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Green & Good Outlook for 2024

Green and Good outlook 2024
By SEC Newgate team
21 December 2023
Green & Good (ESG and Impact)

2023 has been a significant year for Green & Good issues. Our expert team has taken a look at what 2024 has in store and made their predictions as to what the major challenges and opportunities could be. With a potential breach of the Paris Agreement on the horizon and greater investor focus and scrutiny on ESG performance and DE&I, 2024 will be a year when action must be taken. 

Tim Le Couilliard on the environment and net zero

"In 2024, the world stands at a critical juncture as rising temperatures threaten to temporarily breach the Paris Agreement to limit global warming to 1.5C. If reached, this significant milestone ought to focus minds and renew interest in the climate agenda. However, as history has shown, the ensuing dialogue may shift towards the blame game and next year, coinciding with El Niño, may see some deny or put off action until a later date or until we consistently breach the Paris Agreement. 2023 saw many impacted by widespread flooding, worldwide fires, and extreme weather – if 2024 brings the same levels of disruption, it will no doubt amplify the groundswell for decisive action, underscoring the imperative for change.

"Against this backdrop, global leaders will converge for COP29 in Azerbaijan where some will predict a rerun of COP28 – another petro-state with potentially conflicting priorities with a UN mandate to turn the tide on climate change. Expect focus once again to be on biodiversity conservation and sustainable practices, as well as renewed calls to firm up the commitment to a fossil fuel phase out, building on the progress made at COP28. London Climate Action Week (LCAW) and Climate Week New York City will continue to grow in importance, emerging as formidable rivals to Davos, as corporates are eager to showcase their commitment to sustainability to their stakeholders. Expect to see sustainable finance and innovative products tailored for both individual and corporate markets to take centre stage at these events.

"There could be a shift in corporate and national commitments, with a heightened emphasis on short-term, actionable targets, rather than long-term far-off goals. There is growing frustration over insufficient progress to date with some backlash against companies that fail to meet their sustainability promises. Rather than fixating on the distant benchmark of 2050, anticipate more entities pledging commitments within the 2030s, responding to the mounting demands of consumers and citizens for tangible changes within their lifetimes."

Sophie Morello on ESG

"ESG performance looks set to remain a key consideration for consumers and investors alike in 2024. Investors in particular are demanding consistent and reliable ESG data to support their growing interest in ESG-orientated investments; according to a survey from deVere Group, over half of investors plan to increase their ESG investments in 2024.

"With the need for transparent and consistent reporting, we’ll see the development and implementation of ESG reporting requirements continue. We already have the Task Force on Climate-related Financial Disclosures (TCFD) requirements, for example, which premium-listed and standard-listed companies must follow. And from January 2024, The International Sustainability Standards Board (ISSB) standards are set to become effective. These standards build on the TCFD guidelines and TCFD monitoring responsibilities will also transfer to the ISSB, further consolidating the ‘alphabet soup’ of current requirements. 

"From January, the EU’s Corporate Sustainability Reporting Directive (CSRD) will also come into play. Almost 50,000 companies will be subject to mandatory sustainability reporting, including non-EU companies which have subsidiaries operating within the EU or are listed on EU regulated markets. Then in the US, the Securities and Exchange Commission (SEC) is expected to introduce regulations that promote consistent and accurate ESG disclosures.

"We can’t overlook the ESG backlash driven by US Republicans this year, which has shaken confidence. The debate around the integrity, value, and purpose of ESG investing and reporting will certainly rumble on, particularly with a US election coming up, but it is unlikely to reverse the upward trend in funds flowing into ESG investments and it won’t impede the momentum for reporting standards. For corporates, there will be growing pressure to report and set sustainability targets if they haven’t already."

Andrew Adie on Governance and DE&I

"CEO conduct and governance around it have been big news in 2023, with a number of high-profile corporate leaders either losing their jobs due to relationships with colleagues that breached corporate rules (such as BP’s former CEO Bob Dudley) or due to governance issues (e.g. NatWest’s former CEO Alison Rose).

"Other CEO’s have lost their jobs or faced prosecution after being accused of criminal behaviour towards colleagues and we had the debacle of Sam Altman at Open AI being fired for being ‘not consistently candid’ in his communications to the board, before being re-hired when the board that fired him was replaced, with Satya Nadella, CEO at Microsoft – a major investor in Open AI - saying that they were satisfied by the governance changes. Rarely had governance been so interesting.

"In a world of increased scrutiny and transparency, CEOs are expected to lead by example and reflect expectations of multiple stakeholders – merely turning in a good set of financial results and a nice divvy is not enough to secure a CEO’s role. That trend will continue into 2024.

"On DE&I the issues play highly on public perceptions of ‘good’ corporate behaviour. Our annual ESG Monitor survey shows that governance and treating staff fairly and equitably consistently ranks among the publics’ key concerns and expectations for corporate behaviour.

"Yet despite the high profile of DE&I, progress remains patchy and slow. Recent research from the 25x25 initiative found that only 19% of divisional heads at FTSE 100 companies are women – which matters because this is the talent pipeline from which future CEOs are likely to be drawn. With only 8 current FTSE 100 companies having female CEOs, efforts to get greater gender diversity into senior leadership have pretty much stalled and that is not going to go unnoticed – particularly if we get a Labour government that has been focused on diversity in Opposition and is likely to be more interventionist with business.

"The other governance and leadership issue that looks set to rumble on into 2024 is the tussle around hybrid working. As more corporates look set to encourage more of their staff back to the office more regularly, we can be sure that it will create friction and debate from all sides of the fence particularly in an economic environment which is likely to see more candidates than jobs. Will employers start using governance and disciplinary routes to force reluctant workers back to their desks? It’s one to watch in the coming year.

"The final fascinating development is the focus on whether CEOs at the UK’s leading companies are being paid enough to ensure we attract the best talent in a global race for executive roles. The data suggests that UK CEOs (and those across Europe) are paid less than they would be in the US and elsewhere and that disparity is beginning to cause problems. Fixing it is likely to be an issue that is high on agendas in 2024 but that will not sit well with shareholders and the wider workforce if returns and wider wage growth remain sluggish.

"It has the potential to be rich fodder for ATM warriors and activists."

Dafydd Rees on nature finance

"In 2024, the major development in nature finance should be final approval of a high-quality global carbon offset system. Countries have until next March to submit their views on the monitoring and accounting for removals. 

"At the COP 28 talks, the USA and the EU failed to resolve how the UN should supervise this new framework. Once the recommendations provided under Article 6.4 of the 2015 UN Paris agreement are adopted, removals certificates traded on voluntary carbon markets can contribute to countries meeting their climate reduction targets. 

"World leaders are championing carbon credits as a way of mobilising capital to the developing world, while regulators have sought to address the pernicious issue of greenwashing head on.  

"Almost all carbon removals currently derive from nature-based solutions. The US financial services sector is lining up to participate in this developing market opportunity which, according to Bloomberg New Energy Finance, has a total market potential value of $1 trillion."

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