Three key ESG themes for 2024

May 10, 2024 | RBC Wealth Management


RBC Capital Markets' Sustainable Finance Group provides an overview of three key environmental, social and governance themes that it believes will shape the sustainable finance market in 2024.

Three key ESG themes for 2024

1. Language matters: more precision, more clarity, more impact

In recent years, the term ESG has been increasingly conflated with other concepts, which has distorted the term’s original meaning and increased politization of the term, particularly in the U.S. Much of this ESG backlash stems from a fundamental lack of understanding or misrepresentation.

In late 2023, three influential organizations—the CFA Institute, the Global Sustainable Investment Alliance (GSIA) and the Principles for Responsible Investment (PRI)—published a set of unified definitions to help ensure consistency of understanding and usage across different responsible investment approaches.

The five responsible investment approaches are:

•          Screening

•          ESG integration

•          Thematic investing

•          Stewardship

•          Impact investing

Language and defining this space are also of the utmost importance to avoid greenwashing. Though some progress has been made toward addressing the challenges associated with greenwashing—for example, many jurisdictions have requirements in place that address sustainability-related disclosures— greenwashing still remains a concern for many.

As the market continues to mature, more precision and consistency in the language will help to remove

ambiguity and return the focus to the original intention of using ESG data for investing: understanding the factors that drive opportunity, risk and value creation.

2. Pragmatic and credible solutions accelerate real-economy decarbonization

Despite a broader slowdown in the global sustainable debt market last year, 2023 saw an overall increase in issuers in hard-to-abate sectors (such as energy, industrials and materials).

2024 is also shaping up to be a big year for carbon markets. Even in the most aggressive net-zero scenarios there will be at least seven billion tons of residual emissions from sectors with limited options to decarbonize that need to be addressed annually.1 This will require vast amounts of carbon dioxide removal (CDR), which can come from both nature-based climate solutions (e.g., reforestation) and engineered or technology-based solutions (e.g., direct air capture).

Scaling up CDR to meet this demand represents an enormous economic challenge and opportunity, requiring $130 billion in investment every year from now until 2050.2 A scalable way to achieve this is through the carbon markets as they will play a critical role in facilitating the shift to a net-zero economy.

3. A new era for sustainability-related disclosure

In 2024, an increase in the regulatory adoption of mandatory sustainability-related disclosures is anticipated. The finalization of the International Sustainability Standards Board’s (ISSB) inaugural set of sustainability disclosure standards (the ISSB Standards), represented a major developmental milestone for the global sustainable finance market.3

The ISSB Standards came into effect for reporting periods beginning on or after January 1, 2024, which means investors can expect to see the first reports aligned with the ISSB Standards published in 2025.

In July 2023, the International Organization of Securities Commissions (IOSCO), the global standard setter for the securities sector for over 95% of world’s financial markets, endorsed and encouraged its members to adopt the ISSB Standards.4

Why this data matters to the responsible investing space?

As investors seek more information about risks and opportunities embedded in supply chains, and consumers seek to understand the footprints and lifecycles associated with the products they purchase and the companies they invest in, data matters.

Increased disclosure expectations will continue to heighten in 2024 and beyond. For example, specifically pertaining to the supply chain—investors will look for more information with regard to Scope 3 greenhouse gas emissions (an organization’s emissions from its value chain), responsible sourcing of critical metals, biodiversity and land use and working conditions.

A growing focus on accurate data collection, tracking and performance measurement will require companies to invest in new tools and establish deeper engagement with partners throughout the supply chain.

Growing pains and challenges may lie ahead with the integration of sustainability and financial reporting information, specifically with the underlying infrastructure—data, systems, processes and controls. As corporates work toward making sustainability reporting assurance-ready, some types of information, especially pertaining to the value chain, may be initially limited. The sustainability data from a corporate’s own operations may be assurance-ready at an earlier stage as the supply chain information gathered from partners will likely take more time.

  1. Buck, H.J., Carton, W., Lund, J.F., et al. Why residual emissions matter right now. Nature Climate Change. 13, 351–358 (2023).; IPCC AR6 – Limited or No Overshoot 1.5°C Pathway. The projected range of residual emissions is 6.79 GtCO2e to 11.87 GtCO2e.
  2. McKinsey & Company: Global Energy Perspective 2022 “Achieved Commitments Scenario”
  3. By consolidating the previous work of market-led investor-focused reporting initiatives, including the Sustainability Accounting Standards Board (“SASB”) Standards and the Task Force for Climate-related Financial Disclosures (“TCFD”) Recommendations, the ISSB Standards were designed to help companies disclose sustainability-related information to investors in a way that is consistent, comparable, and decision-useful.
  4. OICU–IOSCO media release: “IOSCO endorses the ISSB’s Sustainability-related Financial Disclosures Standards,” July 25, 2023

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