PARTNER CONTENT
By Lorraine Spradley Wilson, Chief Sustainability Officer,
and Amanda Bangs, Head of ESG Partnerships, Novata
The past two years have been marked by an increase in regulatory reporting standards on sustainability factors, the consolidation of voluntary reporting standards, and a rise in industry-led initiatives. The rapid pace of development in reporting and transparency needs has left many sustainability practitioners holding more responsibilities and feeling overwhelmed to meet these new demands. In response, at Novata, we have spent some time honing in on top trending themes.
As we look toward a new year, increased regulatory scrutiny, a focus on near-term decarbonization plans, the need for high-quality, audit-ready environmental, social, and governance (ESG) disclosures, and interest in biodiversity and plastics are poised to impact private market reporting.
Increased regulatory scrutiny
Private equity and private credit firms are increasingly taking ESG factors into account when creating their investment products and strategies. Regulators are catching up to business, mandating the disclosure of ESG metrics and providing definitions to drive standardization and prevent greenwashing. This move towards transparency and standardization has also extended to Small to Medium Enterprises (SMEs), most notably with the EU Corporate Sustainability Reporting Directive (CSRD). The first companies in scope for the CSRD are large companies that will have to apply the new rules for the first time in the 2024 financial year. SMEs are part of the value chain of companies required to report and will be mandated to make their own CSRD disclosures in 2027. Ahead of their required reporting window, many are taking the opportunity to establish data collection processes and designate resources in order to manage sustainability risks and opportunities.
Near-term decarbonization plans
For the past two years, carbon emissions have been on the list of most reported metrics on the Novata platform, with thousands of companies disclosing their emissions to investors. This indicates a growing interest in corporate decarbonization plans that mirrors industry trends. In 2023, we hit a critical inflection point for the UN 2030 Sustainable Development Goals as well as the Paris Agreement, a legally binding international treaty on climate change. The ESG Data Convergence Initiative also recently added Net Zero Commitments to its 2024 reporting framework, including near-term reduction targets, highlighting private markets’ focus on decarbonization. What seemed like a long runway to make meaningful change is now a more urgent calling. In response, reporting will continue to become more precise, including detailed information on the methodology used to calculate, plans to take action, and near-term steps companies will take to reduce emissions.
Audit-ready ESG disclosures
Increasingly, privately held companies are seeking assurance for ESG information. This evolution is driven by several factors, including new requirements from global regulators and the need for data comparability across companies. Third-party assurance is a longstanding practice for companies seeking to provide transparency and instill confidence in their financial disclosures. Assurance partners are objective third parties who focus on processes, disclosures, implementation, and controls. Seeking assurance for ESG information may feel more complex or intimidating for organizations that are just starting with ESG reporting; however, we anticipate that the trend will continue and that companies will need to take the time to find the right approach for their businesses.
Increased focus on biodiversity loss
In 2022, the World Economic Forum ranked biodiversity loss as one of the top three threats to the environment. Land use and pollution are two major causes of biodiversity loss. With more coverage of biodiversity as a topic in voluntary disclosure frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD) and mandatory disclosure requirements such as the CSRD, private market participants will need to be prepared to outline specific actions they are taking to protect biodiversity. The business reason is clear. As we cautioned earlier this year, “as species variation diminishes and ecosystems collapse, an estimated one in every five businesses faces operational risks, making biodiversity loss a critical threat to address.”
Addressing plastic pollution
The harmful effects of plastic pollution are increasingly being recognized by companies and communities worldwide. As we wrote earlier this year, plastic waste can be found everywhere, from the giant Great Pacific Garbage Patch to microplastics that are now commonly being detected in human blood samples. Addressing this problem requires action from private companies, which are collectively, major players in the production and distribution of plastics. Investor groups have come together, urging companies to move faster to address the problem. They note that companies that do not take proactive measures to reduce their dependence on single-use plastics may face higher costs or lose business opportunities, putting long-term value creation and investment returns at risk.
Innovation in the private markets continues to thrive. Some of our best interactions this year were with sustainability practitioners coming together to share resources and recommendations. With sustained focus on these five areas, private market participants can drive progress forward, producing more decision-useful high-quality data and engaging value chains in decarbonization, biodiversity loss, and alternatives to plastic.
Lorraine Spradley Wilson, Chief Sustainability Officer, Novata – Prior to Novata, Lorraine was managing director and head of investor solutions at JUST Capital. Previously, Lorraine held roles in investment management in New York at Bank of America Merrill, Third Avenue Management, and Goldman Sachs. Lorraine has served on the board of several community organizations and is an advisor to the NYU Center for Sustainable Business. She is based in Washington, DC.
Amanda Bangs, Head of ESG Partnerships at Novata – Prior to Novata, Amanda was a Manager at Deloitte Consulting, leading supply chain strategy projects across consumer products, technology, energy, and industrial sectors. Earlier in her career, she served as an EDF Climate Corps Fellow at McDonald’s and an ESG Valuation Fellow at NYU CSB. Amanda earned an MBA in sustainable business from NYU Stern and BBA in finance from the University of Texas. She is based in New York. 
