10 Trends That Will Define Sustainability in 2023

Happy new year everyone! 2023 here we go.

Last year we kicked off 2022 with 10 Sustainability Trends to Watch in 2022, and we feel pretty good about our forecast a year later. So why not give it a refresh?

Here are our top 10 sustainability trends we’re expecting to see gain momentum and define sustainability in 2023:

1. A New Era for Sustainability Accountability 

Last year we saw an influx of new sustainability legislation and regulatory requirements around the world. In 2023, we anticipate governments and government agencies will enact even more sustainability, circularity, and ESG-oriented laws and rules. The ‘forcing function’ on corporations is happening.

Currently, Europe is by far the leader in sustainability regulations, and this will continue throughout 2023. The EU passed the Corporate Sustainability Reporting Directive (CSRD) in November 2022, which will make comprehensive sustainability reporting a requirement for around 50,000 companies by 2026.

We’re seeing many companies doing business in Europe planning to use 2023 as a test-run year to understand CSRD and ESRS requirements and reporting effort levels, before CSRD reporting starts to become mandatory for larger organizations in financial year 2024. 

In other parts of Europe, we’ll see other important sustainability legislation go into effect this year. 

• Germany: Supply Chain Due Diligence Act, January 2023
• EU: Carbon Border Adjustment Mechanism, October 2023
• Netherlands: Human Rights and Environmental Due Diligence law, TBD

But beyond Europe and the United Kingdom, we’re also seeing the world step up sustainability accountability too. Australia and Hong Kong are cracking down on greenwashing, India’s introduced ESG reporting requirements, an emerging ecosystem, and a framework for sovereign green bonds, and even the United States is stepping up its climate accountability.

While the SEC’s 2022 proposed Climate Disclosure rule requiring public companies to report on their greenhouse gas (GHG) emissions has seen delays, we expect to see a ruling in April based on current guidance. The recently passed Inflation Reduction Act also includes around $374b in climate spending, while the U.S. government itself may start requiring climate disclosure from federal contractors.

2. A Big Push for Nature and Biodiversity

Everyone seems to be talking about biodiversity and natural systems right now, and generally we think that’s a positive.

The UN Biodiversity conference COP15 wrapped up in December and proved to be a momentous ocassion for biodiversity. Over 200 countries agreed to the Kunming-Montreal Global Biodiversity Framework (GBF), a ‘UN SDGs or Paris Agreement for biodiversity’ of sorts, which adopts 23 conservation targets for 2030, outlines a global 2050 biodiversity vision and shares guidance for implementation. With most countries on board for GBF, we expect some serious momentum and action around protecting biodiversity in the coming years.

One big example where that momentum is acutely needed is water.

Water is essential for life and a functioning society. Recently, the western U.S. has faced the worst drought conditions in over 1,200 years, while parts of the world have oscillated between record-breaking floods and concerning water scarcity.

Water insecurity has disastrous effects on agriculture, communities, and wildlife. We’re seeing some people talk about this issue, but not nearly enough action being done to mitigate harmful impacts. In 2023, more companies will pay attention to controlling and managing their water resources leading to more innovation. Water measurement and management is likely to become a "new carbon" in KPI terms for companies, particularly ones operating in water-scarce regions or water-intensive industries.

There also continues to be progress on the new Taskforce on Nature-related Financial Disclosures (TNFD), which is similar to the Taskforce on Climate-Related Financial Disclosures (TCFD) but focuses specifically on biodiversity and nature targets. Because there was a lot of publicity around biodiversity from COP15, we expect more involvement with the development of TNFD in 2023. The framework will likely be finalized by September 2023, so it’ll be important to stay up to date on all the TNFD changes in the coming months.

3. Closing the Loop on the Circular Economy

Another key 2023 trend is circular economy implementation. This is another area where Europe is leading the way compared to countries like the United States, where companies and regulators are more carbon emissions (and, increasingly, water)-focused.

As we move into 2023, new regulations are being implemented throughout Europe to reduce plastic waste, increase recycling and reuse, and overall improve circularity and waste efforts.

We’re also seeing more retailers like IKEA, Levi’s, Lululemon, and North Face working to reduce waste, utilize recyclable and recycled materials, and incentivize their customers to participate in circularity.

As recycling technology, re-use options, and reusable packing options continue to improve, we expect to see more companies include circularity as a key operational sustainability initiative in 2023. We’re also seeing an overall rise in re-use and circularity-native brands and business models, as well as more circularity-as-a-service providers.

