ESG in 2024: promising investment opportunities, yet it demands a vigilant approach towards associated risks

Over the past decade, the interconnectedness of sustainability, social, and governance risks with financial risks has become evident. Companies are not eager to make expensive investments in terms of ESG. This has to do with the difficult terminology, definitions and labels that have not always been clearly articulated. Still, those hesitant to embark on the ESG journey may eventually face more substantial financial commitments.

Just last year there was massive talk about the sense and nonsense of ESG investments. ESG was even declared dead by some. But things are not going that fast. Whereas 2023 was all about keeping up and complying with changing European ESG legislation, 2024 is the year of innovation. Clearer articulation of investment objectives and higher quality information will convince both investors and companies of the benefits of good ESG policies. In the European Union, the first reporting round of the Sustainable Finance Disclosure Regulation (SFDR) already provided a steep learning curve last year. Time to dive into the ESG trends for 2024. As a company, what can you expect?

Flexibility must unite the desires of employer and employee

Throughout 2023, numerous companies and business leaders faced challenges in enticing their employees to return to the office. Initially employing noncommittal incentives and emphasizing rewards, the situation eventually escalated to the implementation of mandatory return policies, accompanied by penalties for those who did not willingly comply by the close of 2023.

Once again, this year, employers find themselves navigating a delicate balance between their own preferences and those of their employees. The prevailing anticipation is that companies will widely introduce incentives capable of appealing to both parties. These may include recognition for voluntary engagement in social activities or providing increased autonomy post-promotion. Consequently, 2024 is poised to be the year of flexibility, demanding that both companies and employees adjust to the evolving norms of the workplace.

In doing so, it is important to provide tailored support programs to support the well-being of your employees, such as programs focused on deconnection, stress, energy, ... Leaders have an important example role here.

Diversity and inclusion

Diversity, equality and inclusion are also integral components of social responsibility in 2024. By prioritizing human rights, companies can demonstrate social responsibility, which leads to additional trust and loyalty among employees, as well as consumers.

AI as a new colleague

The integration of generative AI is now a tangible reality in the business landscape. Despite the inevitable job transformations it brings, the impact on employees doesn't have to be a cause for concern. AI is primarily adept at automating repetitive and typically mundane tasks, leaving room for jobs to evolve into more intellectually engaging and challenging roles. Companies stand to benefit from increased productivity by investing in AI and providing training for employees to adeptly embrace and leverage this new technology.

But policymakers, academics and industrialists disagree on how to deploy AI in the business world.Allen While all acknowledge its considerable potential, the rapid ascent of AI also brings forth associated risks. Meanwhile, the first steps toward regulating generative AI have been taken thanks to the European AI Act. This legislation should protect our fundamental rights, democracy, legislation and environment from the risks of AI, and on the other hand make Europe a pioneer in this field.

Regulatory risks

For a considerable period, companies overlooked practices such as forced labor and deforestation under the pretext of ethical considerations. However, the emergence of Gen Z in the workplace has brought about a heightened demand for justice across all domains. To accommodate this new generation, companies will have to break certain existing practices. Policymakers will need to start using the term "equity" more often to achieve true sustainability solutions in the "S" pillar of ESG. Companies need to become familiar with all forms of justice: climate justice, economic justice, racial justice and gender justice.

With the new ESG regulations, ethical dilemmas suddenly become regulatory risks as well, and can have serious financial consequences. in the EU companies must now report according to the European Sustainability Reporting Standards. The amount of information companies provide about their own social footprint and sustainability will change in the coming years. The mandatory and extensive reporting may be a burden for companies that have no experience with it. On the other hand, investors will be able to make better informed decisions or comparisons between companies. Companies that get their reporting right will thus be able to attract investors more quickly and easily.

Climate running wild

2023 will go down in the history books as the warmest year on record. From unprecedented heat and the accompanying forest fires, to hurricanes and blizzards. Our climate is literally running wild. The immediate and tangible challenges posed by climate change will only increase over the years.

Companies must learn to deal with the consequences of that climate change. Changing weather conditions raise questions about how to deal with it as an employer. Under what conditions can you let your employees work or not? How do you monitor their well-being? And what can you do to make their work as pleasant as possible? Simply installing air conditioning will not be enough. As we look to the future, new measures of risk - and new ways to manage them - will be critical.

Investment opportunity

There are also positive notes. The low-carbon energy transition could represent a major investment opportunity. Combined with an increase in primary investments, private capital will play a major role in climate finance. Nature and biodiversity have emerged as priority areas to address. Thereby, sustainability-oriented investors are asking how to minimize damage to ecosystems or contribute positively to nature-based solutions.

By 2024, the importance of investing in nature will only increase. The line between opportunity and risk is thin, and investors will need to carefully examine which projects are credible when it comes to maximizing climate and nature returns.

Conclusion

In 2024, ESG continues to hold a prominent position on the agendas of investors and financiers. It is up to companies to master the necessary regulations, deal with today's risks, and implement investments in the areas of ESG and sustainability.

Those who do not have the necessary expertise themselves can seek help from experts such as Move To Happiness. Because ESG is here, and it's here to stay. Those who engage with it, adeptly produce accurate reports, and demonstrate commitment stand to secure a promising future.