Top ESG Trends in 2023
With much of 2023 ahead and the effects of the pandemic shifting out of focus for many people, we’re in an interesting stage with ESG. It’s a movement that is steadily gaining public attention all across the world, partly out of necessity due to the increasingly apparent effects of anthropogenic climate change, and partly due to the need to modify our economic models to adjust accordingly.
Based on what happened last year and this shift in the public sentiment, here are several trends worth watching as the year unfolds.
Diversity And Race Will Be Workforce Topics
Proxy season is a time when most large, publicly traded companies host annual meetings for their shareholders. It’s a time for the company to show financial performance and for these influential investors to vote on issues stated on proxy voting cards. Even though the 2022 proxy season was a mixed bag, a few things stood out.
The first was issues relating to DEI (diversity, equity and inclusion), the most common proposal investors voted on last year. The second was the call for racial equity audits. Support for this went from 33 percent to 45 percent from 2021 to 2022. However, whether the business is large or small, many people are still learning about ESG and figuring out what’s ambitious and what’s too lean when it comes to measuring these projects.
However, larger companies have additional problems in that they may overextend what they can do. Yes, they have a lot of resources, but if the deadline is too tight then they might be key benchmarks. And with public backlash at the ready, companies really want to be hitting their targets in time. So even with a recession possibly looming over us, the larger businesses realise they need more talent, and they can’t rely on old (and possibly unethical) hiring practices to save themselves.
At the end of the day, shareholders ultimately have sway over corporations, so it’s possible that companies will slowly be forced to diversify their workforce if they haven’t made an effort to do so.
Anti-ESG In America Will Go Down With A Fight
The lingering effects of anti-ESG in America in late 2022 are still going to be around, but they will be a slow and controlled burn. This is because the current pushback against ESG is coming from the Republican Party. With more dubious government officials entering offices of power, clear in-fighting amongst those on the right, and the Democrats controlling the Senate, it’s hard to say whether anything is going to get done.
With the GOP in this position, it doesn’t make sense for the party to spend so much time trying to squash “woke capitalism," especially when nothing will come out of those hearings since any legislative impetus will be suppressed.
At the wider scale, ESG is still quite safe; however, that isn’t going to stop governors and state officials from launching their own anti-ESG initiatives. Those, however, will be limited to a handful of state capitals, as we’ve seen with governments divesting from firms like BlackRock.
And again, even with that pushback, what forces companies to change their stance is the shareholders themselves. With more people interested in this movement, it's safe to assume that savvy investors will steer companies more in this direction, regardless of political repercussions.
More Policy And Communication
With the EU leading the charge in policy formation, chances are that many other countries will begin to follow suit. These initial policies are crucial since they offer terminology and instructions for large corporations to adhere to.
Even if those don’t come into effect until next year and only for the largest EU and non-EU businesses, it’s a bit easier for the general public to understand the concepts and ideas. With ESG widely misunderstood by the public, further clarity and communication are necessary.
And with the government being influential and having an excellent way to communicate key principles as important as ESG, people will begin to understand it as a growing necessity.
Aside from that, businesses can also chip in by communicating how a low- or zero-carbon economy can benefit people in their everyday lives. A good example can be a shoe company explaining that with lower carbon emissions, customers can enjoy the outdoors without breathing in smog that could harm their lungs. Communicating issues as inherent to self-interest will always be a solid strategy.
Mental Health Will Be A Growing Issue
On top of staff shortages, burnt out doctors and nurses, mental health is another problem in the healthcare system. Even in Canada’s healthcare system, mental health treatment is one of those things that must be paid out of pocket. And in the case of American healthcare, even if you’re insured, mental health care isn’t covered either.
Chances are high that other countries have similar issues when it comes to this as well. And while people are now more open about their mental illnesses and seeking help, it’s clear that the systems in many countries aren’t built for these issues.
With the government not being able to cover that on top of their other priorities, these demands are being directed at companies. After all, companies are partially responsible for mental illness.
Combine this with many Millennials and Gen Z employees expressing their need to take mental health breaks, and we might be seeing more companies embrace this as an easy project to work on in order to make positive differences in the world, or at the least to add a sheen of social responsibility to a company’s brand reputation.
Diving Into Clean Energy
Between electric bikes, EVs, and a drive for cleaner energy, this year we can begin to see a larger shift toward other renewable sources of energy. This will still be difficult, as the Russian invasion of Ukraine will still dampen changes in energy in some places.
However, areas like energy efficiency and research into renewable energies are still going to happen. Renewable energy might not come in the form of wind or solar all the time, but interest in cleaner energy is growing, and countries are seeking new options. There is a lot of promise in this area.
Sustainable And Ethical Marketing
Another thorny issue for ESG last year was the number of companies that were "greenwashing." There was a growing backlash against companies that did this, with some lawsuits being filed against those companies. Greenwashing was making headlines from various sectors as well, which only served to dampen ESG and its legitimacy.
Thankfully, with the EU’s CSRD formation, standards are going to be implemented. Their policy is a good first step. However, there is certainly going to be more of that. Government departments will likely be forming their own ideas and implementing guidelines, like the UK’s Competition and Markets Authority, which issued guidelines and urged the government to add more legal strength.
Aside from that, the public is also growing more aware and is ready for discussions about ethical marketing. One ad that went viral around the holidays stressed a simple message: Christmas is made, not bought. The filmmakers even made a point of saying they wanted to stress counter-narratives to mass consumption that many retailers still push.
For certain, in the coming year ESG will continue to be defined by its broader issues that cover not just environmental expectations, but the social and governance methods by which we approach the further development of systems that respect equity, access, and fairness.
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