4. Sustainability and ESG Reporting Standards Consolidation

One ongoing (valid) critique of ESG standards and sustainability reporting is they’re a complex, oversaturated ecosystem. With all of the different standards available for companies to report on, it feels like sustainability practitioners are drowning in an alphabet soup. There’s TCFD, UN SDGs, CDP, GRI, SASB, PRI, SFDR, CSRD… and the list goes on and on. 

To combat this issue for businesses, sustainability experts, and investors, the International Sustainability Standards Board (ISSB), under IFRS, is building out comprehensive, global ISSB sustainability reporting standards using SASB, TCFD, and GHG Protocol as a base for an integrated, consolidated set of new standards.

These standards will likely be finalized in 2023, encouraging more clear, consistent sustainability reporting from companies and for investors. They should also more closely align sustainability and finance teams around sustainability data and reporting.

We also hope governing bodies will continue to consult with ISSB to align their rules and regulations with these new global standards. For example, the European Sustainability Reporting Standards group is working closely with both GRI and ISSB to make sure that their standards for CSRD (ESRS) are aligned to reduce duplicative work for organizations. 

5. Net Zero Consistency, Rigor, and Scrutiny

In recent years, there’s been a lot of buzz around companies (and some governments) setting net-zero targets. According to the Science Based Targets Institute (SBTi)’s dashboard as of January 5th, 2023, 4,383 companies have sent net-zero submissions to SBTi and 2,141 companies have approved targets.

We’re still waiting for the official 2022 SBTi Progress Report, but we’re estimating that around the same number of companies submitted and had targets approved as in 2021.

During the pandemic, many organizations were proposing net zero plans, without necessarily developing clear roadmaps and action plans for how to execute them. Fast forward a few years and we’re seeing significantly more organizations becoming intentional, tactical, operational, and data-driven with their sustainability plans and decarbonization roadmaps.

A simple example of emissions forecasts modeled in Brightest

As pressure increases from shareholders, investors, and governments to report on GHG emissions and work towards net zero targets, we expect many more companies will commit to science-based targets, develop plans for their targets, and submit execution plans. The sharp increase in companies submitting targets to SBTi in 2021 and similar expected results in 2022, is a trend for many more companies will get on board with in 2023.

6. From Supply Chains to Supply Change

Supply chain management from an ESG and sustainability perspective was a hot topic for companies, investors, and regulators in 2022. In general, there’s a lack of visibility into organizations’ supply chains and environmental impacts, where it’s especially hard to capture what’s happening at indirect and Tier 2+ levels.

From an environmental perspective, understanding an organization’s supply chain is critical because it often makes up the majority of Scope 3 emissions and other environmental impacts. From a social perspective, knowing how workers in the value chain are treated can help ensure that they are paid and treated fairly.

This year we’ll see more organizations engaging their suppliers on sustainability action items and data, as well as going deeper into their supply chains to understand raw materials sourcing and their supplier’s suppliers.

To encourage organizations to manage their supply chain more responsibly, countries are proposing and enacting legislation ranging from the German Supply Chain Due Diligence Act (LkSG) and CSRD in Europe, to the New York Fashion Act and U.S. Federal Supplier Climate Risks and Resilience Rule. Many of these laws go into effect in 2023.

As more companies request ESG and sustainability data (and action) from their suppliers, we believe it’ll create a ripple effect that forces even more organizations to monitor their supply chain and key sustainability KPIs like GHG emissions. Hopefully, we’ll see the proliferation of a global supply chain ecosystem that’s transparent, more sustainable, more equitable, and easier to track, so we can better understand the true impact of an organizations’ business model and value chain.

7. ESG Investment Scrutiny Doesn’t Stop the Macro Capital Allocation Trend

In the final months of 2022, ESG’s been getting a lot of publicity - some positive, some less. As we discussed in our recent “ESG is dead, long live ESG” piece, many ESG critics claim ESG’s too complicated, and the lack of standardization makes it too confusing to provide value to investors.

Critics of ESG investing claim lack of standardization promotes confusion, sub-par returns, greenwashing, or a host of other harms. In the U.S., ESG investing has become a particularly polarizing issue. This past August, 19 state attorneys general signed a letter to investigate BlackRock that accused BlackRock of misusing funds to support ESG which would negatively affect state pension returns. Some states including Louisiana and Florida have even pulled money from BlackRock because they didn’t support BlackRock’s ESG investing initiatives and stance.

This week’s speaker election chaos aside, the new Republican House of Representatives will (eventually) continue to keep the backlash against ESG investing and climate regulation going.

However, public scrutiny isn’t always a bad thing though. With ESG becoming a controversial mainstream media topic, more people and organizations are talking about it. Ultimately, we hope this attention encourages people to support and participate in the ESG and sustainability ecosystem at a personal and professional level.

