In recent years, ESG (Environmental, Social, and Governance) issues have inevitably become involved in political and cultural disputes in the United States, which is no longer a secret. Several states controlled by the Conservative Party have legislated against incorporating ESG factors into investment decisions and implemented resistance against companies that prioritize ESG. Some well-known politicians are even attempting to repackage ESG as the 'awakening of capitalism'.
Recently, ESG advocates have expressed concerns that the newly appointed Trump administration may rapidly weaken US climate policies and related ESG regulations. However, the new regulations require listed companies to disclose climate related risks, indicating that ESG issues are still advancing.
Despite the uncertainty brought by political changes in the coming year, especially in certain regions, there are still five major trends that keep me optimistic about the future of ESG and sustainable development.
Despite the volatile geopolitical environment, multinational corporations will continue to adhere to ESG dynamics.
The global elections in 2024 may lead to changes in current officials, conservative political leaders, or the repeal of sustainability regulations from predecessors. This geopolitical shift will undoubtedly cause chaos and prompt companies to reassess the way they communicate their ESG strategies. However, 99% of companies in the S&P 500 index have reported ESG indicators, and most multinational companies are required to comply with substantive disclosure requirements such as the Corporate Sustainability Reporting Directive. Markets such as China, Hong Kong, Japan, and Singapore are also actively promoting ESG regulation. In the United States, states such as California may lead more states to implement greenhouse gas emissions and climate change impact reporting regulations. Therefore, by 2025, multinational corporations may be more pragmatic in discussing ESG initiatives and deepening investments in best practices and transformational technologies to improve data accuracy and transparency.
Forward thinking business leaders will see ESG as the key to reducing risk and enhancing resilience.
Challenges such as climate change, resource scarcity, supply chain disruptions, and social unrest continue to threaten business operations. According to S&P's forecast, if no action is taken, climate risks could lead to an annual loss of 4.4% in global GDP. By 2025, business leaders with solid ESG data will be better able to effectively address these risks. For enterprises seeking to avoid high losses and ensure long-term success, promoting sustainability strategies is crucial.
AI will drive ESG digital transformation, but companies need to balance commitment and risk.
Amnesty International and other organizations are promoting digital transformation in the fields of ESG and sustainability. According to a PwC survey, nearly half of the surveyed leaders stated that AI has been integrated into their company's core business strategy. KPMG research indicates that 58% of organizations believe that AI is crucial for enhancing ESG capabilities. By 2025, AI will completely change the way ESG data is collected, analyzed, and reported, providing real-time insights. Enterprise leaders utilizing AI will be able to make faster and wiser decisions, driving sustainable growth. However, the energy consumption of AI accounts for 1% to 1.5% of the global electricity supply, and raises concerns about governance, privacy, transparency, accuracy, and bias. By 2025, financial and ESG leaders need to demonstrate their ability to effectively balance AI and human insights, unleash the potential of AI while addressing risks.
Establishing an ESG team will enhance a company's sustainability sensitivity.
Establishing a sustainable organization requires teamwork, and this demand will become even more urgent in the future. Civil society organizations will continue to lead the development and reporting of ESG strategies, while collaborating with the finance department. EHS、 The data provided by business and supply chain leaders will guide ESG strategies. By 2025 and beyond, companies need to integrate ESG, sustainability, and data analysis into their entire organization. For example, the increasing demand for legal knowledge guided by social responsibility among legal professionals indicates that ESG sensitivity is crucial for enhancing corporate capabilities, achieving transformative results, cost savings, efficiency, and innovation.
5. Data driven ESG projects will bring significant competitive advantages.
Although the political environment is uncertain, the financial reality remains unchanged: companies that go beyond compliance and consistently provide high ESG performance have total shareholder returns and operating profits that are 2.6 times and 4.7 times higher, respectively. Strong ESG performance can also improve return on equity, return on assets, and stock prices, as well as business efficiency and risk management. The market size of ESG reporting software is expected to reach $4.3 billion. These data indicate that regardless of political sentiment, strategic, data-driven ESG and sustainability initiatives will continue to exist and become a true competitive advantage. By 2025, companies that persist in using data as a catalyst for innovation will discover inefficiencies, reduce risks, establish stronger stakeholder relationships, and enhance profitability. These are tangible business benefits that savvy business leaders should not overlook.