Last December, Raconteur asked experts in sustainability to weigh in on the most important themes for business leaders to be aware of in 2023 – from ‘greenhushing’ to the ever-increasing tangle of ESG regulation.
Half a year on, what has changed? Here are the key trends and updates you need to know.
Business can no longer ignore the climate crisis
As terrifying as 2022’s extreme weather events were, 2023 is proving that the impacts of the climate crisis are hitting harder and faster than ever before. Record-breaking heat has baked Europe, China and North America this month – in fact, 3-10 July was the world’s hottest ever recorded. That’s not to mention receding polar ice caps, intense cyclones, widespread flooding and wildfires across the globe.
“Companies are starting to realise the [energy] transition is not going to be smooth, both from a physical point of view – heatwaves, floods, droughts – and in terms of the associated economic impacts,” says Heidi Hellmann, director at sustainability consultancy Marakon.
For instance, there have been shortages of many important crops this year due to extreme weather, forcing businesses to rethink their supply chains and sending commodity prices sky-high. “This should be causing companies to think more about adaptation and to relook at their scenarios – what are they assuming is a business-as-usual case, does it include some element of climate change?” Hellman says.
Business braces for new carbon reporting requirements
A host of changes to UK and international law are set to impact businesses over the next few years. Many spent H1 scrambling to adapt their operations before the new regulations kick into action.
In particular, the EU is set to implement major changes in how companies must account for their carbon footprints – requiring a “broader scope and greater detail”, says Kristian Rönn, co-founder and CEO of Normative. One crucial element of the new reporting requirement is the Corporate Sustainability Reporting Directive (CSRD).
There has been real momentum in public debate and action towards net zero
This new law, coupled with the Corporate Sustainability Due Diligence Directive (CSDDD) – which obliges companies to perform due diligence on environmental harms throughout their global value chain – is “already provoking change in many companies’ business operations, even before they come into full force,” says Natalie Stafford, ESG director at S-RM.
The changes – which will start rolling out from early 2024 – will not only affect European businesses.
“The CSDDD will affect a wider value chain, including UK companies whose EU-generated income surpasses the turnover thresholds,” Stafford notes. “Equally, EU subsidiaries will be required to measure, report and mitigate the environmental and social impacts of not only their own but others’ operations within their supply chains.”
It’s a lot to get your head around, as many business leaders agree.
“From a ‘boots-on-the-ground’ position, most of our European clients feel overwhelmed with new regulations, and whilst some clarity is emerging, there are still lots of grey areas,” says Ed Wealend, chief innovation officer at Longevity Partners.
“In particular, nature-based regulation and reporting is emerging through initiatives such as the Taskforce on Nature-related Financial Disclosures (TNFD), and the industry is yet to see how this will play out in practice.”
Building regulations put focus on sustainability and biodiversity
The MEES (Minimum Energy Efficiency Standards) came into effect for UK commercial properties on 1 April 2023. The legislation bars new lettings of offices, shops and other business premises with poor energy performance ratings.
As much as 7.5% of office floorspace and 5% of retail space does not meet the minimum grade of E, according to Knight Frank.
“We are seeing a real polarisation between businesses who dealt with their business property when the measures were announced years ago, and those who are now starting to panic,” says Justin Tuckwell, managing partner at property consultancy Rapleys. “Many businesses will need to invest urgently.”
But Jennie Colville, head of sustainability and ESG at Landsec, believes the real estate industry has seen “real momentum in public debate and action towards net zero over the last six months.”
From November this year, many developments must ensure that wildlife habitats are left in a better state than when they began – this is called biodiversity net gain. Colville says she is “pleased to see this topic gain more prominence” among developers.
Greenwashing pressure intensifies
Experts identified pressure on companies perceived to be greenwashing as a key area for 2023 – and the crackdown on misleading environmental claims has only intensified.
We are seeing more caution from investors when it comes to weighing up risks and opportunities
“In late January, the UK announced it would investigate sustainability claims made by businesses, to ensure they are factually correct,” says Rönn. “The UK’s Advertising Standards Authority (ASA) in collaboration with the Competition and Markets Authority is set to examine the accuracy of ‘green’ claims made about household essentials – such as food, drink and toiletries – to make sure shoppers are not being misled.”
Particularly in the spotlight are carbon-neutral claims backed by the use of carbon offsets. The ASA released updated guidance in February that promises bans for advertisements which do not prove their offsets remove carbon from the atmosphere.
It follows an investigation by the Guardian this year which found that carbon offsets certified by Verra, the industry-leading standard, were all but worthless. Verra disputes the claims but its CEO stepped down in June.
Inflation affects sustainable choices
Last December, experts warned that support for sustainable lifestyles could fall by the wayside as consumers battled the rising cost of living. One survey found that more than half of consumers have switched or plan to switch from sustainable grocery products to cheaper but less eco-friendly alternatives.
Mark Sait, CEO of SaveMoneyCutCarbon, sees a more positive outlook. “Consumers continue to be battered by inflation but we’re finding that the eco habits adopted during the pandemic have remained strong. Independent research commissioned by SmartestEnergy backs this – four out of five people describe themselves as likely to choose a brand with a positive approach to environmental sustainability.”
He adds: “Domestic consumers haven’t stopped being committed to reducing plastic use and creating less waste, along with the pressing need to cut energy and water use, taking control of rising bills. For example, in announcing an extension to the single-use plastics ban in January, the Department for Environment, Food & Rural Affairs said that more than 95% of those who responded to its consultation were in favour of the further restrictions.”
But inflation is having a “significant impact” on investment decisions, notes Wealend. “While we’re not seeing activity come to a complete halt, we are seeing more caution from investors when it comes to weighing up risks and opportunities.”
He adds: “It’s very easy to set a target and shout about it: investors now want proof that the funds they’re investing in have credible, complete, and costed pathways to achieving those goals, not marketing slogans or activity that is ultimately greenwashing – whether intentional or not.”
