Sustainability insights, trends and updates

The world is approaching a climate tipping point, where change may become difficult to reverse. Limiting temperature increases to 1.5 degrees Celsius above preindustrial levels, and well below 2 degrees, is the goal of the Paris Agreement. Yet 2024 was the hottest year on record, with temperatures rising over 1.5 degrees, after a decade of the warmest weather on record and more frequent and extreme weather.

To meet Paris climate targets, global emissions would need to be reduced by 43 percent by 2030 to reach net zero by 2050, requiring a transformation of global energy systems. At present, global greenhouse gas emissions have reached record levels, with total carbon dioxide emissions in 2024 projected at 41.6b metric tons. Though renewable energy is growing at exponential rates—by 415 percent since 2000—its share of total world energy consumption is still only 13 percent, which the International Energy Agency forecasts to grow to 20 percent by 2030. Fossil fuels account for about 82 percent of energy consumption and are flat, not significantly declining.

This paradox of sustained fossil fuel use amid soaring renewable investment—two-thirds of some US$3t in global energy investment in 2024—is epitomised by China, which accounts for 40 percent of the world’s deployed renewable energy and 60 percent of the world’s EV sales yet has built more than 1,000 gigawatts in coal power capacity since 2000. By 2050, when Paris adherents pledge net-zero emissions, fossil fuels are projected to be in use, though reduced by some 50 percent.

This helps explain why efforts at the most recent U.N. climate meeting in Azerbaijan, known as COP29, to agree on a timeline to phase out fossil fuels failed. China, the United States, India, the European Union, Russia, and Brazil together account for nearly two-thirds of current yearly emissions—and deciding how to divide current and historical responsibilities is a complex diplomatic issue.

Trends suggest deepening risk: The new US administration will promote fossil fuels and roll back U.S. climate commitments, and new energy demands from data centers and cryptocurrencies will increase the damage. The US exit from the Paris Agreement, as per 2015, will pose challenges over COP 30 in Brazil. 

Expectations for COP30, which will be held in Belém, Brazil, included a significant push for further climate finance commitments, particularly towards developing countries, concrete steps to align Nationally Determined Contributions (NDCs) with the Paris Agreement goals, addressing outstanding issues from COP29, and a stronger focus on climate justice, particularly concerning the needs of indigenous and vulnerable communities impacted by climate change, with Brazil aiming to lead these discussions as the host nation.

The US move adds to challenges Brazil was already set to face as COP30 host, including tough disputes over financing the energy transition in developing countries and the new pledges to reduce emissions countries have vowed to make.

While the impending change in US administration is expected to significantly impact many public policy areas, US corporate sustainability programs and reporting, which have developed over many decades, are expected to maintain much of their momentum going forward.

Historically, US corporate sustainability efforts were almost entirely voluntary as there was little sustainability regulatory pressure. Corporations made strategic business decisions to build sustainability programs and to disclose sustainability reports. The motivation for this corporate attention to sustainability was driven by various factors, including corporations’ increased focus on long-term sustainability drivers for success (e.g., natural resource availability, social license to operate), direct pressures from stakeholders to minimize negative impacts on society and planet (e.g., community groups, advocacy nonprofits, employees) and increasing growth opportunities through sustainability-oriented products and services.

Recently, several sustainability and climate-oriented executive orders and commitments were made by the Biden Administration at the US federal level that have supported voluntary corporate action, including an enormous amount of economic sustainability incentives embedded in the Inflation Reduction Act ¹. However, other government regulators outside of the US federal government have been even more aggressive in establishing corporate sustainability regulations. As the world has become more interconnected, European, and state regulatory agencies have passed laws requiring corporations to document and mitigate negative corporate environmental and social impacts where they happen — regardless of where a corporation is headquartered.

These motivating factors and public expectations on corporate sustainability are likely to continue according to the Pew Research Center ² . For example, two-thirds of boards believe that enterprises can only be resilient if they are environmentally sustainable, according to an EY Center for Board Matters survey of 500 global board directors from organisations with US$1b revenue.

Additionally, as members of Gen Z become increasingly important stakeholders for companies, whether as consumers or highly sought-after talent, companies will want to understand and respond to their wants and needs. Climate impact is a critical issue for this cohort. Investors also want transparency as it relates to sustainable business operations and products, and how they contribute to profitability. Recent EY research found that 55% of investors say that the impact of climate change will affect their investment strategies.

Although it is widely expected that some of the US federal government sustainability efforts will be slowed or stopped altogether under President Trump’s second administration, three main drivers outside of US federal government policy — global and regional regulations, market demand, and long-term business planning — likely will continue to move many corporate sustainability and climate actions ahead. 

^[1] “Tracking Progress: Climate Action Under the Biden Administration,” World Resources Institute website, www.wri.org/insights/biden-administration-tracking-climate-action-progress, 30 July 2024.

