By Ira Srivastava
1. 4 in 5 companies tie executive compensation to ESG. According to WTW’s Report on ESG Metrics in Executive Incentive Plans, 81% of the 1100 companies analysed use ESG metrics to determine executive compensation. In 2020, only 68% of companies were doing so. European companies were at the forefront with 93% using one or more ESG metrics, 76% in the United States, and 77% in the Asia Pacific region. Human capital and social metrics were the ones most widely used across the board, but environmental metrics are increasingly being considered as well. ESG metrics were also significantly more commonly used in short-term incentive plans vs long-term incentive plans (76% vs 31% globally).
2. Reckoning with artificial intelligence’s energy usage. Artificial intelligence is a powerful tool that companies and governments around the world are racing to take advantage of. However, “the industry could soon suck up as much electricity as an entire country”, with one ChatGPT inquiry requiring 10-100 times more energy than an email. Approximately ⅔ of the global energy demand is still being met by non-renewable sources, so increased AI usage will come with significant carbon emissions and environmental damage. New AI development is largely focused on speed and accuracy of responses, but developing more energy efficient models is just as, if not more important. Investment in clean energy and prioritising the energy transition is key to ensuring that AI does not do more environmental damage than good.
3. Accelerating the energy transition around the world. The world has faced many energy transitions, such as when steam power replaced manual engines and when combustion eventually replaced steam. However, today’s transition to net zero is the fastest and most drastic transition in history. In order to close the gap, significant incentives must be put in place to push companies and households to make the switch to renewable energy sources by raising the price of fossil fuels. Mining supply chains must also be strengthened to supply the minerals and metals needed to build renewable energy infrastructure. Finally, energy consumers must be front and centre of the transition. Power companies can engage with household and commercial customers to determine what is most likely to push them to make the change.
4. Circle Economy Foundation publishes its annual report. The 5th edition of the Circularity Gap Report outlines where the world stands on the circular economy. It finds that despite three times as much conversation about circularity than in 2019, circularity is decreasing. 2018 to 2023 saw a 21% decrease in “share of secondary [recycled] materials consumed by the global economy”. Over those 5 years, humans have consumed more than 500 gigatonnes of material, equal to “28% of all the materials humanity has consumed since 1900”. There is a positive correlation between Human Development Index and Material Footprint per capita, showing that developed countries are doing the most damage environmentally. Systemic change requires laws enforcing circularity, funding circular economy projects, and training workers and experts in circularity.
5. 2024 investment priorities. CapGemini has published its annual “Embracing a brighter future: Investment priorities for 2024”. Here are some key takeaways:
- Respondents shared they are more optimistic coming into 2024 than they were coming into 2023 in terms of business performance. Investment in supply chain, customer experience, innovation, talent development, sustainability, and more are expected to increase significantly as a result
- 80% of organisations plan to increase investments in digital technology including generative AI, cybersecurity, and cloud computing
- 49% have plans to decrease dependence on China by investing in other developing economies
- 41% of respondents believe that financial health and supply chain are their biggest areas of risk
- Almost half of those surveyed believed that “climate change will cause the majority of operational disruptions in the next decade”
Find the full report here.
Ira Srivastava is Competent Boards’ Program Coordinator. Follow Competent Boards on LinkedIn.