By Joanne Ballard, E.S.G Strategy and Compliance Director
The last 12 months have seen a critical turning point for ESG, with momentum building and sustainability issues rapidly climbing almost every corporate agenda. The landscape has changed, expectations have risen, and pressure has grown for businesses to reveal their existing position along with clear and ambitious plans to improve it.
With all eyes now on ESG, what will the next year hold? Here are our predictions for 2022.
- Zero Tolerance for Greenwashing
Companies accused of misleading customers and shareholders about their ESG credentials may start facing legal implications along with reputational damage. ‘Greenwashing’ is the sharing of overstated, exaggerated or inaccurate sustainability and environmental claims about products, services or business practices, and has become a pervasive problem.
The UK Competition and Markets Authority (CMA) published their Green Claims Code in 2021 and announced that a “full review” will begin in January 2022. The Code suggests ESG credentials must be truthful, accurate and substantiated, suggesting that, “businesses should be able to back up their claims with robust, credible and up to date evidence.”
While the legislation used to enforce the Code is not new (or specific to greenwashing), it hints at increased scrutiny and more targeted regulation of deceptive claims in the future. Cracking down on misrepresentation and encouraging transparency and accountability are good news for ensuring a level playing field and protecting ESG credibility as a whole.
- Supply Chain Scrutiny
According to McKinsey, “Two-thirds of the average company’s environment, social, and governance footprint lies with suppliers”. That’s why businesses will be examining supply chains more closely than ever in 2022 to ensure that their ESG principles are reflected throughout. It’s no longer enough to mitigate risk for direct operations – the entire distribution network will now be under scrutiny for reputational and operational threats (as well as the more traditional cost, quality and reliability).
Creating and maintaining a sustainable supply chain will soon be business as usual, with ESG credentials becoming an integral element of procurement decisions, substantiated by facts, figures, metrics and measurements.
While the financial and PR risks to businesses violating environmental or human rights standards are very real, the trend for more responsible sourcing is a positive shift for those with a transparent end to end supply chain. By enhancing resilience and providing competitive differentiation, ESG moves from simply mitigating risk to becoming a value driver.
- Focus on the ‘S’ of ESG
While the UN Climate Change Conference (COP26) ensured that 2021 had a heavily environmental focus, the fallout from the ongoing pandemic continues to bring social issues to the fore, making the ‘S’ of ESG more dominant in 2022. The climate change conversation continues, but significant societal shifts caused by COVID-19 are leading companies to re-evaluate their social impact on employees as well as local communities.
The ‘work from home’ mandate has transformed into a long-term hybrid working model for many. While this may have improved the work/life balance for some, there can be negative connotations for employee engagement and working conditions. And without centralised workplaces that naturally encourage information sharing and mentoring, career development may suffer for those employees uncomfortable interacting through a screen.
Along with internal issues, businesses are increasingly encouraged to ‘give back’ to society, and in particular their local communities. The pandemic’s negative effects on employment and education have led to a focus on social responsibility as communities regroup and ‘build back better’. With 14 million people now living in poverty in the UK, support for food banks and charities assisting those in financial hardship are a common starting point.
- Improved Standardisation
As we enter 2022, the ESG reporting landscape remains crowded and confusing, with dozens of standards and frameworks in use across the UK, and hundreds globally. Corporate reporting is still voluntary for many businesses, with no single mandated standard for those who are required to take part.
In September 2020, five internationally recognised institutions announced a ‘shared vision of what is needed for progress towards comprehensive corporate reporting’, and their intent to work together towards that goal. The CDP, Climate Disclosure Standards Board (CDSB), Global Reporting Initiative (GRI), International Integrated Reporting Council (IIRC), and Sustainability Accounting Standards Board (SASB) released a ‘Statement of Intent’ which outlined a single, coherent set of reporting standards to provide stakeholders with clear and robust data and disclosures.
Reaching a consensus on content, definitions and materiality will take time. So far, this vision of rigorous standardised reporting has failed to materialise, but the next 12 months could see improved consolidation in a globally agreed standard setting.
- Increased Carbon Offsetting
Almost every business is aware of the need to tackle their carbon footprint, and many have a plan for reducing existing emissions. From replacing environmentally-unfriendly infrastructure to simply printing less and turning lights off at night, these long term ESG strategies are designed to incrementally reduce carbon emissions over time.
However, with growing climate awareness, many companies want to act immediately and offset current emissions now.
Voluntary carbon offsetting is an increasingly attractive option. The premise is simple – businesses compensate for their carbon emissions by investing in accredited carbon reduction and removal projects (usually in developing countries), for which they receive equivalent ‘carbon credits’.
While it’s possible these schemes will diminish over time as emission levels drop and the requirement to offset decreases, the recent sharp increase in companies announcing carbon neutral and net-zero commitments means that 2022 will be a big year for verified carbon offsetting schemes.
At the same time, support for more local carbon reduction initiatives is growing and will continue to do so, with community re-wilding projects boosting sustainability goals and improving local surroundings.
The acceleration of the ESG agenda is a reason for great optimism at the start of this new year, with last year’s aspirations becoming this year’s strategy for many. Find out more about Maintel’s sustainability journey, and how we can help you on yours.