Per this article in Forbes, although it is expected that at least ten companies will incur at least $5 million in greenwashing fines, there appears to be movement towards positive environmental impact.

A few key points:

• Better ESG data programs will be created and used
• 80% of large companies will start capturing and reporting their own carbon emissions (up from 50% currently). This is going to impact their demands on vendors (see below).
• Scope 3 reporting (ie, your company needing to report carbon emissions to your clients) will increase as 67% of organizations intend to require vendor reporting
• Let’s say that one again – If you are a vendor to a larger company, or a vendor to a vendor, there is a 67% chance they are going to require you to start reporting your carbon emissions
• Travel will remain soft, driven by sustainability requirements
• Public companies will incorporate goals that drive sustainability behavior (putting more pressure on their vendors who are not sustainable)
• Companies that are sustainable will be better able to address global regulations and have a decided competitive advantage
• The current climate-related trend is expected to continue for at least 20 years, as implementation of programs will take that long. So, this is not a seasonal trend that is going away.
• Within 3 years, 45% of the G2000 (the 2000 largest companies in the world) will have fully integrated sustainable supply chains
• Let’s say this one again – If you are serving one of the 2000 largest companies in the world, or serving a vendor of same, there is an almost 50% chance that within the next three years, to retain their account, you will need to become certified sustainable

The acceleration of global action over the past 36 months has been stunning.  It is quite possible that many of the above timelines will be shortened.

This week, we covered a lot of ground – 

First, we looked at consumer preferences – Consumers are abandoning non-sustainable companies.  The cost of becoming environmentally certified sustainable is less than the cost of losing clients.

Second, we looked at how your advertising is working, or not working – Consumers don’t want to hear about your brand, they want to hear about your sustainability commitment.  The cost of becoming certified sustainable is probably less than what you are spending on advertising, and it would make your advertising far more powerful.

Third, we looked at your ability to hire and retain talent – Certified sustainable companies are paying less to hire and retain talent.  The cost of becoming certified sustainable is less than the cost of a single lost hire, or employee that quits.

Fourth, we looked at your corporate clients.  They are going to demand you become certified sustainable.  Think about who wins the bid when one of you is certified sustainable.

Fifth, we looked at the lenders – Cost of money will be higher for non-certified sustainable companies as lenders have attached higher risk to non-certified companies.  The cost of becoming certified sustainable is less than the interest rate differential you are going to see.

And finally, we looked at government regulations – By the end of this year, governments (including over 50) controlling +50% of the world’s economy will have sustainability carbon emissions regulations in place.  The question is when, not if.

We did not spend time on the fact that becoming environmentally certified sustainable is the right thing to do for the environment and future generations.  That should be reason enough. 

If interested in learning more, this PPP provides suggestions on what to consider when thinking about sustainability.     

This article talks about 10 trends to watch on the Environmental side of ESG.

For SMEs (small to mid-sized enterprises), these are the five of greatest importance:

• Increased supply chain efforts – There will be more downward pressure from your large clients, demanding you become sustainable in order for them to meet their mandates

• Focus on Private Company Emissions – There will be more interest and attention paid to private company emissions. This ties back to the first point, where your bigger clients are mandated to demand you develop your sustainability program.

• Standardization of Reporting – Again, tied to the above two points, you will need to use a globally-accepted program for your sustainability certification and reporting of emission data.

• A Broader Climate Lens – Consumers (B2C and B2B) using their purchasing decisions to show their demands and reward SMEs that can prove they are sustainable and have an emissions plan.

• Environmental Concerns Translate to Risk – For SMEs that delay becoming certified sustainable, risks will be greater – higher cost of money; government policy changes could negatively impact the ability to operate and compete; consumer demands will become harder to ignore; and investors will become less willing to fund.

Per this article, an Oracle study produced the following, which is consistent with other studies we have seen:

• 70% of consumers will abandon brands that do not take sustainability seriously
• 87% of consumes will pay a premium for products from companies that demonstrate environmental and social progress
• 78% are frustrated with the progress businesses are making with sustainability

When you combine the frustration with lack of progress, the willingness to abandon existing brands, and the willingness to pay more for a sustainable company, it is no wonder why certified sustainable companies are growing up to 20x faster than their non-certified peers.

Per this article in Bloomberg Tax, the EU actions, such as the Corporate Sustainability Reporting Directive (CSRD), may soon expose US and other non-EU multinational corporations to a novel type of tax reporting.

In short, since the 28 November 2022 CSRD, many believe reporting will start with the 2024 fiscal tax year.

Here is the crucial passage, with bold on the key words:

“The topic of tax compliance as an element of MS stands out, in that it is [not] considered … by CSRD. Nevertheless, the identification of procedures that are relevant and adequate for establishing compliance with the MS can follow the analytical process proposed for human rights and corruption, by considering OECD MNE Guidelines, which holds two key [tax] expectations for undertakings:

“(a) Undertakings should comply with the letter and the spirit of tax laws and regulations of the countries in which they operate. Complying with the spirit of the law is defined as “discerning and following the intention of the legislature”, which in turn is supposed to guide the determination of the tax amount legally required. (OECD MNE Guidelines, XI.1.)

“The first expectation is focused on the end-goal or performance of undertaking, for example avoiding and addressing negative impacts on society. The second [on governance] focuses on the means to achieve that end, for example policies and processes to embed tax compliance throughout an undertaking.”

