What’s coming in 2024 in terms of sustainability trends?

And just like that, 2023 is over and 2024 is here! As we make our way into February, and into sustainability reporting season, it is also time to look back at what 2023 year left us with when it comes to sustainability, and the lessons we should put extra thought during this year. From extreme weather with the hottest year ever, to regulatory changes, 2023 was like no other. Drawing insights from the "MSCI Sustainability and Climate Trends to Watch Paper for 2024" here are some of the key sustainability trends we think you should to watch for 2024:

1. Spotlight on Corporate Oversight

The trend towards more stringent corporate oversight in sustainability reporting is evident. The document highlights that companies are employing methods to reduce their reported emissions, such as excluding emissions from certain assets or subsidiaries, particularly those not wholly operated by the company, like joint ventures. Another method includes deconsolidating emissions of pollutive assets after transferring them into a new joint venture or spinoff while still incorporating their share of net income.

2. Managing AI: The Basics Still Matter

The management of artificial intelligence (AI) technologies is becoming increasingly crucial as these systems begin to dominate sectors from finance to healthcare. The significant potential of generative AI to drive technological change is clear, but it also comes with risks. Policymakers, academics, and industry leaders are engaged in discussions on how to maximize AI's benefits while minimizing potential disasters. This includes considerations of monumental risks as well as more mundane ones that fall directly under a company's control.

One of the main concerns revolves around creating effective guardrails for AI deployment. Companies are now reevaluating their approaches to risk management, regulatory compliance, privacy, and talent management in the context of AI technologies. The challenge lies in adapting existing best practices to address the new risks posed by AI while harnessing its transformative potential.

3. Supply-Chain Due Diligence Becomes the Law

The modern business landscape is characterized by complex global supply chains that offer specialization, efficiency, and competitive advantages. However, these supply chains are not without risks, such as material shortages and quality assurance failures. A significant challenge is the difficulty in tracking the multitude of players involved in each production stage. Actions by a subcontractor deep within the supply chain can cause substantial reputational damage to major brands.

Regulatory bodies are responding to these challenges by imposing new policies that hold companies accountable for activities across their entire supply chain. This means companies are now explicitly responsible for actions taken at every stage of their supply chain, from the source to the final product. Such policies could lead to hefty penalties for companies found to be non-compliant. This shift emphasizes the importance of comprehensive due diligence and traceability in supply chains, representing a significant step in ensuring responsible and sustainable business practices.

4. More Corporate Climate Disclosures

The MSCI Trends Report emphasizes the growing importance of transparent and accurate climate disclosures by companies. As companies face challenges like inflation and higher input costs, there may be temptations to slow down decarbonization plans. Then arises the risk of walking back on climate promises and the importance of scrutinizing the fine print in sustainability reports to distinguish genuine transition plans from mere accounting differences.

5. The SFDR’s Unintended Consequences for Emerging Markets

The Sustainable Finance Disclosure Regulation (SFDR) may unintentionally pose challenges for emerging markets. The document notes that not many emerging-market firms meet the SFDR's high standards for sustainable investment. This could hinder the flow of the needed capital to these markets, which is essential for meeting global net-zero ambitions. The SFDR, along with the EU Taxonomy and the European Green Deal, aims to reorient financing towards a more sustainable economy. However, the application of "principal adverse impact" indicators (PAIs) under the SFDR has shown that emerging-market issuers often fall short, particularly in social and carbon-related indicators.

6. Investing in Nature

Nature and biodiversity are gaining significant attention from investors. The document states that over half of the global economic output is at least moderately dependent on nature, emphasizing the importance of nature's preservation and restoration. Investment opportunities are emerging in this area, including debt-for-nature swaps and investments in projects generating carbon credits. These avenues allow countries to refinance their debt in exchange for ecosystem conservation commitments and provide investors with returns for both nature and climate.

In summary, the MSCI Sustainability and Climate Trends to Watch for 2024 highlights a nuanced view of sustainability, emphasizing the importance of detailed and transparent reporting, the potential challenges in emerging markets due to stringent regulations, and the growing focus on investing in nature as a crucial part of the global sustainability agenda.

Is your head spinning from information overload? Want to become compliant with these or other sustainability standards but don’t know where to start? - We’ve got you covered!

At SustainLab, we keep up with the ins and outs of these sustainability trends so you don’t have to. Our sustainability management platform makes it easy for your organization to create sustainability targets and keep track of your progress towards their achievement on a regular basis.

Book a demo with us so you can see firsthand how SustainLab’s sustainability management software can help your company keep up with sustainability trends in 2024 and beyond!

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