As businesses map out their strategies for 2024, there’s no doubt that ESG will be of greater consideration than in the past. Momentum towards tackling climate change continues to grow and several clear trends have emerged that will have a positive impact on how businesses decide to act.
Overall, growing enthusiasm across industries to make as big a difference as possible is something to get excited about.
More reporting legislation
This year, one certain trend is an increase in environmental legislation in the UK and the EU. In January 2023, the Corporate Sustainability Reporting Directive (CSRD) came into force in the EU, to be incorporated into UK law in 2024. Organisations that fall within its scope will have to apply the new reporting rules for the 2024 financial year, to publish in 2025.
So this year, large businesses will make greater efforts to collect and publish data. They will need to report in line with the European Sustainability Reporting Standards.
As a result of increased reporting requirements, more businesses see the need for technology. Big tech companies are jumping on the ESG bandwagon, creating standalone platforms or adding sustainability modules to existing finance, procurement and CRM systems.
They are reacting to a growing challenge for all businesses: the need to collect information relating to ESG from different sources. When data is integrated successfully, organisations can monitor their performance and become agile about introducing corrective measures.
One of the tech companies leading this space is IBM. Its solutions include enterprise carbon management software and IBM Envizi, which is a solution designed to help companies meet reporting requirements. Microsoft also offers Sustainability Manager as an add-on to Microsoft 365.
As the need for the right tools becomes more widespread, the hope is that they will become more accessible and cost effective.
A focus on social value
While many organisations still focus on the ‘E’ of ESG, there is a growing trend to get to grips with both the ‘S’ and the ‘G’. Businesses are now familiar with what good governance looks like and we have noticed the increasing importance of social value to our clients, including taking it into account when awarding work.
Social value is now a key element in the process to award central government contracts. This is in accordance with public sector procurement policies in the UK, as well as within Green Public Procurement in the EU. Many businesses now need to include ESG data in bids to secure work and we have seen social value scored up to 20%.
In 2023, we published our first social value report. We discovered that we delivered £45.6 million in social and local economic value in 2022, a total we’re extremely proud of.
The UK’s biodiversity net gain legislation has been delayed, again, but it still looms. Unless exempt, developers of major schemes in England will be required to provide biodiversity net gain of 10% from February 2024. The law will also apply to small sites from April 2024, with a further rollout in 2025.
This isn’t the only reason biodiversity is increasingly in the spotlight, but it has helped. We expect the conversation to scale up in importance throughout 2024 as the risk of biodiversity loss becomes common knowledge. Organisations will start to disclose their efforts in line with the Taskforce on Nature-related Financial Disclosures, a set of recommendations that help businesses to integrate nature into decision making.
A new take on carbon offsetting
In 2023, Camden Council announced a novel take on carbon offsetting. In partnership with Retrofit Credits, the council is offering Camden-based organisations the chance to offset their residual carbon emissions by purchasing local credits that go towards energy efficiency improvements in social housing.
Given that the carbon credits market is widely considered inadequate, 2024 could mark the beginning of a new approach. Currently, carbon credits are too cheap and the market is not transparent enough, particularly in the area of nature conservation. This launch could mark the market’s maturing into schemes that have a tangible impact on the UK’s overall carbon reduction goals.
Scope 3 takes centre stage
Most large organisations have got to grips with scope 1 and 2 emissions - the emissions a company directly creates from its real estate and the emissions created indirectly such as through the production of the energy it consumes. The area of scope 3 emissions is more tricky - the emissions generated up and down a business’s supply chain.
However, while gathering data on scope 3 emissions is tricky, more businesses are engaging with the challenge. Some are starting to ask suppliers to report on and even conform to certain environmental targets. If they don’t, they will lose the business.
At LSH, we are undergoing a project to ask all our suppliers to provide data on various measures. In 2023, we reported on our scope 3 emissions for the first time.
Language is tightening
As environmental transparency has increased, the language surrounding all elements of sustainability is becoming clearer. Language that was previously used only by experts is now commonplace as carbon literacy becomes widespread.
This progression makes data collection and reporting easier and will help the entire real estate industry assess assets coherently. While targets may remain the same, what will change is that the language used to define them will be more accurate.
We can’t solve it alone
The outcomes of COP 28 have been universally accepted as disappointing. The language surrounding the phasing out of fossil fuels remains unclear and many countries’ promises are watered down at best. There are concerns that as COP 29 will be hosted by another oil-focused nation - Azerbaijan - progress will continue to stall.
However, there is growing acceptance that even if we can’t solve all challenges instantly, we all need to do our best. Businesses are more understanding of the need to strive for perfection - but getting as far as possible towards it is good enough.
With this has come an increased degree of transparency. Corporates are more willing to admit when they have missed the mark with environmental measures or social value - and are being applauded for their honesty. They are using it as an opportunity to improve.
As this attitude is likely to continue throughout 2024, we are looking forward to seeing more examples of transparency and a willingness to pursue ambitious goals.
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