Last year was a tumultuous one for the planet on many fronts – with unsettling geopolitical and financial upheavals and frightening accelerations in climate and ecological breakdown. These were accompanied, if not matched, by greater recognition of the urgent need to act; an uptick in regulatory and funding commitments from governments; growth in energy transition investments; and increasingly intense debate around ESG.
Some trends are ongoing, and can be carried over from last year’s predicted sustainability trends: momentum towards net zero, regulatory pressures, the skills challenge, a focus on supply chains, the circular economy and growing numbers of environmental lawsuits all still feature strongly in the trend lines.
But there are also new themes coming into focus, as well as developing trends within existing themes. In addition to the above, ongoing topics of interest, we predict the following seven trends will stand out in 2023 for the environmental and sustainability services industry.
Biodiversity becomes prime
Biodiversity is on everyone’s lips, not least thanks to grave ecological forecasts and the COP15 summit’s discussions, achievements and disappointments. This year, with requirements to achieve environmental net gain, biodiversity is already poised to become a prime consideration in project planning. But on a broader level, we can also expect to see the release of dedicated reporting frameworks for biodiversity disclosure, which in turn will likely lead to an outburst of standards, targets and guidelines. How and if these become integrated into ESG reporting standards and systems remains to be seen. Further down the line, expect biodiversity credits to become a thing, like carbon credits – and the emergence of a voluntary biodiversity offset credit market.
Natural capital – the new gold rush
In keeping with the biodiversity trend, and in parallel with escalating demand for nature based solutions – especially those that supply offsets for the currently under-supplied voluntary carbon market (VCM) – all eyes are turning to natural capital. With firms already under pressure to identify and account for their impacts on natural capital stocks, to disclose nature-related risks, and to find ways of compensating for the negatives on both of these fronts, demand for assets that produce a positive return on natural capital will explode. The result will be an investor scramble for control and ownership of various forms of natural capital – from agricultural land to shoreline sites for kelp farms through to larger scale entities such as entire watersheds.
"Nature risk is fast becoming an integral factor to investment risk and returns"
Global investment management firm Schroders, which released its ‘Plan for nature’ late last year, acknowledged this situation in no uncertain terms: "The reality is stark: nature risk is fast becoming an integral factor to investment risk and returns. [...] A wide gulf remains between the social value of ecosystem services and their market value. We expect that gap to continue to close, creating financial risks and investment opportunities. New asset class opportunities are emerging to capture growing demand for nature positive impacts."
This scramble, we predict, will lead to new partnership arrangements between financial institutions, corporates, consultancies and other professional services firms, and the public sector, and in turn to new combinations of fintech, geotech and climate tech tools.
Since water is a component part of natural capital, there is already a rise in demand (and methods) for disclosing water-related financial information and the sustainability of water usage. As droughts, floods and concerns about water security and water pollution become more common, there will be growing calls for the implementation of measures and metrics to assure minimum standards of water stewardship as key sustainability markers — including even the revival of water footprinting. Note that according to the latest ‘A list’ published by environmental standard setter and disclosure agency CDP, companies were doing worse, not better on this front in 2022.
When water is acknowledged as a key component in natural capital accounting, this can in turn influence water management policies — so we can expect a burgeoning focus on the specifics of ensuring positive impacts on water security and quality, and the means to measure and report those.
Energy transition minerals: an ESG dilemma
Transitioning the global energy system to renewables requires large quantities of key "energy transition minerals and metals" (ETMs), used in electric cars, wind turbines and solar panels, among other components. As well as challenges presented by shortages, supply chain disruptions, and resulting price volatility, research indicates that more than half of the ETM resource base is located on or near the lands of Indigenous and peasant peoples, two groups whose rights to consultation and prior informed consent are embedded in UN declarations. Other studies suggest that "ramping up energy transition metals could be more disruptive to demographic systems than ramping down coal."
Extracting these minerals therefore comes with a huge ESG dilemma, and is likely to become a subject of increasing scrutiny and controversy. Consultants may find challenging but potentially rewarding opportunities in helping client companies and investors navigate their way through this particular ESG minefield.
