ESG and sustainability strategy
Environmental, Social and Governance (ESG) and sustainability strategies in businesses have changed radically in the last 5 years. With the increase in stakeholder expectations, companies are now finding their strategies are not meeting current requirements and are needing an update.
In the past, sustainability and Corporate Social Responsibility (CSR) strategies were considered an addition, a bolt-on to a business’s commercial strategy. In recent years, there has been a significant acknowledgement by stakeholders, regulators and the financial sector of the direct and indirect financial impact of ESG and sustainability and issues. This has been set out in the recent European Corporate Sustainability Reporting Directive (CSRD) and Task Force on Climate-related Financial Disclosures (TCFD).
Businesses are now looking to ensure their ESG and sustainability strategies are entirely intertwined with their commercial strategies and to maximise commercial opportunities and minimise financial and stakeholder risk. This often means using the old-fashioned approach of focus areas being people, planet, community – a box-ticking exercise – is now too simplistic. Rather companies are now developing strategies which are more sophisticated, tailored and refined to their specific needs, with a focus on the financial opportunities and alignment to the commercial strategy.
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Reporting for a new era
Simply Sustainable has been providing best practice guidance in ESG and sustainability reporting for over 12 years. We predict that 2023 will be the year that robust and credible nonfinancial reporting becomes the expected norm for global business.
In short, this is down to new Environmental, Social and Governance (ESG) and sustainability reporting requirements in the United Kingdom, the European Union and the United States that are set to fundamentally change the nonfinancial reporting landscape.
The Corporate Sustainability Reporting Directive (CSRD) is a new set of EU rules that will require ESG reporting on a level never seen before, capturing a whole host of companies that previously were not subject to mandatory nonfinancial reporting requirements, including public and private non-EU companies that meet certain EU-presence thresholds.
For US issuers, the new EU rules will result in mandatory reporting on a broader set of ESG topics than those required under current and proposed Securities and Exchange Commission (SEC) rules. It is important that the business community does not ignore the approaching tide of regulation on sustainability reporting that could entail significant financial and reputational damage if overlooked.
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At Simply Sustainable, we understand that sustainable growth is the only way to build a prosperous business that has a lasting positive impact on our environment and society.
The past few years have been pivotal for the ESG and sustainability revolution. It continues to be an area of focus for stakeholders at all levels – investors, regulators, businesses and consumers – despite the current backdrop of a turbulent economy and cost of living crisis.
In 2022, we saw a rise in important conversations and the development of global regulation aimed at improving sustainability, particularly across ESG and sustainability reporting and greenwashing.
The key sustainability trends for 2023, across various sectors, will remain focused on the credibility of claims and robust disclosure and reporting.
In addition, there will be greater attention on carbon reduction, a strategic focus on understanding what the transition to a low carbon economy means for business and its stakeholders, as well as moving away from using carbon offsets as a credible means to decarbonise.
Regulators have been exercising greater scrutiny of corporate sustainability efforts, fuelled by concerns that companies and asset managers may be using disclosures and sustainability-related labels on products and services as a marketing tool to appear more proactive on ESG issues than they truly are.
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Today, the term ‘ESG’ (Environmental, Social, Governance) is common parlance between businesses and stakeholders. Protecting and restoring the planet (E), contributing to and enhancing the quality of life for society and communities (S) and ensuring a fair and robust approach to governance (G) now presents an essential framework for businesses to drive sustainable development forwards.
The Covid-19 pandemic and evolving reporting disclosures have reinforced the imperative for ESG. Recent trends highlight a focus on climate change, social value, and diversity and inclusion across all industries and sectors.
Shockingly however, a recent survey of 8,000 UK adults by Business in the Community (BITC) revealed the following headline findings:
- Over 75% did not properly understand how businesses in general are responding to the climate crisis,
- Almost two in three respondents did not trust businesses to do what they promise on climate,
- Two in five believe that the negative impact of reaching net-zero would be more harmful than the negative impact of climate change, and
- Only one in four believe that the social benefits of the transition to a more sustainable economy will be shared equally.
So, how can businesses respond to the climate crisis whilst ensuring an equitable distribution of benefits and opportunities for all?
Enter, the Just Transition
At Simply Sustainable, we believe that a Just Transition is the missing link. Businesses can no longer consider ESG without the J – a genuine consideration for justice.
Put simply, we define the Just Transition as a practice, process and an outcome of the journey to a socially inclusive net-zero economy for all. The Just Transition recognises that there are and will be winners and losers of climate change. The impacts will neither be felt equally nor fairly – those most vulnerable, marginalised, and our future generations with bear the disproportionate burdens. Factors such as socio-economic status, the lottery of birth, gender, and race present a multitude of compounding challenges.
As we transition to a low carbon future, climate action and social inclusion should no longer be viewed in isolation. By viewing both social inclusion and climate action and cohesion, business can play a key role in ensuring no one is left behind.
Effective action on climate change requires the fastest and broadest transformation of sectors and economies ever. Businesses are and will be centred at the heart of this transformation often shaped as ‘winners’ within the climate crisis. Business have the profound potential to not only deliver tangible benefits for the workforce, but for internal and external stakeholders and society at large. Implementing the just transition also presents good business sense. The practice, process and outcome allows businesses to future-proof operations by planning for, managing and optimising the operational and reputational effects of reducing emissions and increasing resource productivity. This improves oversight of transition benefits and costs, increases social support for climate action and sustainability, and ensures strong workforce and community relations.
So, how can businesses support this transformation? Here are five key actions that businesses can take to deliver the just transition:
- Conducting a deliberate approach to stakeholder engagement with due consideration for all (those marginalised, vulnerable, current and future generations) whilst ensuring voices are heard but recognised within decision-making processes;
- Embedding social inclusion into all climate action planning (considering just transition principles within TCFD assessments, embedding social inclusion into net-zero transition plans, and setting just transition-related climate targets)
- Developing robust ESG and J strategies with a genuine focus on fairness, equity and inclusivity;
- Mobilising investment and financial opportunities to those which consider the low carbon economy in tandem with principles of equity and inclusion;
- Assessing and improving the organisational role in delivering decent and green jobs, education, skills, training and re-training for all.
Whilst there is much work to be done to demonstrate that a fair and inclusive transition is possible, many businesses are already equipped with the tools to do so. In most cases, businesses don’t need to reinvent the wheel, rather shift their priorities towards truly considering justice – a mindset change in culture, behaviour and transformational delivery. By recognising the Just Transition as a practice, process and an outcome of a climate-resilient socially inclusive future – businesses can broaden their understanding of where we are going and how we are going to get there.
The Just Transition represents untold value for all. At Simply Sustainable, we can support your business to realise this value and deliver a socially just, net-zero economy for current and future generations. No one should be left behind and the ‘J’ presents the missing link.
Ellen Salter is a Senior Sustainability Consultant at Simply Sustainable. Ellen has experience for both organisations and across built environment projects both internationally and within the UK. Her expertise includes just transition route maps, carbon management and assessment, decarbonisation, and sustainability advisory.
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