The ‘spirit of the law’ is the issue.

What does this mean for you?  If you are a non-EU organization operating in the EU, you are out of time.  You need to have a sustainability program in place in the coming months and begin work on your ESG program.  This is going to be far more painful for organizations that are not sustainable and do not have an ESG program in place or well into development.

This article in the New York Post reports on this study and is consistent with other studies we have reported.  Key points

• Almost two-thirds of respondents stated they were more likely to apply to a job for a company that committed to sustainable practices.
• Three out of five respondents said they avoid employers they perceive as having a negative impact on the environment.
• 54% of respondents said that sustainability played a role in their motivation to work remotely.

Simple math – If you are looking to hire and 60% of the possible candidates will avoid you if they perceive your company is a negative impact on the environment, your hiring effort will be negatively impacted.

Sure, you can mask it.  But once they learn the truth, and they quit, the cost to you will be greater than had they not taken the position in the first place.

The Under 40 worker wants to work for a company that can prove it cares about the environment.  The Under 26 worker has an even higher expectation of same.

Those are the workers that are the future of your company.

The following are a few points from a new United Nations Global Compact-Accenture study on CEOs.  At the bottom is how this will effect you.

• 98% of CEOs believe it is their role to make their company sustainable (up from 83% in 2013)
• 75% of CEOs are launching sustainable products/services
• 72% of CEOs believe they are personally accountable for their company’s sustainability performance (up from 19% in 2013)
• 68% of CEOs say their customers are demanding they become sustainable – “Competition used to be based on cost of performance. Now a key attribute consumers are looking for is sustainability”
• 56% of CEOs are introducing new sustainability models
• 55% are lowering greenhouse gas emissions (this will impact you, as a vendor)
• 52% of CEOs believe government regulations are influencing their sustainability decisions (up from 31% last year)
• 34% are already reducing their Scope 3 emissions (this means you, as a vendor)
• 33% are already conducting value-chain assessments (this means you, as a vendor)
• 33% are already incentivizing ESG outcomes for their value chain (this means you, as a vendor)
• “Sustainability is the most significant business imperative of our time”
• “A sustainable business is a profitable business”
• “Sustainability is no longer a cost of doing business; it is a catalyst for innovation, growth, new market opportunity and wealth creation”
• “For the last 3 years, 60-70% of my conversations with shareholders pertain to ESG”
• “Valuation is no longer based just on earnings or growth anymore. The other big part of the valuation is based on sustainability, leadership, culture and the values you represent”

What does this mean for you?

• CEOs are now driving the transition to sustainability, so all departments will have sustainability as part of their goals/objectives
• Expect Scope 3 emission reduction demands to jump dramatically (ie, expect a call from your client)
• Expect value-chain reviews to jump dramatically (ie, expect a call from your client)
• Expect Procurement offices to more aggressively replace vendors with sustainable options (ie, expect a call from your client)

This article in Education Times suggests that whether companies look at consumer engagement, risk management, or profitability, it is clear, ESG is the future of business.

A few of the key points

• Per a PWC study, 83% of consumers want your company to have an ESG program
• Per the same PWC study, 86% of job seekers want to work for an ESG company
• Per Morgan Stanley, companies with strong ESG programs perform better
• In 2022, Impact Investing reached $1.164 trillion

As we have stated in prior blogs, we do not recommend your company go straight to an ESG program.  It is easier for your company to add one thing, rather than three.  We strongly suggest you start with becoming environmentally certified sustainable (the ‘E’ in ESG).  Once you are happy with that, progress to becoming certified carbon neutral.  ESG comes next; followed by becoming certified net zero.

This PPP gives advice on what kind of program you might want to consider.

There has been a lot of talk and confusion around ESG over the past year.

Let’s explain some of the confusion.

Sustainability is the ‘E’ in ESG.  It is doing fine.

When a company expands its internal policies to include systems, documentation and disclosure to improve on the ‘S’ (ie, Social) and the ‘G’ (Governance), good things also happen.  So, this is also fine.

The problem occurs when financial markets, looking to capitalize on the excitement over the movement, create and market ‘ESG funds’ and fill those funds with organizations before proper standards are created for vetting. 

The issue is not whether ESG is beneficial at the operating level; but that the financial markets, looking to capitalize, created products they did not understand; and without standards to guide them. 

In this WSJ article, Bank of America Chief Executive Brian Moynihan responded to criticism of ESG.

Speaking on a panel in Davos, Mr. Moynihan was asked whether businesses like his would abandon ESG goals in the face of criticism from Republican leaders in the U.S., who recently gained control of the House. Critics have said companies should be more focused on profits and that ESG uses loosely defined, PR-friendly terms.

He was asked what if, for example, Republicans win the White House in 2024: Would companies like Bank of America alter course on ESG?

“No, because our company has been around for almost 240 years,” Mr. Moynihan said.

He added that CEOs view ESG goals such as combating climate change and making their workforce more diverse as integral to the long-term health of their companies. “They’re going to run the companies based on a view of how to create long-term value and I don’t think that gets derailed” by politics, he said.

Mr. Moynihan said universal reporting standards will pressure big companies and their suppliers to commit to goals that help society while also boosting profits.

“This annualized disclosure has to show year-by-year progress,” he said. “It now binds the company … By having it disclosed on a periodic basis and [making] it part of the official record, so to speak, you can’t walk away from it.”