As we gear up to gear down for a little rest and relaxation into the new year, we at FrameworkESG wanted to take a look back at what has proven to be a banner year for all things ESG while also putting our heads together to set the stage for a few trends we expect—and are excited—to see unfold in 2022.
And while no one has a crystal ball, we believe that the incredible, and at times dizzying, pace of change from 2021 provides some insights into the direction of travel on many issues that we think will continue into 2022.
A look at 2021
On the ESG front, 2021 was a year of unprecedented activity and momentum.
We’ve been working with clients on ESG strategies for nearly two decades, and can say that this past year was particularly energizing, and if we are honest, somewhat overwhelming for many at times. But we are infinitely excited and hopeful for what this “craziness” implies: companies are increasingly recognizing the opportunity and value at stake from assessing and integrating ESG into strategy and communicating on these more transparently. And we are ready and excited to help them along on this ride.
A quick anecdote brings this pace of change to life. Over the six to eight weeks this autumn that a few of us spent preparing for a presentation to compliance leaders on ESG standards and ratings, new Global Reporting Initiative (GRI) universal standards were released, the International Sustainability Standards Board (ISSB) was officially launched, mandatory TCFD reporting in the UK became official, and the Science-based Targets Initiative released the first set of global guidelines on corporate net-zero commitments.
To say that the pace of changes meant we needed to take a “just-in-time” delivery approach to the final content would be an understatement. But more importantly, this is one simple example that illustrates just how critical it is to keep looking ahead to see what is over the ESG horizon.
On that note, we asked Framework colleagues to reflect on which ESG themes and trends they believe will take shape over the next year.
A look ahead to 2022
Trend #1: Rise of the regulator
Whether it’s the expected SEC requirements in the United States, mandatory TCFD reporting in the United Kingdom, potential requirements for SASB reporting in Chile, mandatory environmental and diversity disclosure on the Singapore Exchange (SGX), or the roll-out of the various ESG-related regulations in the European Union (the EU Taxonomy, Sustainable Finance Disclosure Regulation and Corporate Sustainability Reporting Directive, for example), we’ve seen, and will continue to see, a shift from voluntary to mandated ESG disclosures globally. The International Sustainability Standard Board (ISSB), officially launched just last month, will also take on its work of drafting global ESG standards targeting the capital markets.
Analyst Hasib Nasirullah sees this increasing regulatory focus as an opportunity: “The entrance of regulators into ESG is a huge opportunity to solve common ESG issues around disclosure quality and comparability, drive laggard companies to get on board with reporting, and push forward the integration of ESG in business strategy.”
Trend #2: Convergence and collaboration
Alongside this trend of rising regulation, in 2021 we saw new partnerships formed and consolidation occurring between previously “competing” standards. For example, we saw the IIRC and SASB joining forces to create the Value Reporting Foundation before ultimately becoming part of the ISSB. But beyond formal consolidations, other standard-setting organizations are joining forces to define new standards. For example, GRI and the European Financial Reporting Advisory Group (EFRAG) are working together to define reporting requirements of the CSRD in the EU, along with crafting new biodiversity standards.
Consultant Faith Nicholas is looking forward to the collaboration that such convergence and partnership will enable: “I expect this trend to continue and look forward to seeing which ideas come out of these new collaborations. Cooperation, rather than isolation, will increasingly become the preferred method to address our global challenges.”
Trend #3: Integration and elevation
An implication of regulatory and investor focus on ESG, we’ve seen a push to put financial and so-called “non-financial” information provided by companies on a level playing field, including through an increased focus on integrated thinking and reporting, more rigorous GRI standards, and the formation of the ISSB.
Senior Analyst Eva Cozart believes this will raise the bar for all companies and lead to more useful information for all stakeholders: “I look forward to seeing how companies raise their game in 2022 to provide more transparency and rigor around reporting on ESG-related performance and impact on value creation.”
Trend #4: From the “great resignation” to the “great attraction”
Many have dubbed 2021 the “year of climate.” But alongside the growing recognition of the urgency of climate change is the realization that employees are ready to vote with their feet or take a leap of faith into the career unknown. Indeed, people are leaving the workforce or changing jobs in record numbers.
The reasons for this vary, but research indicates that many employees are seeking more flexible working arrangements. For example, several recent studies, such as that from Gallup, reveal that nearly 90 percent of those workers who can work from home don’t want to return to the office—at least not full time. About 30 percent would prefer to “never” come back, and 60 percent just one to four days per week.
Content strategist Lorinda Niemeyer sees this as an opportunity for companies to rethink the “what” and “where” of work to be more responsive to employee needs: “I’m eager to see how companies rise to the occasion to make workplaces more compelling, attractive, and employee-focused, not only through new policies but also through innovative design and approaches to collaboration.”
Trend #5: From “transition” to “just transition”
This last year has laid new groundwork for the transition to a low-carbon future, as regulators, investors, and other stakeholders push for transparency and action, and companies have ramped up commitments.
What will become of these company commitments is still an open question. But many have started to rightfully point out that, just as the negative impacts of climate change are not equally distributed (in fact, poorer countries disproportionally bear the brunt of the changing climate), the distribution of opportunities from a transition to a low-carbon economy is not likely to be equitable without thoughtful design and intervention.
At its core, a “just transition” seeks to ensure that the benefits of a green economy shift are shared widely while supporting those who may lose out economically, whether they are countries, regions, industries, communities, workers, or consumers.
The conversation around the “just” is trailing the discourse on “transition,” but we expect it to grow in prominence as more companies and organizations are realizing that decarbonization (among other goals) is a must.
The journey continues
Moving into 2022, we think most company executives and boards have a decent understanding of what is included under the umbrella of ESG and recognize that stakeholder expectations of companies’ ESG efforts are changing. But the bar is rising quickly.
Regardless of how these and other individual trends unfold, we are excited to see the focus on ESG continue. Simply put, ESG matters. And while ESG seems to be having a moment, we believe it is here to stay.