Free DownloadESG strategy and management: Complete guide for businesses
This ESG strategy and management guide explains what ESG involves and how it can benefit companies. You'll also find guidance on creating an ESG strategy and measuring a company's performance on ESG issues, plus information on frameworks for ESG reporting and software that can help manage ESG initiatives. Throughout the guide, hyperlinks point to related articles that cover those topics and others in more depth.
13 key ESG and sustainability trends, ideas for companies
From consumers to employees to investors, more people are choosing companies that prioritize environmental, social and governance concerns. Here are 13 ESG trends that matter.
For anyone who missed this memo: Conscious consumerism is in. And companies that aren't getting the message will be left in the dust by those that do.
From the boardroom to the shopping cart, a wide array of stakeholders are looking to environmental, social and governance (ESG) criteria to help decide where to put their dollars. Business sustainability, in particular, has come under the microscope in recent years as a result of the exponentially growing focus on climate change. CIOs and other leaders would do well to understand ESG and sustainability trends for business and take proactive action to get ahead of the competition.
Sustainability and ESG are here to stay
The corporate world is undergoing rapid change in how it thinks about and addresses sustainability and other ESG investing areas. Businesses are moving to address these needs differently -- sometimes by demonstrating leadership for others to follow and, in other cases, simply by keeping up with new regulations and industry norms.
CIOs, IT teams, business leaders, chief sustainability officers and other ESG managers all have important roles to play in business responses to sustainability concerns and other ESG-related issues. To that point, here are 13 ESG and sustainability trends that they all need to be aware of, plus advice and ideas for companies on how to address them.
Going greener is critical to climate change mitigation, and some organizations are augmenting that with a focus on climate adaptation as well. While mitigation focuses on preventing and reducing climate change, adaptation involves alterations to accommodate its current and future effects. Initiatives in Miami to raise street levels are an example of the latter.
Businesses need to include climate adaptation in their risk mitigation strategy. Climate adaptation requires exploring the different ways that climate change could disrupt operations, supply chains and customers, and how business and IT leaders will deal with those disruptions.
From more frequent hurricanes and wildfires to longer droughts, the long-term effects of climate change will increasingly be felt by business operations.
CIOs and other IT leaders might need to collaborate with other teams to develop a more agile risk modeling process that takes climate change into account. They also need to streamline how risk models tie into business continuity and disaster recovery plans and operational resilience models, according to consultants. This requires more frequent and detailed conversations with critical IT vendors, cloud providers and supply chain partners to identify new risks and plan strategies to communicate and address them.
2. More honest carbon footprint disclosures
One dilemma facing companies is how and what to disclose about their carbon footprint and other ESG metrics. Some business and IT leaders might be tempted to paint a rosier picture by minimizing their organization's impact. That's a mistake.
Emerging frameworks for greenhouse gases ask companies to be thorough in capturing the full extent of their emissions, said Rita Soni, principal analyst at Everest Group. "The pledges are based on reducing your carbon footprint rather than the absolute numbers," Soni said.
It's also essential to think about how companies can present these results across various indicators and audiences, she said. While Scope 1 emissions might be more tradeable on carbon exchanges, making meaningful changes on Scope 2 and Scope 3 ones could also have a positive impact on relationships with regulators, investors, employees and citizens.
What are Scope 1, 2 and 3 emissions?
The Greenhouse Gas Protocol provides categories of greenhouse gas emissions that technology and business leaders should understand. These categories are Scope 1 emissions, Scope 2 emissions and Scope 3 emissions:
Scope 1 emissions characterize direct emissions from the assets a company owns or controls, including factories, heating and cooling systems, and vehicles.
Scope 2 emissions are indirect greenhouse gas emissions -- those released into the atmosphere -- from the electricity, heat, cooling and steam a company buys.
Scope 3 emissions, which are likely the majority of emissions a reporting company generates, include indirect emissions not covered by Scope 2. Scope 3 emissions are generated throughout the value chain from upstream sources -- such as raw materials mining and refining -- and downstream sources -- such as distribution, product power efficiency and end-of-life emissions from recycling or disposal.
