Alphabet soup of ESG reporting no more

Going into 2023, the ESG reporting landscape was like an alphabet soup, with executives often drowning in options of frameworks. But as the year went by, the International Sustainability Standards Board emerged as the framework of choice. Three elements give it an edge:

1. It was backed by the IFRS, which oversees—you guessed the acronym—international financial reporting standards that most global companies use and most regulators accept.

2. It is simple and focused. It deals only with climate-related financial disclosures, rather than delving into social and governance issues as well.

3. It is finance-focused, on how climate risks translate into financial risks and on single (inbound) materiality, rather than the more vague double materiality.

Scope 3 wins out

Relatedly, as the year went by, it became increasingly clear that company disclosures on Scope 3 emissions would become the standard going forward. In the U.S., another year went by in which the SEC did not decide on its guidance in this regard, but in the EU and among global business leaders meeting at COP28, the matter seemed settled.

Farewell to ‘ESG’

If prior years saw hype around ESG, 2023 saw that bubble burst. On the political side, Republican politicians in the U.S. took an issue with the social aspect of ESG, labeling it “woke capitalism,” as well as with the environment-focus of ESG, seeing in it a threat to jobs in the fossil fuel industry, and a loss of liberty in consumer choice of cars and other products.  

That political backlash led to court cases and bans on ESG investing for companies such as BlackRock and Vanguard, leading them to reverse course on their commitment to ESG. Elsewhere, companies such as Disney and AB InBev were hit with boycotts for their alleged “woke” behavior, leading them, too, to rethink their commitments to the cause.

At Impact Report, we continue to believe that environmental, social, and governance issues should be high on the corporate agenda. But we are less convinced by the current market approach to ESG investing, which often seems to be more about virtue signaling and exorbitant fees than about truly reflecting which companies combine doing well with doing good.

It’s why we declared “ESG is dead. Long live E, S, and G,” earlier this year.  

Climate summits are the new Davos

We started the year off in Davos, where we noticed that a record number of chief sustainability officers were present at the annual meeting of the World Economic Forum. (Notably, the vast majority of these executives are women.) With climate concerns topping the global risks report for business, these issues dominated the WEF meeting.

Later in the year, specifically at COP28 in Dubai, we noticed how the UN climate summit had become the place to be for businesses to talk about climate and find public or private partners for emerging sustainable business models. It led us to conclude that climate summits are the new favorite meeting place for global business, even as Davos is all about climate, now, too.

To fight emissions, focus on construction

Finally, we learned this year that the “built environment” is by far the greatest source of CO2 emissions, and how we’ll need to address that going forward to be successful in the fight against climate change. For a bright spot to end the year, see below for some of the world’s most sustainable corporate buildings.

Happy holidays to all of you, and see you in the new year. We’re off next week, back on Jan. 4!  

Peter Vanham
Executive Editor, Fortune
peter.vanham@fortune.com

This edition of Impact Report was edited by Holly Ojalvo.

ON OUR RADAR

Tech buildings top the list of greenest headquarters [INBOX]

The lion's share of CO2 emissions comes from "the built environment," we learned this year, so if we're serious about combatting climate change in 2024 and beyond, living and working in "green" buildings will be increasingly necessary. So PropTechOS, a real estate firm, decided to find out which are the most sustainable buildings to date in America, and they emailed us about their findings. 

It may not surprise you that tech HQs dominate the list. But the extent to which they do is mind-blowing: seven out of America's 10 greenest headquarters are those of tech giants—Alphabet, Amazon, Apple, and Microsoft, but also Nvidia, Salesforce, and Adobe. The other three top green HQs are those of JPMorgan Chase, Wells Fargo, and Abbott.

What makes these HQs "green"? One easy indicator is their LEED (Leadership in Energy and Environmental Design) score, handed out by the U.S. Building Council. To get a "Gold" or "Platinum" designation, the USBC looks for "healthy, highly efficient, and cost-saving green buildings, which offer environmental, social, and governance benefits." Right. In practice, this mostly means that buildings mostly provide their own energy, usually through renewable and efficient means; that they are water-independent; and that they are "smart" in all kinds of ways. 

Our take: It's great to see tech, finance, and health care companies set new standards in building sustainability. It would be even better if the rest of corporate America would follow along.