Investing in environmental, social, and governance (ESG) initiatives is not a foreign concept at most enterprises. In fact, U.S. finance company MSCI states the practice of socially responsible investing dates back to the 1960s.
Still, it’s undeniable that the ESG space is seeing rapid growth and evolution. From 2020 to 2021, money funneled into ESG funds doubled with little indication of a slow down, as reported by the financial service firm, Morningstar.
Jon Hale, Director of Sustainable Investing Research at Morningstar, told CNBC this growth comes as investors — primarily young ones — have been motivated by systemic issues such as climate change.
“They have these sustainability concerns and are starting to realize we can address those through our investments,” Hale said.
With so much evolution surrounding ESG, many environmental sustainability and social impact leaders are wondering what the future holds for enterprise ESG programs.
During a recent panel discussion hosted by the ESG & CSR Board, three industry leaders at billion-dollar companies shared their predictions for the future of ESG.
Looming regulatory requirements
Claudia Lin, CSR Program Manager at NVIDIA, agrees it’s clear the landscape of ESG has shifted in recent years. At one time, ESG-focused roles may have been nice to have within an enterprise, but Claudia says today they’re more of a “must-have.”
This trend was only solidified with the recent SEC proposal on climate-related disclosures, according to Claudia.
“Regardless of what the final SEC rule is, we have a glimpse of where things are going,” she says. “We know that companies will be expected to produce timely, accurate, standardized disclosures for climate change and possibly other social and governance data over time.”
— Claudia Lin, CSR Program Manager at NVIDIA
Additionally, Claudia says enterprises know that regulatory bodies will set materiality thresholds around what ESG is, what data is important to a company and shareholders, and how that data will be reported.
Expanded solutions and scope
Looking ahead in the ESG space, C.H. Robinson Principal Sustainability Program Manager Brittany Brama anticipates seeing an expansion of certain concepts and improved solutions for various industry roadblocks.
She says the boundaries and scope of traceability and supply shed will likely shift in terms of how organizations are defining these concepts and how far they’re taking them.
“Sometimes we limit ourselves because of those limited resources, but when it’s anticipated of you, and it’s required by a global framework [or regulatory body] you are then, of course, asked to push further.”
— Brittany Brama, Principal Sustainability Program Manager at C.H. Robinson
Additionally, she suggests that companies will find new and quicker solutions to existing industry hurdles, whether it’s defining a concept, pulling data, or drawing lines when calculating emissions.
“I think a lot of that will come to the surface and people will find the solutions, and it’ll be adopted much more quickly,” Brittany says.
Investor interest and consolidation
Jeff Freeman, Global Director of Sustainability at Cimpress, says he may not have a crystal ball into the future of ESG, but he’s keeping a close eye on the interests of stakeholders.
He explains that he’s interested in what investors and other external stakeholders will determine to be decision-useful ESG data.
Reporting requirements, such as those presented by the Task Force on Climate-Related Financial Disclosures (TCFD), will force companies to disclose more information on financial, physical, and transition risks. Jeff says he’s interested in how investors will interpret that data, and how they’ll decide which companies provided useful information and which didn’t.
“I think over time it’s going to create some — maybe not winners and losers — but we’ll start to have people coalesce around what’s actually useful.”
— Jeff Freeman, Global Director of Sustainability at Cimpress
As reporting regulations ramp up, Jeff also expects a certain level of consolidation, which hopefully results in a lighter reporting workload and additional resources for ESG leaders. According to Jeff, improved reporting processes would mean more time dedicated to actual ESG action.
“And then, more time actually goes into helping make real-world improvements and less time is spent on some of the actual data afterward,” He says.
The benefits of getting ahead of the game
It’s clear that the ESG space will see various shifts and evolutions as the field continues to grow. Brittany says organizations that have already started this work will have a clear competitive advantage as new regulations and requirements roll out.
Still, staying ahead of the game is difficult in an industry where you’re frequently facing increased pressures and workload.
Engaging in ESG-related communities and networking groups can be a great way to benchmark best practices and learn creative ways to tackle industry challenges. Conversations like this take place in various community groups, such as the ESG & CSR Board — the confidential, peer-to-peer community designed for ESG, sustainability, and CSR leaders.
