It's that time of year when media unpack the crystal balls for the turn of the calendar. Still, too many of them seem filled with platitudes versus helpful insights. So here's an approach that may offer a bit more appeal –- five ways to use sustainability to drive fundamental business value for corporations and portfolio companies in the form of lower costs, higher revenues and increased valuations. You might call it “Ways to make green greener in '24.”

1. ESG will toughen up in 2024. Torrid growth has occurred across the ESG landscape for multiple years, with little pause and an increasingly crowded field of raters, frameworks and expectations. 2023 was a year of useful correction, with pushback particularly in the U.S. in areas of litigation and business model debates. Just as competition makes a good company stronger, we believe the headwinds will ultimately strengthen sustainability practices.
   
   Takeaway: Companies that are successful in separating the wheat from the chaff in 2024 will gain an edge over do-nothing – or do-everything – competitors.
    
2. Customers take the crown in driving sustainability demands. Investors began 2023 in the pole position and have now incorporated sustainability risk into most investment decisions, whether for public companies or private equity ESG due diligence during transactions. But 2024 will continue to see a surge in rapidly growing sustainability expectations by companies that insist their supply chains – from cradle to grave – incorporate sustainable sourcing that tackles topics from human rights to carbon management. This deep dive into the supply chain will require an overhaul of supplier relationship management programs, as the need for information extends beyond the four walls of individual companies.
   
   Takeaway: Companies that have taken a patchwork-quilt approach in reacting to customer demands are wise to centralize data, responses and management, or risk being left behind by some customers.
    
3. “Smart Sustainability” will call for hitting both soft and hard targets. While some companies will still need to establish foundational ESG programs in the new year, a growing number of companies will call for a greater lift in their demands for sustainability professionals and consultants: Save me money, preserve revenues and hike valuation. Fortunately, “Smart Sustainability” can do all three. Reducing energy use not only reduces emissions but lowers costs. Sustainability-linked debt can reduce interest expense, while ESG-related incentives and credits take a bite out of tax bills. Improving ESG performance preserves revenues that otherwise are threatened by customers insisting on suppliers hitting sustainability benchmarks. And a growing body of evidence demonstrates that strong ESG performers enjoy higher return on investments, a lower cost of capital and improved EV/EBITDA valuations.
   
   Takeaway: While ESG is always associated with “doing the right thing,” sustainability practitioners best help their companies when they are also driving good sustainability practices that lead to income statement, balance sheet and equity valuation benefits along with nonfinancial achievements. 
    
4. To surf the tsunami of ESG regulations, be aware and step carefully. Consider just five key regulatory needs washing up on the shores of thousands of U.S. companies: 1) California has passed legislation calling for full value chain carbon emissions reporting, as well as climate risk disclosures, for public or private companies of reasonable size doing business in the state; 2) The European Union has finalized rules requiring, among other things, double materiality assessments for not only EU-based companies, but multinationals doing substantial business in Europe; 3) The Biden administration has advanced a raft of proposed rules affecting the $600-plus billion federal government purchases, including measures requiring sustainable sourcing, zero-emissions goals from suppliers and incorporation of the cost of carbon in federal purchasing decisions; 4) Europe is implementing the Carbon Border Adjustment Mechanism, essentially a tax on carbon from higher-intensity imports, providing another driver for U.S. companies to reduce CO2; 5) The Securities and Exchange Commission, after a long period of public comment, is expected to finalize its rules requiring disclosure of full value chain carbon emissions reporting by public companies.
   
   Takeaway: Dozens of ESG-related regulations will soon snare thousands of U.S. companies either directly given revenues and other qualifiers, or indirectly for smaller companies as they supply larger customers needing greater transparency and disclosures. Awareness, readiness and smart pacing are all required in 2024 to ensure that companies are maneuvering with optimal road maps to serve multiple masters – not only in competing requirements from regulators but also in varying customer and investor needs. 
    
5. The best businesses will employ sustainability as a secular top-line driver. While sustainability challenges clearly represent risks that companies must mitigate, the best businesses recognize that sustainability represents a macro secular tailwind that is likely to advance for many years. For a large number of companies, that represents a tremendous opportunity to enhance revenues by repurposing existing offerings, unveiling socially and environmentally friendly products and services, and investing in innovation to make customers more sustainable. A growing body of research demonstrates that B2B and B2C customers seek sustainable offerings, are willing to pay more for them, and are more loyal to brands that provide them.
   
   Takeaway: B2B and B2C companies can drive top-line growth, increase customer loyalty and differentiate products and services by “leaning in” to credible sustainable themes.

While it’s true that sustainability is in some ways its own reward, ESG professionals are far more likely to earn a powerful seat at the table if they add value through all parts of the business cycle – and relevant to all parts of the company, including sales and finance. And while doing well by doing good can be a complex challenge, the reward for companies willing to invest the resources in sustainability has never been greater.

A&M’s ESG Advisory Services offers solutions to navigate the coming wave of ESG regulations that will disturb supply chains and drive customer demands. Sustainability isn’t only good for the earth – it’s how businesses can save money, protect revenues and boost valuations. Contact us to discuss instilling sustainability in your business practices and offerings.

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Stephanie Weiler is a Managing Directors in ESG Advisory Services for Alvarez & Marsal. To learn more about ESG Advisory Services click here.