5 Industrial Sustainability Trends to Watch in 2023

Despite ongoing inflationary and recessionary headwinds that continue to buffet companies, ESG and sustainability remain high on the agenda at industrial companies.

A few key sustainability developments in 2022 that set the backdrop for companies heading into the new year:

• US President Joe Biden passed the Inflation Reduction Act (IRA), dubbed the largest climate bill in US history. The Act offers billions of dollars and incentives to help support the development of clean energy pathways and proposes a methane fee for large emitters.
• World leaders at COP27 agreed to establish a “loss and damage fund” to compensate the victims of climate change (largely in poorer countries) that would be funded by wealthy, industrial nations.
• European heatwaves, North American Arctic outflows, severe flooding in Pakistan, wildfires in North America and Europe, and a longstanding drought in the horn of Africa underscored the reality and the risks of a changing climate.
• Russia’s invasion of the Ukraine added to an already volatile operating environment and led to sky high gas prices. In the short term many countries turned to dirtier sources of energy such as coal, but the war has put greater scrutiny on relying on fossil fuels from foreign regimes and may lead to a faster energy transition to more renewable and cleaner sources of energy.

As the details and fallout from these developments come into focus, the year ahead looks set to continue with a high degree of volatility.

So just what are the trends for sustainability professionals at industrial companies to watch for in 2023?

#1: Companies Prepare for Greater Mandatory ESG Disclosure - Continued Momentum Towards a Tighter Regulatory Reporting Environment

ESG is firmly moving from the realm of PR and voluntary disclosure to mandatory reporting requirement. Companies must get a handle on their data to ensure accurate, high-quality information about critical non-financial performance to counter claims of “greenwashing” and embed data-based decision making within business units. Transparency and environmental disclosure will be high on the agenda of all sustainability professionals in 2023.

The U.S. Securities and Exchange Commission is expected to pass controversial new environmental, social and governance disclosure rules. These rules seek to strengthen and standardize the information that companies are required to report to make it easier for investors to evaluate and compare the environmental track records of companies.

The US regulations follow the EU’s Sustainable Finance Disclosure Regulation (SFDR) which is already in force. The regulation requires “financial market participants” to disclose sustainability impacts and risks of their investment decisions and processes.  

The challenge to track, report on, and reduce Scope 3 emissions will be high on the agenda this year in anticipation of the SEC proposals and as companies get their hands around net zero targets.

Scope 3 emissions are indirect emissions produced by a company’s suppliers or by consumers of the company’s products or services. Scope 3 usually accounts for the biggest share of a company’s emissions but are also the most difficult to measure and control because they are outside a company’s direct control.  

READ: Insight Report: Move Beyond Compliance to Harness the Operational Benefits of ESG Reporting 

#2: Sustainability Professionals Forge Deeper Links with Other Parts of the Business and their Industries

As companies operationalize their ESG plans and achieve net zero targets, it has become imperative for sustainability professionals to widen their impact within their business. Sustainability cuts to the core of business operations, product development, asset management, and investment decisions. Further, reporting and disclosure requires large amounts of data, often housed in disconnected legacy applications. IT will be an essential part of the conversation to getting a handle on ESG reporting requirements.  

This means that sustainability must move of distinct departments and become an intrinsic part of operations for site managers, innovation leaders, product designers, engineering teams, and corporate leaders. Sustainability professionals must look to embed a sustainability lens throughout the business through which leaders evaluate decisions and plans.  

Many companies are also starting to realize that decarbonization requires more external partnerships than ever before. New suppliers, new commercial arrangements (for instance, making use of waste streams from other companies as product inputs), and the circular economy require new ways of thinking about the business operating environment.

READ: Interview with Sun Chemicals: Industrial Decarbonization Requires an Ecosystem 

#3: Climate Adaption and Risk Management Moves Up the Agenda

Extreme weather events have become more frequent. Companies have accepted that the climate is changing and that they need to develop robust plans to better understand their climate-related risks and develop mitigation measures for better resiliency and business continuity.

These preparations won’t come cheaply. The International Renewable Energy Agency (IREA), for instance, estimates that it will take nearly $131 trillion dollars in investment by 2050 (from governments, companies, investors, and consumers) to adapt to a changing climate.

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#4: Decarbonization Initiatives Get Tied in with Operational Efficiency

High energy costs and inflationary pressures means that decarbonization is often getting channeled into programs to increase energy and operational efficiency and reduce resource use. Increasing efficiency along all these fronts tends to both reduce carbon emissions, waste, and drive down cost. As a result, it’s an easy place for companies to immediately start to achieve environmental improvements while also benefiting the bottom line.

“Right now, we see setting and meeting our emission reduction targets as part of operational efficiency,” says Yvonne Jeffery, Vice President Sustainability, Vermilion Energy. “The advances that we're making in the field are making operations safer and making them environmentally better.”

Vermilion is an international energy producer, with oil and gas properties onshore and offshore around the world. The company’s Canadian and Australian operations, for instance, have prioritized improvements in venting reductions, instrumentation upgrades from gas to air, and improving field measurements to achieve environmental improvement.

#5: Sustainability and Digital Technology

According to a 2020 study, commissioned by AVEVA software, over 85% of industrial businesses plan to increase their investment in digital tools to tackle climate change. Digital technology can enable everything from reducing the need to travel between customer and/or operational sites (thereby reducing travel-related carbon emissions) through to improving maintenance monitoring and responsiveness (reducing risks to the environment, extending asset lifespan, and reducing equipment-related emissions).

“We think that technology will be the linchpin that will enable asset-intensive industries the insight, efficiency and ingenuity to design and operate sustainable low carbon industrial facilities,” says Amish Sabharwal, EVP of Engineering and Simluation at AVEVA. “Futured-focused organizations are connecting their industrial data, inventing new digital processes and empowering their digital workforce to identify key opportunities to reduce emissions across their value chains.”

Effective data management and analysis form a critical foundation to enable the advanced operational insight that will be necessary to improve efficiency and identify high value targets for carbon reduction.

READ: SPECIAL REPORT: How Canada’s Industrial Sector is Powering Net Zero

What do you think? What are the sustainability trends you think will be most important in the industrial sector in the year ahead?