Moreover, clarity and definition issues aside, the overall macro trend toward ESG and sustainable investment. In fact, as Bloomberg recently reported, for the first time ever this past year, more money was raised in the debt markets for climate-friendly projects than for fossil-fuel companies.

Conservatives can complain all they want, this isn’t a trend that’s reversing any time soon.

It’s undecided whether ESG media attention will lean more positive or negative in 2023, but we’re expecting that this year will bring more clarity around ESG definitions and practices, with investment regulators increasingly stepping in.

8. (Renewable) Energy Security

We’re approaching the one year anniversary of Russia’s invasion of Ukraine, which not only sparked a humanitarian crisis but also a global energy crisis. Countries around the world are now trying to simultaneously protect consumers from increasing energy price inflation, while also reducing dependence on Russian fossil fuels.

So far, it’s been a warm winter, and yet we’re seeing many European countries regulating energy use. In France, for example, households are running their thermostats a few degrees lower than they normally would because of energy inflation and a less stable supply of gas and heating oil. These factors are making a strong case for transitioning from energy austerity to sustainable energy independence. 

Increasingly, our view is energy independence and renewable energy deployment will go hand in hand, both in Europe and other parts of the world. As fossil fuels become more volatile, expensive, and high-risk, renewable energy is following a different path: cheaper, more readily available, and more flexible in terms of deployment.

Renewables certainly still have flaws (and may require significant grid investment), but the alternatives — climate change, funding Russia’s military machine — are far worse.

9. Keeping the Climate Crisis (Somewhat) Under Control

2023 will be the year it becomes clear that humanity will avoid the worst-case climate crisis scenarios, but still suffer significant global harm to communities and natural systems.

This was one of the the many important topics discussed at COP27 in Sharm el-Sheikh, Egypt this past November, specifically the importance of getting as close as possible to the 1.5°C limit set in the Paris Agreement.

Realistically — or rather, scientifically — it’s unlikely we’ll be able to hit this target. According to the UN Climate Change, we’re on track for a 2.5°C increase in global temperatures by 2100 based on current rates of implementing emissions reduction strategies.

The chart above highlights the global surface temperature from 1880-2020. According to NASA, nineteen of the hottest years have occurred since 2000, with the exception of 1998. We won’t sugar-coat this at all: this is very bad.

However, at the same time, we still have the time, resources, and technology to prevent the most catasrophic climate scenarios from becoming reality. At COP27, numerous countries, organizations, and NGOs reaffirmed their commitment to reducing emissions and improving efforts to keep global warming to a minimum. Many conversations highlighted the importance of this goal, and governments were urged to strengthen their targets and accelerate their efforts by the end of 2023.

As we discussed in Trend #6, we’re seeing a lot more organizations set science-based targets which align with countries’ goals of committing to the 1.5° C limit. We’re hopeful these renewed conversations will push more entities to create actionable science-based targets and actually implement them in 2023. 

10. Sustainability = Business Model + Value Chain, ESG = Compliance + Investment + Risk

Companies that neglect ESG considerations across their business strategy and structure are at a statistically higher risk of experiencing controversies, reputation hits, and governance failings. According to a recent Sustainalytics report, public companies that experience high to severe ESG incidents lose an average of 6% of their market capitalization. ESG and sustainability issues genuinely move markets.

Organizations are becoming more aware that sustainability needs to be integrated into their business strategies and core operational practices. Similarly, 2023 will see more companies recognize that ESG needs to be addressed as a core risk and compliance discipline too.

Many new laws and reporting standards have integrated a ‘double materiality’ approach to ESG and sustainability reporting. Double materiality means companies must report on how ESG risks are managed within the company but also how companies are taking responsibility for ESG risks associated with their business that have an impact on people and the planet.

This method of thinking highlights the inherent risks both organizations and society faces from various ESG issues. Some policies are implementing penalties for organizations that do not report on their ESG and sustainability strategies (as well as climate risk planning and exposure), making ESG a compliance issue for companies.  

As ESG continues to become a focus point for many organizations, we expect that they’ll begin to understand that ESG cannot be siloed from overall business and risk strategies. Poorly thought out ESG strategies and structure can lead to reduced revenue, lack of shareholder support, and fines and penalties from regulators. Thoughtful companies know those downsides are risks worth managing.

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Clearly, we have lots to accomplish this year — and and in the years ahead. There’s immense, global positive momentum around sustainability entering 2023, and it’s up to all of us to cultivate and sustain it. With new regulations, renewed commitments, and more public awareness around sustainability, we’re optimistic that, together, we can make a positive impact on the world and continue to collaborate with companies and individuals that are doing their part to make the world more sustainable.

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