ESG Spotlight: 2023 A Year in Review

January 23, 2024
Samuel Leavitt
Blog

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Amenity revisits ESG themes that were selected as “must watch” at the start of 2023. We take a look at how extensively the themes were featured in news, earnings calls, and SEC filings over the year, as well as which companies’ activities best captured those themes.

As we head into 2024, Amenity Analytics revisits ESG Themes for the past year and looks at how they have shaped out in 2023 compared to 2022. Our end-of-year review includes all document types we cover in news, earnings calls, and SEC filings.

The conversation around ESG is a defining issue, and will continue to sit in center stage throughout 2024. Conversations about business and the future of our planet now happen in nearly every place you can imagine. From parliamentary and legislative complexes, to office break rooms and online forums. This is why we cover a variety of document types, to capture the diverse array of voices discussing ESG and the companies that shape the world around us.

Materiality and Greenwashing

The first theme, materiality and greenwashing, developed in 2023 with regulators starting to crack down on greenspeak and environmental claims, with the latest investigation targeting Unilever just recently in December.

An increase can also be seen in discussion around ESG disclosures, which saw a 74% increase in mentions of “CSR” on our ESG platform and a 77% increase in mentions of “sustainability report”. Sustainability reports are considerably more data rich than in previous years and as such, companies have more readily referred to them in 2023.

This is one area we are focusing on for 2024, to build out ESG insights from sustainability reports as an additional document we cover. As mechanisms like the EUs CBAM and other carbon taxes near reality, this kind of information becomes all the more important for investors to have readily available.

Resource and Materials Use

As predicted, water had a more prominent role in 2023 than in past years. Traditionally conversations around water use have been limited to a handful of industries centered around food & beverage and manufacturing. This year however there was increased discussion about water use for the Tech sector, particularly on the topic of water used to cool data centers. This issue was prominent enough that several major Tech companies featured disclosure around increased water use in their sustainability reports.

As water scarcity continues to become a more prevalent issue we expect companies to make strides in using seawater as coolant over freshwater and increased focus on desalination to convert seawater into freshwater. The traditional ‘water guzzlers’ too in the beverage industry will need to make progress in this regard as well by limiting fresh water use in water scarce areas.

Deforestation and land degradation also saw more discussion. The majority of food and beverage companies are now investing in what they call “regenerative agriculture”, a series of measures to improve soil health and renew watersheds in what are really supply chain investments for companies that require access to the vast grain growing regions of the United States.

Critics say there is no evidence that these investments will actually improve land health and biodiversity, but companies are confident that these measures will protect their agricultural supply chains from environmental risk and thus their business interests.

Archer Daniels Midland (ADM) details their progress on regenerative agriculture in their first ever report on their progress. This article covers the measures in depth, but essentially the investments consist of planting more cover crops to help renew soil health and sequester carbon when crop fields are not in use. There is no one definition of what regenerative agriculture is or what it should consist of, but from the looks of what Archer Daniels and other major companies are doing these are not new or groundbreaking techniques.

It is quite possible with the commercialization of agriculture that these protective measures were considered too costly or unnecessary to the bottom line and fell by the wayside over the last century. Now these measures are being taken more seriously as supply chain investments. Time will tell how effective these measures are, but they adhere to basic principles of cover crop management that have been developed over centuries.

Human Capital

Another prominent ESG theme for 2023 was labor. Mentions of “strikes” on our ESG Platform rose 214% while employee “walkouts” rose 60%. The end of 2023 was capped by the UAW strike that resulted in a 33% increase in pay for veteran auto workers at the major auto manufacturers in the U.S.

The labor landscape was also impacted by the writers strike, another significant workers stoppage. More recently Tesla has faced a selloff in Scandinavia as Pension Denmark is selling off all their shares. This is a result of Elon Musk’s refusal to negotiate with autoworkers in Norway, Sweden and Denmark. Unions are becoming increasingly powerful as we have seen over the past few years with the successful execution of labor stoppages and ability to achieve positive outcomes for their members.

Furthermore, industries that have not typically had unions in the past have moved towards organization as we have seen with Amazon and Starbucks employees and even more recently in the Tech space. As of 2022 statistics show that the average CEO makes 344 times more than their employees. This statistic was used prominently in the UAW strike to publicly and personally call out the CEOs of American auto manufacturers. Unions will continue to push the status quo as they gain traction, especially in America where they have historically not been as strong as unions in Europe.

While 2023 was a big year for organized labor, there was much less discussion around diversity, equity, and inclusion. This is the second year in a row that we have seen less discussion around this theme on our ESG Platform and hopefully we will see more focus on this as well as financial inclusion in 2024.

Clean Tech Beyond Wind and Solar

It will take more than just traditional wind and solar generation to decarbonize in the long run. An increased focus in recent years has been around the storage and utilization of energy after it has been generated by solar and wind, as well as plugging those solutions into the grid to power buildings, charge electric vehicles, and generate hydrogen from renewable sources to use as fuel and storage.

We saw an increase in a variety of topics concerning hydrogen in 2023. We also saw an increase of 9% in mentions of “electrification of industrial trucks”. This was a phrase we saw frequently in Earnings Calls as companies are upgrading their fleets to run with more electric vehicles and in other cases hydrogen fuel cell trucks.

Another area we have seen a recent uptick in discussion, although not an overall year over year increase has been geothermal energy. Geothermal is the singular most untapped resource we have. In the U.S. this is primarily generated in California and western states, but the Appalachian region in the Eastern U.S. has tremendous geothermal potential. In our last article focused on geothermal in Earnings Calls we found there were several companies around the world were furthering development of this technology.

ESG Outlook for 2024

2023 saw the emergence of several themes including water use and management as a prominent theme and carbon emissions coming closer to being a financially material item. Unions also featured prominently, although lack of discussion around diversity for the second year in a row seems concerning. Hydrogen continues to feature prominently as an emerging fossil fuel alternative, but has yet to have its breakthrough moment that many have been anticipating as the industry continues to scale.

In 2024 we can expect much of the same, water use will be a more prominent theme as it features heavily in our topic increases. Technology around decarbonizing will continue to develop and the world will be looking to corporate leadership in this aspect. While the government can direct policy and a general agenda, corporations are the only ones that can allocate capital quickly and efficiently at scale when it comes to decarbonizing, something that is becoming increasingly important.

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