Some of the largest banks are starting to explore how they can redirect investments from more carbon-intensive industries toward ones that are actively reducing emissions, Soni said. And some of Everest Group's enterprise clients are asking how they can improve communication with employees around sustainability metrics and support them in taking a more active role in sustainability programs in the company.
Similar frameworks for other ESG measures might likewise reward progress rather than punish companies for their environmental impact.
3. Green IT
IT systems and services that prioritize environmental sustainability are becoming more important in the larger climate action movement, with CIOs and their teams increasingly focused on creating green IT environments. That's particularly true in tech-heavy industries, such as banking, finance and telecommunications, where IT investment has an outsized impact on a company's carbon footprint.
Government action is also providing a push. For example, green IT is a bigger priority for CIOs in the wake of the U.S. Energy Act of 2020, which raised power usage effectiveness (PUE) requirements, said Vidisha Suman, a partner in the digital transformation practice at management consultancy Kearney.
Typical objectives of PUE programs include migrating to more sustainable energy systems and implementing better usage tracking and more automated energy controls. Many companies are working to adopt green computing best practices, such as redesigning or consolidating data centers, migrating to the cloud and autoscaling workloads, to minimize their energy footprint. In addition, AI tools are helping to improve HVAC system efficiency to reduce power consumption.
There's limited historical organization experience with ESG KPIs and that in turn calls for a rigorous methodology to determine the right KPIs
Vinod PrashadManaging director of digital and analytics, SSA & Company
4. Better ESG data analytics
The data that companies should capture for ESG reporting remains an evolving area. The data challenge is significant because ESG-related data is often fragmented in organizations, and external data commonly also needs to be comingled with internal data sets for analysis and reporting, said Vinod Prashad, managing director of digital and analytics at consulting firm SSA & Company.
"There's limited historical organization experience with ESG KPIs and that in turn calls for a rigorous methodology to determine the right KPIs, identify underlying data sources and perform the necessary data transformations to calculate relevant metrics," Prashad said.
5. Growing use of AI in ESG initiatives
New AI tools are being developed for almost every aspect of business. In ESG, AI will serve as a business strategy advisor, tackle the complexities of ESG data by improving automation and forecasting, and suggest strategies for decarbonization, said Paneesh Rao, chief sustainability officer at LTIMindtree, a technology consulting and services company. On the financial side, AI will provide deeper integration with corporate balance sheets and financial metrics.
Rao said other ESG applications include the following:
Energy management. AI helps optimize energy use to lower greenhouse emissions and improve efficiency.
Financial inclusion. New AI models can perform alternative credit checks to provide affordable financial services to unbanked and excluded individuals.
Corporate governance. AI can analyze corporate governance data to assess an organization's ESG performance and identify potential improvements.
Climate change monitoring. AI can improve prediction accuracy to help decision-makers implement more effective mitigation strategies.
Health and well-being. AI can help improve access to quality healthcare in underprivileged communities.
Employment discrimination. AI can analyze hiring and promotion data to help organizations correct biases and ensure a more inclusive and equitable workforce strategy.
6. More emphasis on social and governance factors
ESG initiatives often focus primarily on what organizations can do to address climate-related risks and the environmental impacts of business operations. But people are beginning to come to grips with the long-term investment that is required, according to Ian Campbell, CEO of advisory firm Nucleus Research. For example, upgrading the power transmission infrastructure alone is probably a 100-year journey rather than a 10-year sprint, he said.
"That leaves social and governance, two areas where organizations can make a significant impact without impacting their bottom line," Campbell said. For almost no cost, ethical business practices can drive improvements in corporate reputation, employee morale, customer and supplier interactions, and investor confidence.
Addressing the social factors of ESG can be thought of as being a good corporate citizen, something many organizations already do without fanfare. The positive reputation from social initiatives can also pay off indirectly in hiring, government relations, expanded business opportunities and employee morale, he said.