AI and climate tech still on the up
The rise and rise of digital will continue, as tech developers see expanding opportunities in helping companies to optimise their ESG data, and to measure, account for and disclose emissions, biodiversity impacts and other lines in their natural capital accounting systems. Competition between tech developers will grow, pushing innovation; as will M&A activity in the sector, as consulting, engineering and professional services firms snap up promising platforms and invest in innovative start-ups.
In particular we can expect new developments and ever-growing interest in the potential of AI, which, as Öykü Işık, professor of digital strategy and cybersecurity at the Institute for Management Development in Switzerland has said, can be either a friend or a foe of sustainability. "Artificial Intelligence, specifically certain deep learning models, requires huge amounts of energy. [But] AI can help with better conservation of natural resources through better prediction, managing agriculture yield or managing the demand and supply of energy in energy grids.
"The expectations from AI in terms of efficiency and costs savings is very high. But we need to look beyond short-term benefits and keep an eye on the long-term implications of scaling AI too," she said.
Iggy Bassi, founder & CEO of Cervest, the climate intelligence platform, says regulatory and public pressure mean that companies will "increasingly turn to climate intelligence … to help them navigate the complexities of achieving climate resilience".
AI and digital innovation are also expected to form at least part of the answer to the sector's skills shortage; Australian-headquartered GHD for instance is targeting a 50% increase in revenue whilst expanding the resource pool by only 30%, a feat that the 10,000-strong global company believes can be achieved thanks to the implementation of new digital technologies.
Focus on Africa
Investment into many regions may be stalling due to the global economic downturn, but several African countries are still experiencing a boom, not least thanks to the abundance of natural resources needed for the energy transition. Together with the promise of climate finance from developed countries, which, when released, will unlock further private investment, the result will be a rush of urban and industrial development, leading to new construction and infrastructure opportunities, and an associated demand for sustainable design, impact assessment, and other environmental advisory services.
Note that the World Green Building Council has produced an Africa manifesto for sustainable cities and the built environment. There is also a new African carbon markets initiative, inaugurated at COP27. And East Africa – specifically the African Leadership University’s School of Wildlife Conservation – is home to a newly formed biodiversity investment ratings agency. The PowerUp coalition of more than 45 organisations, coordinated by Ashden in the UK, made a case at COP27 for climate funding and clean energy investment as important components of Africa’s climate adaptation programme.
Therefore, we predict Africa (and the Middle East) will once again become a key focus region for the E&S consulting community – and perhaps reversing the recent trend for multinational consultancy firms to wind down their presence in the region.
Climate goals: second nature (and reaching new parts)
The maturing of ghg emissions reporting, disclosure and target setting systems, together with the legally-binding climate laws and acts coming into force globally, mean that climate considerations are starting to settle into the DNA of most financial, corporate and public institutions. Cervest’s Iggy Bassi believes growing pressure from shareholders and government regulation mean that, "in 2023, more organisations will be incentivised to put climate at the core of every decision, to future-proof their business".
Anticipating this, professional services firms are continuing to move determinedly into the climate and environment space, and climate is becoming "mainstream business" for consultancies. While this means more competition for those already in the space, market growth rates suggest there will be plenty of business to go around. As is already the case, however, the skills shortage is likely to be a limiting factor.
The expectation to set climate and sustainability goals will also start hitting some sectors for the first time. Shipping, aviation and even the military are coming under increasing pressure to disclose and reduce their emissions, not before time.
Discuss the impact of these trends at our Global Business Summit
Come together with environmental and sustainability consulting leaders, clients and other stakeholders at the 2023 Environment Analyst Global Business Summit (27-28 June in Chicago) and explore how sustainability and ESG drivers are impacting the North American market, and develop strategies to maximise the opportunities being created.
Identify market opportunities and share thought-leadership with your peers through a series of keynote presentations, expert-led panel debates and roundtable discussions.