By Harsheenee Aujayeb, General Manager, ESG Intellis Solutions Ltd
Globally, the ESG landscape continues to evolve with key milestones marking a maturing space. The release of the EU’s Corporate Sustainability Reporting Directive (CSRD), EU’s Corporate Sustainability Due Diligence Directive (CS3D) and the introduction of the IFRS S1 (General Sustainability-Related Disclosures) and IFRS S2 (Climate-Related Disclosures) have had significant impact on companies across the world.
In Mauritius too, there has been a noticeable shift in how companies perceive and integrate ESG principles. In December, we bid farewell to 2024 by examining how progress on ESG has shaped up over the year. Now, as 2025 begins, we would like to set the tone for a fulfilling year on the ESG front by looking at the key trends for the next 12 months.
#1: Materiality: The Strategic Imperative
The ESG space will continue to see a debate between single materiality and double materiality. Single materiality concentrates on issues affecting the financial performance and value creation of the organisation. On the other hand, double materiality considers the impact on the economy, environment, and society.
Regardless of the approach, we believe that materiality will dominate corporate agendas in 2025. Key reasons spurring organisations to focus on materiality are its value-add in understanding and mitigating risks, besides opening doors to new business opportunities.
#2: The rise of ESG frameworks and standards
We expect to see an increased alignment of company reports with IFRS S1 and S2 standards. IFRS S1 encompasses comprehensive sustainability disclosures, including governance, strategy, risk management, and performance metrics. IFRS S2 focuses specifically on climate-related risks, requiring firms to disclose their exposure to physical and transition risks and explain how they manage these challenges.
In September 2024, the IFRS Foundation released a guide to help companies apply these standards, and this resource is expected to simplify efforts to comply with this overarching sustainability reporting framework. Organisations that apply these standards can expect to reap the following benefits of alignment:
- Enhanced consistency, comparability, and reliability in ESG disclosures.
- Strengthened investor and stakeholder trust.
Finally, owing to EU legislations by way of the CSRD and CS3D, we expect that companies in general, but especially those that have any relationship with EU companies, will have to report on ESG metrics and put in place a strategy for ESG integration.
#3: Biodiversity: Metrics in the Spotlight
Going into 2025, we also foresee a growing emphasis on biodiversity as a crucial ESG pillar. Against estimates by the World Economic Forum that around 50% of global GDP is highly or moderately dependent on nature, we note that Mauritius’ insular state, topographical features and geographic position in the Indian Ocean make it even more vulnerable to weather-related hazards.
As companies worldwide increasingly adopt metrics to track biodiversity loss and conservation efforts, biodiversity looks set to gain prominence in sustainability strategies and policymaking. With investment in nature-based solutions being only a third of the level needed to reach climate, biodiversity and land degradation targets by 2030, and over 80% of the funds provided by governments, it is expected that biodiversity will continue to attract attention from impact investors searching for a worthy investment theme.
#4: The Growing Importance of Governance
Governance remains a cornerstone for achieving ESG goals. A report released by FT Adviser in October 2024 found that environmental and governance issues were tied in investors’ eyes. Indeed, transparency and disclosure were rated as the most pressing ESG issue, with 60% of investors stating it was important to consider these key governance aspects. In Mauritius, we expect 2025 to see the development of an ESG scorecard to monitor governance effectiveness.
While environmental factors might have taken centerstage in the ESG world, governance continues to be a pressing consideration for investors. It ensures accountability and ethical leadership besides providing a strong foundation for delivering on environmental and social commitments.
#5: Adaptation: A New Priority
We expect to see a rising focus on adaptation alongside mitigation, driven by increasing climate risks. Unlike mitigation finance, which always focuses on reducing greenhouse gas (GHG) emissions, adaptation requires a broad array of activities such as provision of stronger housing, more drought-tolerant crops, social safety nets, or improved decision-making around climate-related risks.
The Adaptation Gap Report 2024 notes that international public adaptation finance flows to developing countries increased from US$22 billion in 2021 to US$28 billion in 2022 – the largest year-on-year increase since the Paris Agreement. However, while this is progress towards the Glasgow Climate Pact, which urged developed countries to at least double adaptation finance to developing countries from 2019 levels by 2025, even achieving this goal would only reduce the adaptation finance gap by about 5%. Against this backdrop, we hope to see key adaptation initiatives gaining traction in the sustainable finance sphere, such as:
- Climate-resilient infrastructure projects.
- Financial instruments supporting adaptive solutions.
ESG holds promise to reshape business models
2025 promises exciting opportunities in the ESG space with materiality, biodiversity, and adaptation set to drive transformative change.
Optimism to usher in positive impact and a clear commitment to sustainability will guide businesses in unlocking new potential as the year progresses. Indeed, Thomson Reuters notes that an increasing number of companies are likely to adopt ESG as a strategic lens and use it as an opportunity to fundamentally reshape their business models in 2025.
