3p’s Crystal Ball for 2023: The ESG Trends We See for The Coming Year

This list may be force us to eat crow (or a plant-based alternative) at the end of the year, but based on what we saw in 2022, and some of the chatter going on in the present —not to mention the macroeconomic trends that will surely affect the world of ESG — we’ve got a list of six trends that will likely define ESG during the coming year.
 
We’ll mix it up by reversing this acronym, starting with the “G” (governance), “S” (social) and finally working our way to the “E” (environmental).

Boards will further buy into the case for a diverse workforce

The outcome on how proxy statements related to diversity during the 2022 proxy season was mixed, but here’s one fact that can’t be overlooked: Issues related to DEI (diversity, equity and inclusion) was amongst the most common of the shareholder proposals that investors voted on last year. Further, proposals calling for racial equity audits witnessed a boost in success, with the average percentage of support jumping from 33 percent to 45 percent from 2021 to 2022, says the Harvard Law School Forum on Corporate Governance.
 
Further, despite all the chatter about a recession, companies are still stepping over each other in their push to secure the proverbial pipeline of talent. How can that be achieved? Ensuring that hiring practices are more transparent will be a start. But companies and the boards leading them will further realize that the old ways of hiring just won’t do anymore.
 
But don’t think that such a shift will occur just because more corporate executives and board members have “seen the light” on guaranteeing that all workers are treated fairly regardless of their gender, racial background and ethnicity and that it is the right thing to do. If anything, a stubborn labor shortage is in the cards for years, as studies like a recent Indeed-Glassdoor survey have indicated — largely due to the fact that worldwide, birthrates keep declining with no rebound seen anytime soon.

We won’t be spooked anymore by the anti-ESG forces, but…

3p has covered the backlash against the ESG movement here in the U.S. which is a cause for worry across the pond as well, as Europe is also dealing with a surge in anti-establishment, right-wing politics.
 
But then, the midterm elections happened here in the U.S., and the “Red Wave” we were promised never materialized — a shock to just about everyone except Popular Info’s Judd Legum and our own Tina Casey.
 
Further, as of press time, the U.S. House still hasn’t elected a speaker, a saga that hasn’t been seen in over 100 years, or to put it all into context, back at a time when just about everyone in Congress looked like someone on a U.S. dollar bill. The GOP, at least on one side of Capitol Hill, will most likely spend the 118th Congress infighting, and when it can agree on issues, there will be bigger fish to fry than whether “woke capitalism” deserves hearings, let alone any legislation. We’ll see more U.S. states try to put the kibosh on ESG investing, but such action will only be limited to a handful of state capitals.
 
Plus, the wind is at the backs of the supporters of ESG. Not that ESG is infallible — to start, it’s still widely misunderstood by much of the public — but it’s become the lingua franca of more and more investors, and in the end, they are who corporate leaders and boards of directors are going to listen to when push comes to shove.

Nevertheless, a shift is underway in how ESG is communicated

The recent COP27 climate negotiations in Egypt left many of us underwhelmed — and so called “achievements” such as giving Indigenous communities more of a voice and the funding of climate projects for poorer countries were in reality policies that should have been enacted years ago. Nevertheless, one success it had was highlighting the need for a “just transition,” i.e., ensuring that any shift to a low- or zero-carbon economy is equitable and benefits all citizens, not merely for those who are white and have the fattest checkbooks.
 
Among the arguments for a just transition framework is that it would push companies to show how they are integrating their climate action with their social impact work; there is no pathway toward silos as one that in contrast could emerge within an E, S and G structure. When describing a company’s work around a just transition, it would behoove them to focus less on the “what” and more on the “why” and “how.” Among the hypotheticals, it wouldn’t be enough to talk about switching from coal-based power to renewables. Instead, professionals should look to ask (and answer) questions like: What could be done for job retraining in the communities affected by such a switch, and how will companies prevent waste from such projects ending up in landfill sites near communities of color?
 
A disclosure framework based on a just transition doesn’t mean companies would have to rip up the guidelines that they use now; but it would behoove them to show how their operations are generating true social impact and purpose — and if not, they'd need to explain why not.

Companies can’t ignore their employees’ mental health any longer

It seems that you can’t get on any platform such as Spotify, YouTube or even play games like Words With Friends on your phone without seeing messaging or advertising about mental health.
 
Most of these ads sound like, eh, advertisements — but that doesn’t take away from the fact that mental health has long gotten the short shrift in the workplace.
 
The tussle between the forces who wanted a return to the office versus those who wished to continue working from home was partly responsible for this increased interest in taking care of one’s mental health. For every worker who missed office “collaboration” and the fragrance of whiteboard markers in stuffy conference rooms, there was someone who didn’t miss the microaggressions and additional awful behavior that got in the way of them reaching their full productivity and potential.
 
We can thank Millennials and Gen Z employees, who by and large have been very comfortable saying, “I need to take care of my mental health.” Watch for companies to respond in kind: Benefits packages will need to go beyond competitively priced health care premiums and other perks.

The circular economy is dead

It’s hard to say something is or will be “dead” when the reality was it was never alive in the first place, and that includes the circular economy. Watch circularity dig its own space within the sustainability lexicon graveyard, joining other terms like “net-zero.” Like net-zero, the circular economy sounded fantastic in practice: after all, it is regenerative, zero-waste and could unlock new economic opportunities.
 
Two things got in the way of circularity. First, the global pandemic resulted in the proliferation of single-use plastics, due to our fear of catching the virus from surfaces or coming into close contact with others. Disruptions in how things moved along, including global supply chains, certainly didn’t help.
 
Second, circularity is proving to be structurally impossible. We can’t export our garbage to China anymore, so many municipalities were tasked with managing “recyclables” at a rate that was impossible. If you lead waste management at a city or county, or are you going to try to figure out what to do with all those items, or will you just bury it (which can result in a lower carbon footprint)? Further, there are too many types of plastics out there. Until single-use plastic items can be uniform in composition, such as glass and aluminum, forget it. Big companies generally don’t want to take action, and government leaders don’t have the stomach to make hard decisions — and lobbying from business groups isn’t helping on that front.

Even the Ellen MacArthur Foundation, the most respected organization out there promoting the circular economy, shows that any progress so far on circularity is tepid at best — and it is resigned to the fact that any such targets by mid-decade aren’t going to happen.

More investments in clean energy, and not necessarily in wind or solar

It’s no longer big news: Renewables keep enjoying a steady uptick in how much they contribute to the world’s energy portfolio, including here in the U.S. Corporate investments in massive wind or solar installations? That’s old news.
 
With the excitement over new developments in nuclear fusion, it’s only natural that there’s renewed hope for a low-carbon economy. For example, Tina Casey has long been tracking the innovations in the green hydrogen economy in the U.S. and abroad. This source of energy, if it can be harnessed to scale, has applications beyond providing power for buildings or fuel for cars. It has all kinds of uses within industry and farming, too.
 
Watch for more companies to dabble in such investments, partly because of the “wow” factor when it comes to communications — who wouldn’t want to stand out with a bold next-gen energy announcement?
 
Image credit: Anika Huizinga via Unsplash