Despite its many challenges, 2022 saw many progressive innovations to help towards a sustainable future for people and the planet. 2023 looks to build on this progress. With this in mind, here are the key trends you should watch out for this year.
1. Net Zero: Focus on scope 3 emissions
Net zero is the goal of reducing greenhouse-gas emissions as much as possible, ultimately towards zero, and to counter any remaining emissions through carbon offsetting solutions, whether nature-based (such as, planting trees or restoring mangroves) or technological (such as direct air capture).
One of the main challenges of net zero is reducing scope 3 emissions, (indirect emissions by suppliers or consumers throughout an organisation’s value chain). In order to succeed in this area, solutions need more investment, buy-in and relationship-building.
Many countries already require companies to report on their scope 1 and 2 emissions, but recent climate disclosure rules from the US Securities and Exchange Commission (SEC) recommended that Scope 3 may also become mandatory. The UK has already brought in a law to make climate-related financial disclosures mandatory for larger companies (the first in the G20 to do so), and may very well follow suit.
Increased awareness of the requirements and benefits of scope 3 will accelerate the adoption of goals and initiatives in 2023 as companies focus on their supply-chain partners and how their products and services are used by customers. Scope 3 typically accounts for the vast majority of emissions, so reducing those that companies have direct control over (scope 1 and 2) can only go so far in reaching net zero.
2. Circular Economies: Building momentum on plastics, chemicals
The circular economy is a model of production and consumption focused on reducing waste and pollution by introducing reusability into the core of a product’s lifecycle. 2023 will be a crucial year for the circular economy, in particular by building on the agreement by 175 countries in 2022 to establish a legally binding treaty to end plastic pollution. The Intergovernmental Negotiating Committee (INC) will hold workshops over the course of 2023, with the aim of adopting the treaty in 2024.
Tackling pollution from source to sea will be increasingly important and will require multi-stakeholder partnerships between the public and private sectors, as well as among scientists, communities, and consumers.
The EU taxonomy on sustainable activities will start to include the circular economy for the first time from January 1st 2023, thus accelerating the incorporation of circularity in the investment community’s scrutiny of corporate activities.
3. Social Sustainability: Cost-of-living crisis intensifies, but offers opportunities
COP27 held last November in Sharm El-Sheik, was billed as the first Africa COP, with a focus on developing-country issues. The agreement on loss and damage illustrated the vital need for inclusive communities and considering the impact of climate on the most vulnerable communities. In 2023, this dimension is expected to rise further up the sustainability agenda.
This is mainly due to the cost-of-living crisis in many countries, caused partly by the war in Ukraine and rising energy and food prices. Policymakers need to navigate the increasing complexity of simultaneous climate, and cost-of-living crises. Both crises call for increased focus on energy efficiency and acceleration of investment in renewables, suggesting alignment.
However, bringing citizens and workers on board with the climate-action agenda will remain a challenge. For example, carbon taxes—as vital as they may be for meeting climate targets—may continue to face a backlash as cash-strapped voters react adversely to the imposition of taxes during a recession (even if well-intentioned), particularly if these moves are perceived as a hidden government agenda to raise taxes.
4. Standardised non-financial reporting
Last year, there was an increase in demand for non-financial reporting from different types of businesses, driven by a new European Climate Law and a taxonomy for sustainable activities to guide investment toward more socially responsible businesses.
The setting of standards to strengthen sustainability reporting and evaluation processes have been long debated before 2022, resulting in the EU’s approval of the corporate sustainability reporting directive (CSRD). The new directive revises and advances the existing rules set by the 2014 non-financial reporting directive (NFRD) following the EU’s heightened commitments to a green economy transition.
Companies will be subject to more detailed reporting requirements on sustainability matters, such as environmental protection, social and human rights, and governance factors. Businesses will need to report on how their business model affects their sustainability and how external sustainability drives (such as climate change) impact their activities.
While reporting is not required until 2025, this enhanced accountability from companies will equip their stakeholders with better information to guide their investment and purchasing decisions, essentially giving them more power over businesses in 2023.
5. The race to sustainable mobility
Transportation and mobility accounted for the bulk (61%) of climate tech investment in 2021. The transition to electric vehicles and other low-carbon methods of vehicles has mostly driven this. Transportation contributes to around 16% of global CO2 emissions and even though this is less than other sectors’ footprints, it has been nonetheless growing fast over the years. As such, electrifying transport systems is an essential part of the net zero transition.
Aside from electric cars, the pressure on cities to transition to less polluting modes of transportation and relieve traffic congestion has stimulated efforts to increase the availability of public transportation and bike routes, as well as ban car use at high-peak times and in high-traffic areas. We expect to see these trends continuing in 2023.
The aviation industry, which accounts for around 2.1% of all human-induced carbon dioxide (CO2) emissions, is also hoping to set records. The UK Government is planning to deliver the world’s first net zero emissions transatlantic flight powered by 100% sustainable aviation fuel (SAF), while Boeing will look to dive into the results of its ecoDemonstrator program with the aim to produce emission-reducing technologies into the sector.
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