7. Linking social ESG initiatives to business strategies
Successful social initiatives require more than just launching some well-intended projects, though. Beth Bovis, a partner at Kearney, said companies leading in the social component of ESG have three traits in common: They link their social strategies to their business strategies; measure economic impact, not just activity; and work in a multistakeholder way to plan and deliver projects.
Recent Kearney research found that less than half of companies are tracking the economic impact of their programs, and only one-third are using outside stakeholder input to plan and execute on their strategies.
Companies headquartered in the U.K. and China stood out by, for example, including more stakeholders and nongovernmental organizations (NGOs) in their programs than the global average. They also did a better job soliciting stakeholder proposals for programs.
Bovis is optimistic that leadership teams are continuing to invest in and prioritize the social agenda, especially when it comes to focusing close to home on their employees and communities. And more people are trying to assess the impact instead of simply measuring the time and money being spent.
However, Bovis said too many companies are going solo and not reaching into the stakeholder groups they seek to impact for ideas, collaboration and expertise.
For more on ESG strategy and management, read the following articles:
Sustainability is a critical aspect of a company's ESG efforts, but it's not the only one. Addressing workplace bias and creating better diversity, equity and inclusion (DEI) strategies has become a major focus for many organizations. Few companies can truthfully claim to have addressed inequality, however, and most organizations need to work harder to provide fair opportunities to all.
One ESG trend affecting this area is impact sourcing: supply chain initiatives that prioritize giving business to organizations that employ marginalized and disadvantaged populations. They build on more widely known workforce DEI programs that promote gender and racial diversity and aim to include people with disabilities and other groups facing challenges in the traditional hiring process. Everest Group has seen a substantial uptick in clients asking for information on impact sourcing, Soni said.
By partnering with suppliers that are committed to diversity and inclusion, companies can further tap into different perspectives, which can lead to business innovation and expanded market opportunities, said Tyler Thomas, sustainability lead at consulting firm AArete. More diversity can also help organizations strengthen customer loyalty, meet regulatory requirements and align with corporate social responsibility goals, ultimately contributing to improved business performance, he added. Thomas said DEI in supply chains should be viewed not as a financial burden but as a strategic business driver that promotes sustainable growth.
9. New ESG oversight structures at the board level
Boards of directors are starting to reorganize to improve oversight of ESG programs and emerging requirements. ESG reporting regulations are being added on a jurisdiction-by-jurisdiction basis. In particular, that includes the EU's Corporate Sustainability Reporting Directive and climate risk disclosure rules that the U.S. Securities and Exchange Commission finalized in early 2024 but put on hold after legal challenges. Global enterprises must be prepared to comply with such rules when they become effective.
Marc Siegel, a partner at PwC US, said that in the past, it might have been adequate to have every ESG topic monitored by an existing board committee, such as the governance committee. Given the rapidly changing environment, though, determining the right oversight structure can be a challenge, he said.
Some boards are adapting by setting up a single, ad hoc ESG committee. That might work for a while, Siegel said, but because different parts of a company's operations are involved in ESG activities, it makes sense to consider other structures. For example, some boards look to the risk committee to ensure that ESG risks are included in the enterprise risk management process. The audit committee is also increasingly involved in overseeing how management teams build the organization's ESG reporting infrastructure, including disclosure controls and procedures to guarantee that sustainability data is subject to similar scrutiny as financial information.
10. Increased focus on business ethics and integrity
Rao noted that ESG performance is under increasing scrutiny from consumers, shareholders, investors, employees and regulators. These stakeholders are raising the bar for ESG standards, and regulators are vigilant against false or misleading ESG claims. Investors are more discerning about the ESG status of their investments and quick to divest from those that fall short.
Business ethics and integrity are also increasingly under the microscope. For example, the negative consequences of greenwashing environmental issues highlight the need for transparency to build trust, making honest business practices and accurate ESG disclosures essential. "Greenwashing can lead to brand damage, regulatory scrutiny, fines and litigation," Rao said.
