Key ESG Trends Shaping 2023

Environmental, Social, and Governance (ESG) regulations that will change the face of corporate sustainability. themes include harmonizing reporting frameworks for better continuity and conformity, proposed federal and state climate-related disclosures, and a growing interest in circular production aimed at minimizing waste. These trends impact how companies approach ESG and will shape future sustainable business practices.

As ESG becomes increasingly essential for companies, various reporting standards and frameworks have emerged to provide information to stakeholders in an effort to:

The Sustainability Accounting Standards Board (SASB) is a foundational ESG framework that focuses on standardized disclosures for 77 industry sectors to help companies identify material ESG metrics within their organization.

Beyond financial materiality, a sister framework called the Task Force on Climate-Related Financial Disclosures (TCFD) is focused on helping investors understand climate risks, as well as key strategies and metrics related to greenhouse gas emissions and how to best account for climate-related metrics.

Accounting firms will likely undertake much of the reporting and documentation of ESG disclosures since they’re frequently submitted within traditional financial reports prepared by the accounting industry. In light of this, the International Financial Reporting Standards (IFRS) Foundation, which maintains global accounting standards formed the International Sustainability Standards Board (ISSB). This new branch of the IFRS is charged with developing global sustainability disclosure standards.

In 2022, the ISSB started incorporating SASB and TCFD under its guidance, with the intention of integrating and standardizing ESG disclosures and metric reporting. The finalization of these ISSB standards is expected in 2023. This move towards standardization will make it easier for leaders, investors, and stakeholders to assess companies using a consistent ESG perspective.

Organizations are monitoring the U.S. Securities and Exchange Commission, which as of March 2022 required registrants to include certain climate-related disclosures in their registration statements and periodic reports. These rules are set to go into effect by April 2023 for accelerated public filers.

Though aimed at publicly traded companies, the proposed disclosure regulations would create a trickledown effect impacting small to medium-sized privately-owned companies. Public entities will be asking for climate-related metrics from any business supplying products or services within their supply chain to report their data fully. The same requests can also be expected from additional stakeholders such as consumers and investors in the coming years.

The SEC is also expected to announce additional disclosures related to certain human capital considerations that would provide insights into how companies treat their workforce and managing internal personnel.

The concepts of circularity and regeneration are entering organizational discussions around resource consumption and upstream product design. All of this is taking place as companies and consumer attitudes move ever closer toward a zero-waste society. Companies are now examining the end-of-life handling of their products and exploring ways to recycle them back into production.

Regeneration and regenerative production are similar concepts, but regeneration goes beyond sustainability by restoring environments back to their natural states. For instance, agriculture companies are exploring how they can regenerate topsoil to ensure future production capabilities, and what that means for the sustainability of society and businesses moving into the future.

As consumers become more interested in sustainability and want to support brands that align with their personal ethos, more and more companies recognize the expanding incentives to operate under sustainable practice methods.

As we move towards a world of increasing transparency, companies have a chance to showcase their positive efforts by being open and accountable for all parts of their supply chain operations and values.

Stakeholders are quick to call out companies that are not living up to their stated actions and goals, which creates a risk of reputational damage and potential shareholder litigation. Companies must make sure they convey their progress on ESG initiatives accurately and completely.

ESG trends are playing a significant role in shaping sustainability considerations for companies in 2023. The trend towards standardizing how companies report their environmental and social impact, the push for mandatory public disclosure of ESG information, and the increasing focus on minimizing waste and promoting sustainability through circular production methods are all shaping the future of sustainable business practices. Companies that embrace these ESG trends and prioritize sustainability in their operations and strategies have an opportunity to position themselves for long-term success while positively impacting the world.

As ESG-related practices and regulations become more common in everyday operations, it is becoming increasingly necessary for small to medium-sized businesses to be proactive in their preparations to operate more sustainably. For more information on how to best prepare your business, contact our sustainability team for a complimentary ESG readiness consultation to get started on your strategy for success!