² “What the data says about Americans’ views of climate change,” Pew Research Center website, www.pewresearch.org/short-reads/2023/08/09/what-the-data-says-about-americans-views-of-climate-change, 9 August 2023.

Interviews last week with EY climate leads in the EU confirm the above. While it is expected that there will be changes to how our corporate clients in the EU sustainability strategies adapt their decarbonization journeys since the US Inauguration, they will be few.

The key argument is that climate responsiveness is becoming a new area of competition, such in the adoption of Electric Vehicles, where the EU and China are competing for market share. 

There are too many incentives and technology advances that still must mature before companies think of any wholesale move away from the UE’s climate goals. Further, the next wave of regulations in the EU will be focusing on streamlining compliance and disclosure elements. 

Climate response has typically been linked to value creation – either building internal efficiencies or appealing to consumer and talent demands. Corporate targets in the EU have been justified through abatement cost curves, and that competitive edge will be likely to stay. 

While the majority of US climate regulations are at a State level and beyond Federal control, it is anticipated that there will be a slowdown in international co-operation on climate goals. Executives should closely monitor climate policy changes to manage potential risks associated with cross-border interoperability for companies with global operations.

The internal trajectory in US of certain cleantech will continue to grow, such as carbon capture. Even in republican states, any scale back of the Inflation Reduction Act would be counterproductive. Companies are splitting out activities geographically and carbon businesses are being spun out to access capital markets. 

That said, it is expected that the US policy change will slow down progress on nature and biodiversity. This may have impacts on the anticipated expansion of financial instruments supporting biodiversity, including blue bonds — debt that finances marine and ocean-based projects — as well as nascent efforts to create a biodiversity credit market and an increasing role for biodiversity in nature-based carbon credits³.

³ https://www.spglobal.com/esg/insights/2025-esg-trends

Another possible impact of the new administration’s policy is the elimination of the social cost of carbon into US rulemaking and disbanding the interagency working group in the US that develops the metric. 

Recall the period 2012 – 2017 when carbon futures were languishing in the US$10 per tonne range, and Norwegian pension funds resorted to buying back their own credits to support the price. It is worth remembering that in April 2016, the United States became a signatory to the Paris Agreement on climate change mitigation for the first time and accepted it by executive order in September 2016. At the time, President Obama committed the United States to contributing US$3b to the Green Climate Fund, only got President Trump to exit the agreement shortly after his first inauguration in 2017. Since 2021, prices have hovered around the US$80 level since 2021, when the US joined the Paris Accord, creating a demand for carbon credits. 

The US carbon market is voluntary based and initial indications are that the large tech companies will continue to purchase carbon credits to support their decarbonisation journeys, despite the six largest banks exiting the UN-backed Net Zero Banking Alliance (NZBA) on 6 January 6, 2025, says by James Brice, EY Sustainability Leader. 

The EU carbon market remains robust with carbon prices strengthening. Oil majors that abandoned their renewable energy transformation programs have leaned on carbon credits to offset their carbon emissions. Shell led the way retiring over fourteen million credits in 2024 which accounts for a little under 8% of all credits retired in 2024, according to MSCI carbon market analysts. Following the implementation of the European Union Emission Trading System (EU ETS) in 2024, emission costs are set to increase with the phase-in of stricter rules: 70% of emissions will now fall under EU ETS (up from 40%). Both the maritime and aviation sectors are now under more pressure to participate in climate finance markets to offset emissions. 

As of end 2024, 6,200 projects are registered across the twelve main carbon registries (such as Verra, Gold Standard, ICS, etc). The major hurdle remains standardizations across these registries but this year it is expected that organisations such as Integrity Council for the Voluntary Carbon Market (ICVCM) will roll out detailed frameworks to ensure high-quality credit issuance. The Taskforce on Scaling Voluntary Carbon Markets (TSVCM) is working toward harmonizing global practices, which could attract institutional investors previously wary of reputational risks. Last year saw many projects being exposed due to a lack of transparency resulting in double counting and greenwashing. 

Standardisation is further anticipated to remove obstacles to commercial additionality – i.e. carbon credits not being limited to welfare projects, such as cookstoves, and rather to scalable, long-term profitable projects focusing on carbon capture and sequestration. 

Analysts are predicting some short-term carbon price weakness in early 2025 due to structural issues – i.e. the above-mentioned standardisation hurdles, project development funding, limited skill sets, etc. 

Demand for high quality carbon sequestration or carbon capture (CCUS – carbon utilization and storage projects) is, however, expected to resume in the second half the year. Those projects which can build in a strong social impact and commercial outcomes will be in high demand and will command high prices. The outlook remains bullish.

An interesting statistic that came out of the recent ESG Africa conference, where EY was proud to be a Gold sponsor, is that on average a Chief Sustainability Officer (CSO) for a South African corporate spends 70% of his/her time on corporate disclosure. 

