Where Will ESG Be in 2023?

Today is the last Spark of 2022 and what a year it’s been, from Ukraine to supply chain shortages to crypto meltdowns, market corrections, covid/flu/rsv outbreaks and billionaires behaving badly. In a WeSpire: Live! session earlier this week, the collective mood of the speakers was one of exhaustion and yet, optimism. There does seem to be light emerging at the end of a tough year tunnel.

So what is giving leaders in the ESG space, including me, optimism right now?

1. Increasing standards and regulatory frameworks

Let’s face it: ESG reporting is a nightmare for most companies right now. There are way too many reports to complete for too many different organizations and standards bodies. The data needed isn’t standardized. It’s difficult to validate and verify. The “wild west” nature of this industry opened the entire field up to valid criticism, including the ESG ratings firms getting hauled into testify in the US Congress. But there is a lot of momentum for streamlining standards. Watch closely the work of the Task Force on Climate-Related Financial Disclosures (TCFD) and the ISSB, which recently consolidated the Values Reporting Framework (SASB and Integrated Reporting Framework) and Climate Disclosure Report Board (CDRB) as well. In the US, the SEC climate risk disclosure rules, if they pass, would standardize how climate risk and greenhouse gas emissions are reported for public companies.

Often regulation is seen as bad by CFOs and companies. In the case of how ESG reporting is done, my sense is that most teams are relieved that order is emerging from the chaos.

2. Global momentum among investors, in spite of some US-based backlash

Whenever people who govern a lot of assets feel under attack, fireworks commence. It’s becoming increasingly obvious that ESG, while far from perfect, is here to stay and that is prompting a backlash among those who have a lot to lose in a Net Zero world. To quote Global fund manager and B Team CEO Halla Tomasdottir, “The ESG backlash is here because the big picture is real, and momentum is not going away. Massive sums of capital are already flying in. More than 90% of S&P 500 companies now publish ESG reports. ESG will this year exceed $40 trillion worth of assets. The amount allocated to sustainable investment funds reached around $2.5 trillion at the end of June (2022).”

She goes on to say “Leaders who attack ESG adoption and cling to “business as usual” are terrified because their old power playbook is under threat–from old-power capitalists to opportunistic politicians in the United States and elsewhere. Business as usual is how they hold onto power. ESG done right is fundamentally about transparency, and transparency gives power back to people. It’s a force for restoring trust and catalyzing belief in our ability to navigate the coming decades, together.” Amen.

3. Energy breakthroughs

Scientists have shown that we could power the entire planet with renewables by 2050. That’s amazing, but faster would be better. Last week a lab in California achieved an incredible first that could help accelerate that timeline. Just after 1 a.m. on Monday, Dec. 5, researchers at the Lawrence Livermore National Laboratory in California executed a successful experiment to produce more energy from a nuclear fusion reaction than went into the lasers used to power the reaction.

I remember having dinner with some brilliant MIT scientists in 2018 advising a potential presidential candidate on clean energy. The consensus at the table was that scientific breakthroughs for fusion were at least 10+ years away. We are moving fast on these breakthroughs and while commercialization will take time, it’s exciting to see.

None of us knows what 2023 will be like and Black Swan events seem to emerge more regularly. But that is why adaptability and resilience, both personally and professionally, is proving to be such a valuable trait. So here’s to you, and the teams you are part of, being resilient in the face of whatever new challenges lay ahead.