In 2022, the European Financial Reporting Advisory Group (EFRAG), the U.S. Securities and Exchange Commission (SEC), and the International Sustainability Standards Board (ISSB) drafted proposals for disclosure standards relating to sustainability and/or climate-related issues. The U.S. Securities and Exchange Commission, specifically, is requiring registrants to include information about climate-related risks that will likely have a material impact on their business, results of operations or financial condition. Additionally, they’re requiring the disclosure of information regarding greenhouse gas emissions, too.
Currently, those standards remain in the form of drafts. However, their final versions are expected to be issued in 2023. And while the complexity and lack of global alignment of these disclosures might spark criticism, they will undoubtedly impact sustainability efforts in the future. The proposals aim to increase transparency and establish consistency on sustainability-related issues. Therefore, they represent a global shift in prioritizing sustainability. In the coming year, companies and investors should prepare to adapt and report under these emerging (and potentially complex) sustainability disclosure standards.
Despite the added burden of legislation, regulation and mandatory reporting, the potential opportunity that comes with sustainability initiatives is great. With the demand for carbon-neutral technology, green energy and zero-emission automobiles, the race to get to net-zero could be accompanied by a lot of dollar signs. For example, McKinsey found that the increased demand for sustainable offerings could mean more than $12 trillion in annual sales by 2030. Eleven value pools that were identified as high-potential included industrials, hydrogen, agriculture and land use, water, buildings, carbon management, waste, oil, gas and fuels, consumer, power and transport.
Transportation is one of the industries that stands to gain the most from the move to sustainability in order to reduce carbon emissions. Car manufacturers have seen the green writing on the walls and they’re in some ways leading the electrification charge. An executive summary of the International Energy Association’s (IEA) Global EV Outlook 2023 shows that electric car markets saw their sales exceed 10 million vehicles in 2022 with 14 million electric vehicles expected to be sold by the end of 2023. That is a 35% year-over-year increase! With legislation enacted by the European Union and the United States that sets ambitious carbon emissions targets for electric cars by 2030, we expect to see this trend continue to bolster the bottom line of global car manufacturers for the foreseeable future.
Sustainable building and engineering in the construction industry is the second-highest sustainable value pool in the McKinsey report above. The global green building materials market holds a current valuation of $334 billion and is expected to surpass $962 billion by 2033. What we expect to see in this category is a continuous shift to green building materials, sustainable resources and energy-saving design. As with so many green initiatives, not only does the move to sustainability help cut carbon emissions to benefit the earth’s climate, but it also helps to cut costs for the construction companies and engineering firms that employ them. It can also offer a competitive advantage. In a recent global survey, 59% of respondents said that a sustainable supply chain can serve as the defining differentiator over their competition.
The energy sector comes in at the third highest building pool with energy and municipalities all over the world looking to utilize or completely switch to renewable energy sources and power generation. According to the World Economic Forum, more than a third of the world’s electricity will come from renewable energy sources by 2025. That’s more than a 90% increase in demand, which signals a significant decrease in global emissions and a significant increase is profits for those energy companies who are investing in renewables.
With extreme weather events occurring frequently across the globe and energy insecurity on the minds of many, we are becoming more and more aware of what is at stake if climate change isn’t addressed. According to the Paris Agreement, developed countries across the globe need to reach net zero by 2050. That’s an aggressive goal, but it’s also attainable, and businesses in all industries, including the ones above, not only stand to benefit humanity, but they stand to benefit their bottom lines as well.
If you’re looking to incorporate sustainability into your organization’s business functions, contact us. Through strategic planning and transformations, we can help companies in all industries transition to a greener future.
