A round-up of 2023’s top ESG business trends

In this ever‑changing business landscape we are here to help keep you informed on the major trends and themes that will shape the way we work in the year ahead, and beyond.  Here is a round‑up of insights from some of the world’s leading consulting firms, including BCG, McKinsey, Deloitte, KPMG and PwC.

Continued growth in ESG investing is the one trend that is widely forecast across the leading consulting firms.  According to a report by Boston Consulting Group (BCG), total assets under management (AUM) in ESG funds reached $30 trillion in 2020.  This trend is expected to continue in the coming year, and beyond.  The BCG report notes that ESG investing is “no longer a niche practice”.

The BCG report emphasizes the importance of the sector in addressing societal issues such as climate change and diversity, noting that large investors are driving this positive trend.  However, it also highlights the need for companies to have a clear understanding of how to effectively implement sustainable business practices in order to see tangible financial results.  This is where Carbonaires’ principle of “no greenwash” becomes crucial.

Another trend is the growth of corporate sustainability.  As companies seek to reduce their environmental impact, improve their social responsibility, and increase transparency and accountability, sustainability will become a key business focus in 2023.  According to a November 2022 report by McKinsey, companies that prioritise sustainability are more likely to outperform their peers financially, making it a smart business decision, as well as a moral one.

Just as BCG highlights the importance of the private sector in addressing the big issues, such as climate change, McKinsey’s report says that “business‑led innovation” is a major reason that companies will be crucial in any successful undertaking for sustainable, inclusive growth.

Sustainable finance, which refers to financial instruments and practices that support sustainability goals, is also expected to become more important in 2023.  As companies and investors look for ways to finance sustainability efforts and support the transition to a low‑carbon economy, sustainable finance options (such as green bonds and impact investing) will likely see increased demand.  A report by Deloitte found that the market for green bonds grew to more than $250 billion in 2020, and this trend is expected to continue in the coming year.

The Deloitte report says businesses need to ensure their sustainable investments are undertaken with “robust product governance and high‑quality independent assurance” as the main tools for “managing conduct risk in the green bond market.”

“For the market to function effectively in the long term, it is essential that the maturity and implementation of the product governance and assurance keeps pace with the size and scale of the green bond market,” say the report’s authors.

This financing tool is also forecasted to see increased popularity in 2023.  Green bonds are used to finance environmentally friendly projects, and are expected to become more prevalent as companies look for ways to finance their sustainability efforts.  According to insights from Deloitte, KPMG says the market for green bonds grew by almost 20% in 2020 – and this trend is expected to continue in the coming year.

As well as green bonds, Ganesan Kolandevelu, KPMG Malaysia’s head of climate change and sustainability services, urges diversity in environmentally friendly financing options.  While green bonds, green equity funds and green loans have paved the way for investors to inject money into financing sustainable projects, in order to reach anywhere near the level of funding needed, other financing methods need to be included in the equation.

Kolandevelu says these could include “emerging green products, such as ‘green securitisation’, which is the bundling of green loans into securities, enabling aggregation of multiple small‑scale loans helping to attract a different investor base; and ‘green leasing/renting’, such as green property leases, green car leasing, energy‑efficient leasing and green mortgages.”

Finally, PwC highlights the increasing importance of supply chain sustainability in the coming year.  Businesses will seek to reduce their environmental impact and improve social responsibility throughout their supply chains.  Supply chain sustainability will become a key consideration for procurement and chain management.  This trend is expected to have an impact across industries such as consumer goods, where the sustainability of the supply chain can have a significant impact on the company’s overall ESG performance.

The report says that there is a challenge to be overcome in dealing with Scope 3 emissions, which are out of the control of a firm.  However, the report goes on to advise on how to “build sustainability as a fulcrum of growth” by forging “partnerships with suppliers on their biggest sustainability challenges and opportunities.”