2023: The Year of Governance, Regulation, and Smart ESG - Why sustainability professionals should take a well-deserved break during the holidays

You deserve a break, so rest up during the holidays. That’s my message to sustainability professionals when I look back at everything that’s happened in 2023. You’ve navigated the fast-changing ESG landscape, embracing new frameworks and regulations, and bringing people from across the business together. 

The result is that for the first time, corporate leaders are starting to understand that ESG isn’t a box-ticking compliance exercise, it’s about making tough choices and being impactful. We’ve heard a lot about the skills gap this year, but there's also an ESG literacy gap that will need closing now that ESG has a seat at the table. Your knowledge is needed now more than ever.

This article is about looking back on a year of growth and maturity in ESG, and taking a moment to feel proud of what you’ve achieved, before you roll up your sleeves and get back to work in 2024. Because it’s a big year ahead.

New regulations weren’t just about compliance

The big news of 2023 has been the proliferation of new regulations around the world: California’s mandatory Climate Corporate Data Accountability Act, the S2 Climate-related Disclosure Standards from IFRS, the UK’s Transition Plan Taskforce final recommendations, and the EU’s Corporate Sustainability Reporting Directive (CSRD) are all pushing companies to pay attention to ESG, particularly better governance.

These changes contributed to some push-back against ESG in 2023. Part of the issue is the complexity narrative: many people involved in corporate sustainability were talking about how confusing all the requirements are and how ESG is becoming a compliance exercise. But the reality is different. Strip away the language tangle and you’re left with clear guidelines all pointing in one direction: strategy leads, and compliance follows.

Regulation is often assumed to follow the market, but in this case, it's not following, it's actually creating innovation:  it will give you a competitive edge. We have an important partner in the CSRD. The regulation is pushing for strategic thinking around ESG, and that’s what smart ESG is about. You need to make choices and take ownership. And to do that, you have to bring ESG in-house.

ESG governance finally made it to the mainstream

Despite the so-called ‘ESG backlash’, this year’s resounding conclusion was that ESG is here to stay. Rather than companies moving away from it, there’s more focus on governance now than there ever has been.

If you look at the CSRD, the intent is to get leaders to show the world how they are handling and governing ESG, how they are taking ownership of this very large topic and making hard decisions. Strategy is at the heart of the regulation. In short, the CSRD will make companies more focused, and that's a good thing.

It’s also moving us from spreadsheets to people by focusing on individual accountability. The rise of the individual began with the Taskforce on Climate-related Financial Disclosures (TCFD), which made companies bring their CFOs into discussions around climate. We are seeing this trend amplified tenfold with the CSRD. This is great news for business and for the world: real change always starts with individuals.

Essentially, because the CSRD is mandatory, it’s acting as a partner in building a bridge to the C-suite, and in particular the CFO and the general counsel. They are seeing the urgency of backing up ESG with solid business processes, setting targets, getting robust data and reporting it out. It’s becoming clear to CFOs that it’s time to get prepared for ESG management and (externally assured) disclosure. And there is increasing recognition that corporate governance is the foundation for other ESG considerations. 

Take a break from the headache of collaboration

This individual accountability was amplified by a community of like-minded people who have worked incredibly hard this year to bring together teams from across the business that don’t always agree. Double materiality, as mandated by the CSRD, isn’t just a technical approach to ESG; it also makes ESG people-focused. Traditionally, the two different approaches – financial and impact materiality – were kept separate in companies. Now that they're doing the same thing from a different angle, they have to start working together. 

While we pause to celebrate the developments we saw in 2023, let’s also acknowledge the challenges they came with. Managing collaboration can be a headache. ESG is everyone's business now, and everyone wants to have a say in it. All these newcomers to ESG – including the General Counsel and CFO – have a different starting point in terms of what they think ESG and sustainability mean. Getting everyone on the same page can be difficult.

Despite these development pains, breaking down silos has had a big impact. In 2023, it resulted in leaders aligning sustainability and business strategies. And almost three-quarters of U.S. CEOs are now embedding ESG into the business to create value.

In part, the successes came out of a strong ESG community. Year after year we see the sustainability profession flourish – just look at how the annual GreenBiz conference has grown over the past few years. Everyone is connected around the purpose of creating change in ESG, and we saw real movement there in 2023.

The year of Smart ESG

At Datamaran, we have been tracking these trends all year, listening to the groundbreaking conversations happening across the community and applying AI technology to support this journey toward embedding ESG into the DNA of every company.

This year, we were privileged to share the stories of the New Heroes of ESG in the first episode of our docuseries. These leaders are sitting at the boardroom table to make choices about where to focus their ESG efforts. They’re focusing on good governance and covering fewer issues to address them more effectively.

With the docuseries, we aim to bring those inspiring and motivational stories to the ESG community, to show you that you’re not alone in facing challenges and making tough choices. As one of my co-founders at Datamaran, Jérôme Basdevant, wrote in an article this month: “Business leaders can’t afford to chase every ESG issue – there are hundreds. They need to make informed choices and focus their resources.”

Digital technology provides important solutions. Our commitment to the market and to our clients is clear: we build systems that help you make the tough choices companies need to make. We provide the insights you need in order to determine, based on evidence where you want to be most impactful.

To do this, we provide the blueprint of Smart ESG: focus on governance, prioritize ESG topics, bring expertise in-house, and monitor issues in real time. We enable leaders to confidently navigate the changing ESG landscape by transforming vast amounts of information into actionable insights. 

Rest up – 2024 will be a busy year

So 2023 was a year of change, growth, collaboration and strategy. It was the year the world started to focus on the ‘G’ in ‘ESG’. It was the year that sustainability professionals became indispensable: to succeed in ESG, companies need your knowledge and skills in-house, and they’re not easy to come by.

What about 2024? I’m expecting to see exciting developments as a result of these emerging regulations. Driven by data, companies will be focusing on what really matters. Individuals will take responsibility for ESG, and that will mean real change, value for companies, and have a positive impact on people and the planet.

At Datamaran, we’ll continue supporting this process, which includes leveraging the latest advances in generative AI. And we will keep building strong connections with the sustainability community: we’ll be hosting a breakout session and meeting attendees at our booth at GreenBiz 2024 and hope to see you there. We’re also hosting a private networking dinner on February 12, prepared by a Michelin-starred chef. If you’re interested in joining us, you can request an invitation.

We’re all about to embark on an exciting year for ESG. For now, let’s take the time to celebrate the successes, to acknowledge the new seats at the table, and to rest after a year of effort. Because now that ESG has arrived, we’ve got work to do.