At EY, we anticipate that the above-mentioned AI benefits to the CFO will also benefit the CSO, allowing them to be more available to engage in sustainability strategy. AI has the potential to radically improve energy efficiency and resource use, and it has become a key tool in emissions and land-use measurement and climate scenario analysis. 

On the other hand, the datacenter infrastructure that AI computing workloads rely on represents an already-large and quickly growing source of electricity demand, and much of that power will come from fossil fuel-burning power plants. So even as companies, scientists and policymakers explore how to use AI to make progress on climate goals, doing so may come at the cost of increasing emissions.

In 2025, momentum will be strong for global harmonization in sustainability reporting as an increasing number of jurisdictions adopt sustainability-related disclosure standards. The two leading standard-setters — the Global Reporting Initiative (GRI) and the International Sustainability Standards Board (ISSB) — are focusing on interoperability and collaboration. 

Global reporting standards and frameworks have proliferated over the last decade providing guidance to companies on how to disclose their non-financial risks, liabilities and the value created through leveraging the same.

Various rating agencies make use of these public disclosures to rate companies based on the degree to which they can articulate how they manage these risks and liabilities. This thus signals to investors how their investments will be safeguarded, and how additional value can be created in the process.

To streamline reporting, ISSB have engaged with the various bodies such as GRI, SASB, TCFD to standardize approaches to disclosures, make things simpler, more transparent and comparable between entities.

This development is acknowledging the fact that ESG risks and liabilities can and should be intrinsically linked to the long-term financial performance of a business. The new ISSB S1 and S2 disclosure guidelines recently launched embed principles such as double materiality and mechanisms for accounting for risks such as climate change and resource efficiency within financial statements. Through a phased approach these guidelines will come into effect early 2027, with many listed companies already aligning reporting protocols or developing implementation strategies to facilitate alignment. 

More than 90% of U.K. and Europe-based institutional investors (93%) are worried about the state of ESG and sustainability practices in the U.S. amid a second Donald Trump presidency, according to a report by impact investment consultant Pensions for Purpose ⁴.

Only 17% of respondents in the "Impact Lens Survey Shorts" report stated that U.S. sustainability developments do not influence their investment decisions.

On Trump’s first day returning to presidential office, he signed an executive order withdrawing the U.S. from international climate treaty the Paris Agreement, through which countries have pledged to fight global warming.

However, over half (58%) of respondents planned to increase their impact allocations over the next 12 months, rather than decrease them or keep them at the same level, and almost two in five (42%) committed to maintaining current levels. No respondents intended to decrease allocations.

“The fact that 93% of investors are concerned about the state of sustainability in the U.S., combined with the significant influence of U.S. developments on their strategies, highlights the interconnected nature of sustainability in today’s global economy," said Bruna Bauer, research manager at Pensions for Purpose, in a news release. "However, there is strong momentum to increase sustainability allocations, which reflects the resilience and commitment of institutional investors to driving meaningful change."

The survey collected the views of 44 institutional investors, drawn from Pensions for Purpose membership. 

⁴ European investors express sustainability concerns amid Trump presidency - survey | Pensions & Investments

At EY, we are always on the lookout for stories of positive impact, will wherein companies have developed creative solutions to social problems while benefiting investors.

Ask any parent and they will tell you: babyproofing a home is no joke. As babies grow, their combination of increased mobility and relentless curiosity means that parents are constantly scanning for potential hazards – especially the small objects that babies and toddlers are so magnetically drawn to put in their mouths.

Among the most dangerous household culprits are lithium coin batteries, commonly known as button batteries. These tiny power sources are commonly found in household items like remotes, clocks and even toys, and they can cause severe harm if swallowed. Within hours, the acid in these batteries can burn through the esoephagus, often with serious consequences if left untreated. According to the Consumer Product Safety Commission (CPSC) tens of thousands of young children have been hospitalised over the course of the last decade due to button battery ingestion.

Energizer understood this problem and decided they did not want their products to be a contributing factor. Their solution? The 3-in-1 Shield battery⁵.

These batteries look and function exactly like regular button batteries, but with three layers of childproofing built in. The first line of defence is child-resistant packaging which is impossible to open without a pair of scissors. The second layer takes a more sensory approach – an unpleasant coating on the batteries themselves. 

Made from Bitrex, the world’s bitterest substance, the coating is completely non-toxic and offers a repulsive, bitter taste to encourage kids to spit the battery out. The third layer of protection is Energizer’s Colour Alert technology. If the battery touches saliva, it releases a non-toxic dye that turns the child’s mouth bright blue instantly. This provides an immediate visual signal to caregivers to act fast and access emergency medical care.

As part of their campaign, Energizer partnered with Reese’s Purpose, a nonprofit dedicated to identifying and addressing child safety risks. Together, they are working to raise awareness and advocate for change, hoping to protect more families from these preventable tragedies. 

⁵ https://www.ghostmail.co.za/short-stories-v-05-ideas-for-good/