 2024

Although predictions are infamous for being wrong rather than right, corporate directors should nevertheless have a sense of what’s coming to better anticipate emerging risks. The classic black, or in this case, green, swan.

One of the most dynamic spaces for board oversight will continue to be the ESG, Climate, and Sustainability landscape. 2023 was a volatile year where the “anti-ESG” movement worked to stall corporate activity. We also saw the explosion of clean tech, new reporting laws and, to the surprise of many, a successful COP28.

So, what will 2024 bring? We offer eight ESG, Climate, and Sustainability trends for corporate directors and executives to follow:

1. Disturbing Climate records will continue to be shattered and physical risks will increase. As the physical risks from climate change intensify, we expect 2024 to bring a heightened focus on adaptation and resilience planning alongside rising understanding of the impacts of climate change. According to S&P Global Research, up to 4.4% of the world’s GDP could be lost annually in the absence of adaptation, with developing economies disproportionately affected. The adaptation gap is widening, given slow progress on preparedness, and financing conditions continue to tighten, especially in developing countries.

2. Voluntary carbon markets reach a tipping point. With considerable attention given during COP28 to Article 6 negotiations, and with new integrity guidelines in place in 2024, the voluntary carbon market (VCM) has momentum. That being said, 2023 was a challenging year, with numerous VCM projects – alongside the corporate buyers that purchased them – receiving heavy criticism over whether they reduced emissions as planned and stated. As a result, some companies have been left more hesitant to participate in the market, with a combination of concerns over reputational damage fears, fatigue around the growing bureaucracy associated with new standards, and pressure to focus on cutting emissions at source. However, with such enormous pressure to improve confidence in the market, work has steadily been underway to bolster oversight, guidance, and certification frameworks.

3. The political landscape will dramatically shape the future of climate action. 2024 has been called the “ultimate election year,” as more than half of humanity (at least 64 countries and the European Union) will vote in national elections. The world will be watching India, the UK, Indonesia, Russia, Pakistan, Mexico, and the US. The US will likely get outsized attention, especially given the potential “brutal assault” on Climate action and repealing of the landmark Inflation Reduction Act (IRA) if Trump is elected. If Biden wins (and Democrats have control of Congress), US Climate action will very likely accelerate. Stakes will be high. Businesses will need to ready themselves for either scenario and continue to stay the course on ESG.

4. Clean tech’s momentum will grow globally, even if political winds change. As another part of COP28, countries committed to tripling renewable energy and doubling energy efficiency by 2030 and the growth trajectory is clear. The International Energy Agency estimated that in 2023, the world added a remarkable 440 gigawatts of renewable capacity – which is more than all the combined electric capacity of Germany and Spain. China alone added more solar than the existing solar capacity in the US. This rapid expansion is driven partly by policy (e.g., the Inflation Reduction Act in the US) and, even more noteworthy, because of the favorable economics. Renewables are cheaper in most places, so the expansion will continue even if political winds shift.

5. The $5 trillion insurance industry faces a reckoning. US insurers feel the hurt from intensifying climate disasters. Those that cover floods, fires, hail, and extreme cold are on the hook for staggering losses. If current trends hold, they could suffer one of the costliest years in recent history. In the first half of 2021 alone, disaster inflicted a staggering $42 billion in losses covered by insurance, which made it a 10-year high. The human costs of these disasters in terms of lost lives and livelihoods are the most profound. The dollar-value losses will impact our economy for years to come and reveal where risks are growing.
   
   Moreover, big questions will have to be answered as disasters become more frequent and devastating – who will pay? What policy decisions need to be made? Where will we rebuild? These trends will be existential and perilous for the insurance business. Some insurers are caught in a bind between balancing their books and satisfying regulations that require them to keep people covered. The combination of more frequent and more extreme disasters can create situations where insurance policies become too expensive for most customers or make it impractical for companies to provide coverage. Insurers are realizing that it is in their interest to reach 1.5˚C, serving as an example for others,  and can have an outsized impact in doing so by working with other corporate partners.

6. China will drive Sustainability innovation. The Chinese government’s ambitious 2060 carbon-neutralization targets have spurred industries to innovate and commit. For instance, CATL, a leader in the EV battery market with a 37% global share in 2022, achieved a 25% reduction in greenhouse gas emissions intensity within a year and initiated a recycling program with over 99.3% recovery of materials from spent batteries. CATL’s Sustainability efforts extend to its supply chain, with audits ensuring ESG principles are helpful.

8. Nature and biodiversity risks will ascend to board oversight. Biodiversity loss, one of the impacts of the Climate crisis and ecosystem disruption, poses an existential threat to Earth and humanity’s future. The World Economic Forum’s  ranks biodiversity loss among the top three threats to humanity in the next decade, with over half of the world’s GDP being moderately or highly dependent on nature. Efforts to preserve biodiversity and natural resources gained momentum in December 2022, when 188 countries signed a global biodiversity framework at the United Nations’ COP15 Summit. Governments, businesses, and non-profit organizations globally are implementing initiatives such as establishing protected areas, restoring degraded ecosystems, and promoting sustainable agriculture and forestry practices.
   
   Accordingly, corporations have been setting “nature positive” goals, which are similar to “carbon neutral” in the context of emissions. Nature positive refers to stopping, avoiding, and reversing environmental destruction. Finally, corporate directors should be watching for more investor pressure to implement TNFD (the Taskforce on Nature-related Financial Disclosures) to assess and manage nature-related issues (dependencies, impacts, opportunities, and risks).

9. The anti-ESG movement will lose steam. The anti-ESG backlash has hijacked the corporate Sustainability space for the past 12-18 months, which has forgone otherwise meaningful opportunities to converge on best practices and standards, learn from one another, and improve financial ROI from ESG initiatives. In the US, although less so in other jurisdictions, it deeply affected how companies acted and spurred a wave of “greenhushing” to describe how companies became quieter about their Sustainability efforts. Despite this backlash, according to recent S&P data, companies continue to report on and reference ESG in record numbers. Businesses will continue to find that investing in Sustainability and committing to social values pays off and is the right thing to do.
   
   Moreover, smart businesses recognize that as Climate risks intensify, there will be more and more pressure to disclose their impacts on the environment and society, be it from regulators, investors, customers, or the public. At the very least, many stakeholders will continue to sit on the sidelines as they wait to see what policies and regulations unfold. This wait-and-see approach is further propagated by the uncertain geopolitical environment, politicization of ESG in the US, and continued fear of potential litigation. Corporate law departments must balance pro-ESG forces among executives, employees, customers, and anti-ESG among some state legislatures.

Key takeaways for board members:
Corporate ESG and Sustainability touch a broad array of legal, business, and technology trends, and emerge from every industry and corner of the world. As a result, constant diligence and monitoring of the market is needed to better anticipate emerging risks for board oversight.

Additional Telesto resources: Find additional information on how to get started with ESG, build topical familiarity with our ESG Glossary as well as Telesto’s ESG Maturity Model.