11. Ethical and fair labor practices
Labor practices are increasingly under scrutiny, too, in both internal business operations and supply chains. Consumers are more educated about fair labor practices and often consider them in purchasing decisions. The same goes for business customers.
Addressing these issues requires working closely with supply chain partners. "Ethical labor practices in the supply chain are essential for maintaining a company's reputation, ensuring compliance with regulations and fostering a sustainable business environment," Thomas said. By ensuring fair wages, safe working conditions and respect for worker rights, companies can fulfill their moral obligations, mitigate risks associated with violations of labor laws and enhance supply chain resilience.
This commitment to ethical practices also promotes employee engagement and can help drive long-term business success.
12. Heightened supervision of supply chains overall
Natalie Stafford, head of ESG and sustainability at consultancy S-RM, said the No. 1 ESG issue for clients has been getting a grip on their supply chains as a whole. "Without exception, they feel exposed to what they don't know, particularly for those with long and complex supply chains that cross into unfamiliar and higher-risk jurisdictions," she said.
The issue is driven by a combination of reputational concerns and regulatory requirements for transparency, due diligence and reporting. One major worry is that the EU's Corporate Sustainability Due Diligence Directive (CSDDD), which went into effect in July 2024, will increase ESG governance requirements. Companies will be required to map their risk and implement mitigation measures across their operations and suppliers. Stafford said it will be a long, laborious process entailing some hard decisions, particularly when key suppliers run afoul of CSDDD expectations.
A recent S-RM survey found that fewer than 10% of technology companies have policies for responsible supply chains. Developing them will be essential to meet regulatory requirements for child and forced labor, human rights abuses, bribery and corruption that are often associated with critical resources used in electronics manufacturing. "A first step for any tech firm would be to map the risks across the supply chain," Stafford said. "They need to know what they're dealing with and how concentrated or severe the risks may be."
13. Integrating ESG efforts across business operations
Stafford also expects to see more enterprises look for ways to integrate ESG across the business. In some companies, ESG is a separate function, particularly when the focus is on environmental issues. To some degree, environmental issues are easier to compartmentalize when it comes to developing and rolling out targets and programs.
In contrast, social and governance matters are more wide-ranging and touch on multiple departments and functions. DEI programs, while often overseen by HR or a chief human resource officer, require coordination across the firm. Geopolitical risk touches everything from sales to procurement and needs to be integrated into decisions on investments, partnerships and policies on internal conduct, such as rules against bribery and corruption.
"For the social and governance pillars of ESG to generate impact, they need to be integrated across the firm, and this means having an ESG team with the mandate to operate across the firm," Stafford said.
One troubling finding from the S-RM survey was that 55% of the tech companies that responded were relying on external consultants to manage their entire ESG and sustainability program. "This isn't a sustainable way forward," she said. "With so much of the program outsourced, it will be very difficult to get ESG properly embedded in the unique governance and culture of a firm."
Urgency on ESG and sustainability, despite the complexity
If ever the statement "If it's not one thing, it's another" felt relevant, it's today. The problems facing CIOs, other business and IT leaders, and ESG program managers truly seem never-ending. Despite that complexity, companies can't ignore the need for action -- and they need to act in a thoughtful and balanced manner.
Undoubtedly, IT teams will turn to technology in an effort to tackle sustainability and other ESG concerns. However, different technologies have their own issues. For example, training AI demands a lot of energy. Blockchain, which many will look to for supply chain sustainability help, also requires vast amounts of energy. While diversity and inclusion software can help power a DEI program, it can't take the place of a strong strategic and cultural focus on those issues.
Still, helpful frameworks, ideas and advice on ESG and sustainability are coming to the fore. With a sharp focus on the various aspects of ESG and awareness of trends that must be factored into strategies, IT, business and ESG leaders can make real progress in meeting organizational goals.
George Lawton is a journalist based in London. Over the last 30 years, he has written more than 3,000 stories about computers, communications, knowledge management, business, health and other areas that interest him.
