If the evolution of corporate sustainability and environmental, social, and governance (ESG) initiatives were charted on a scale of human development, the last year would have been its awkward teenage phase. We could all see the potential; some huge growth spurts were happening, but the whole thing looked and behaved more like an assemblage of disparate parts than a fully developed, poised adult.
Now, as we brace for the year ahead, excited about the next phases of maturation, and maybe a bit nervous about the prospects of bad influences and careless decisions, it’s important to take stock of the big milestones and important trends of 2024 that will shape the future. Following is my review of the most important events in the last year in the evolution of corporate sustainability.
Greenwashing Gives Way to Greenhushing
Perhaps the best single example of shift in sentiment around corporate sustainability in 2024 was the about face many companies made around green claims for their products and services. A 2023 study from McKinsey and NielsenIQ found that consumer products making “green” or ESG-related claims accounted for half of all retail sales, and that those products were significantly outpacing their peer groups with a compound annual growth rate of 28%. Coming into 2024, it was hard to find a corporate website or read a press release that did not make some reference to sustainability, climate goals, or carbon reduction targets.
As the year progressed, however, a rising tide of anti-greenwashing lawsuits and threats of regulatory action against companies making green claims that could not be substantiated, caused many businesses to re-think their green-tinted marketing strategies. At the same time, a growing political backlash against ESG introduced the concept of “woke capitalism” and many companies started to become quieter on sustainability. Accordingly, research has found that mentions of the words “environmental, social and governance,” “ESG,” “diversity, equity and inclusion,” “DEI,” or “sustainability” on corporate earnings calls of U.S.-listed companies have been declining steadily.
However, even though companies may not be talking about sustainability as much these days, their actions speak louder than words. Among the world’s largest 250 companies, for example, 96% now produce sustainability reports, and the average length of corporate sustainability reports has grown to 83 pages as businesses disclose more data and detail than ever about the facts of their sustainability strategies. Ultimately, what’s happened over the last year is that as companies dialed back the marketing and fluff around sustainability, many of them upped the ante on substance. This increased focus on detailed and quantifiable metrics is the result of both regulatory and consumer demand.
Regulation Hits Hurdles
The regulatory landscape has seen a huge amount of activity this year. In March 2024, we saw the introduction of the U.S. Securities and Exchange Commission (SEC) Climate Related Disclosure Standards, which would have required U.S. public companies to disclose information about the climate risks their businesses face and the carbon emissions they produce. Shortly after the rules were finalized, however, they faced a challenge from the U.S. Court of Appeals, where litigation is still pending. Additionally, President-elect Donald Trump’s nominee to lead the SEC, Paul Atkins, who has been highly critical of the rule, is widely expected to abandon it once he takes the reins as SEC Chair.
Meanwhile in Europe, where sweeping reforms such as the EU Deforestation Regulation (EUDR) have encountered possible delays, and the Corporate Sustainability Due Diligence Directive (CS3D), Corporate Sustainability Reporting Directive (CSRD), and the EU Taxonomy Regulation are getting a closer look by regulators, the prospect of a policy walk-back has become a reality. As we close out the year, Germany is pushing back on the CSRD, and has asked the EU to soften its rules in light of a downturn in the economy.
Beneath those headlines, however, it is important to note that corporate sustainability-related regulation has not gone away. Even the SEC, despite the challenges to the Climate Related Disclosure Standards, has been quietly enforcing violations of the Investment Company Act to the tune of millions of dollars in fines for firms that have been accused of greenwashing. Similar to what’s been happening in large corporations, sustainability and ESG-related agendas are still very much in play—even if the players are not as vocal about them as they once were.
ISSB Standards Quietly Getting on with Business
The one constant in an otherwise volatile year of on-again/off-again regulatory proposals has been the sustainability reporting standards developed by the International Financial Reporting Standards Foundation’s (IFRS) International Sustainability Standards Board (ISSB). Launched in November 2021 at the COP26 climate conference, the ISSB issued its first two reporting standards, IFRS S1 and S2, in June of 2023. Since then, some 30 jurisdictions representing 57% of global GDP, have adopted the standards and introduced climate disclosure requirements for businesses around the globe.
Starting in January 2025, many companies will begin reporting their financials in line with the IFRS sustainability standards, establishing the foundation for global climate disclosures. Importantly, unlike the various regulatory proposals introduced in the U.S., EU and in other parts of the world, these standards are rooted in the world of accounting and financial reporting, and—as a result—they are already starting to define the future of corporate sustainability reporting. In addition, it is expected that an increasing number of jurisdictions will mandate the use of these standards, and that potential new topics such as Biodiversity and Human Capital may eventually be added to the mix. Importantly, the IFRS sustainability standards appear to be immune from the political maneuvering that continues to heavily influence the major sustainability and ESG regulations elsewhere.
What’s Next
While it is no easier to predict exactly what will happen next in the world of corporate sustainability than it is to know how a teenager will turn out as an adult, there are some signs that point to upcoming milestones on that journey. The widespread adoption of the IFRS sustainability reporting standards will, of course, be one of them, along with the eventual finalization of a wide range of sustainability-focused regulations in jurisdictions around the globe. Dramatic policy swings and shifts in consumer sentiment will also likely be a factor, as well as macroeconomic and individual company performance. Supply chain transparency and digitization of sustainability data to allow for wider access, and independent assurance of said data, will become even more important in 2025.
Through it all, the businesses at the center of these changes will need to keep their focus on the fundamentals. While it’s easy to be distracted by the bright shiny thing or speculation about how things might change, the fact remains that stringent new sustainability reporting requirements are on the way and businesses will need to comply. Business leaders will also want to stay mindful of the fact that sustainability risks are business risks, and they need to be treated with the same level of attention as any other business risk. That sober, rational approach will ultimately define success in the next phase of corporate sustainability evolution.
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