The European Commission is influencing business behaviour through the Sustainable Finance Agenda. UK and US companies will be affected by the ESG reporting regulations if they have subsidiaries in Europe.
US companies not only need to prepare themselves for the proposed Securities and Exchange Commission1 (SEC) Environmental, Social and Governance (ESG) reporting disclosures but should also ensure they are readying themselves for the impact of the international ESG reporting requirements such as the Corporate Sustainability Reporting Directive2 (CSRD).
Within the EU, CSRD is expected to impact nearly 50,000 entities. This is far more than are affected under the current EU reporting requirements. CSRD, which entered into force on 5 January 2023, requires all large companies and all listed companies (except listed micro-enterprises) to disclose information on their risks and opportunities arising from social and environmental issues and on the impacts of their activities on people and the environment.
EU subsidiaries of UK and US companies will be expected to provide substantial ESG disclosures, demonstrating the robustness of their ESG strategy, targets, KPIs and progress, as well as the ESG performance of their products/services and value chain.
One of the requirements of CSRD is to complete a double materiality assessment to determine the priority topics for a company’s ESG strategy and reporting. This type of assessment involves stakeholder mapping and engagement, determining the impact of ESG on the organisation and the impact the company has on the ESG topic. In addition, the financial impact of ESG is also considered.
Climate change is a good example of this inside-out approach, where the impact of climate change on the company is assessed, for example flooding and supply chain disruption. The company would also need to consider their contribution to climate change e.g. use of fossil fuels, production of single-use plastic, use of their products and advice provided to clients.
CSRD also imposes mandatory assurance for reported sustainability information. This is likely to be conducted by a company’s financial auditors if they have the correct skills and experience.
The first set of companies under the scope will have to apply the standards in the fiscal year 2024, with reports published in 2025.
Given the short timescales, we would recommend conducting a double materiality assessment urgently and, in the meantime, reviewing current ESG strategy, targets and KPIs against CSRD requirements and wider international reporting requirements. We would also recommend reviewing the current system in place to track ESG data and ensure data is being tracked robustly at a subsidiary level.
Author: Nicola Stopps, CEO, Simply Sustainable
Simply Sustainable’s Amsterdam office kicked off 2023 with our first sustainability leaders’ roundtable meeting. The lively discussion addressed the sustainability issues that will affect businesses in Europe in 2023. We saw extensive exchange of views and experiences between peers, looking forward to a year of empowerment and change.
Sustainability Manager is a 360-degree role
The enormous momentum behind sustainability is only expected to build further in 2023. There is an increasing demand on sustainability managers to provide practical solutions. Participants told us that many colleagues – especially those from the younger generation – come to the sustainability manager proactively with ideas (big or small) and then wish to be part of the transition, as well as board members fighting to have a piece of sustainability in their remit.
This is great news. However, in many organisations, the interest and urgency of sustainability surpasses maturity and capacity.
This imbalance is most acutely felt by sustainability managers. Theirs is becoming a 360-degree role, in which they are expected to communicate and manage to colleagues upwards, sideways and downwards, and manage stakeholders all around the business. They must work strategically as well as operationally to realise their agenda. All while the scope of their work is broadening, beyond the traditional focus on environmental issues to include social and governance topics.
Why the CSRD is sexy
The EU Corporate Sustainability Reporting Directive (CSRD) has made it much easier for sustainability managers to engage people in the organisation on sustainability. Timelines for compliance are short, and the bar is high, so many in the company recognise that preparation must start today.
Participants see that colleagues are looking to them, as the sustainability manager, to translate the complexity of the CSRD into a clear, step-by-step plan for the business.
We talked about the challenges of involving and empowering internal stakeholders in the short time span for CSRD compliance. Companies run the risk of going down a narrow route to compliance, missing the value that CSRD preparation can have for future-proofing the sustainability strategy. If full focus is on gathering the data for reporting, opportunities to engage in dialogue about the strategic implications of sustainability topics and how they are best addressed may fall by the wayside.
Sustainability data is management information
Preparation for CSRD accelerates the need for comprehensive and robust measurement. While new regulatory guidelines clarify what should be measured – previously companies had to find this out for themselves – it does not make data collection and validation any easier.
Many companies have been looking for the best system for capturing and managing sustainability data. Should they choose a new Environmental, Social and Governance (ESG) tool – of which there are increasingly many available? Can the financial reporting system be extended to include sustainability data? Or are there tried and tested Environment, Health and Safety (EHS) systems that are expanding into this space? There are many solutions out there, but companies find it very hard to judge which are robust and trustworthy.
As a widely experienced sustainability consultancy, it is our view that sustainability data should be management information and not only be used for reporting. This points to an integrated solution, that brings together financial and non-financial data for informed and balanced decision making. There is a huge need, and we are actively watching this fast-moving space to best advise our clients.
Author: Sytze Dijkstra, Netherlands Country Manager, Simply Sustainable
Download Simply Sustainable’s 2023 ESG & Sustainability Trend report for an in-depth analysis of how sustainability will shape the corporate agenda this year.
If you are interested in receiving our reports or joining a future Sustainability Leaders’ roundtable, please contact us.
The Importance of Solidarity and Collaboration in the Face of Adversity
The World Economic Forum (WEF) hosted its 53rd Annual Meeting last week from the 16-20 January 2023 in Davos, Switzerland. Cultural, business, political and other leaders of society convened at the conference to discuss actions needed to resolve current global crises, from the cost-of-living crisis to climate change, but also how to prevent the reoccurrence of these issues.
The World Economic Forum Annual Meeting 2023
Founded in 1971 and headquartered in Geneva, the WEF is committed to promoting sustainable development worldwide1. Given the many environmental, social and economic emergencies the world currently faces, this year’s meeting sought to reaffirm the importance of public-private cooperation to address these problems, as well as facilitate positive, long-term systemic change. Consequently, at the heart of the meeting, there was a desire to find ways to reinstitute a collective sense of agency and to turn defensive measures into proactive, vision-driven policies and business strategies. Key heads of state and government, as well as different geopolitical and geoeconomic groups (e.g. the Country Strategy Dialogues), contributed to discussions over the course of the four-day meeting; the WEF’s foremost business communities, such as the International Business Council and the Community of Chairpersons, also gathered to engage in discussion with their peers2.
The backdrop to the 53rd Annual Meeting: the WEF Global Risks Report 2023
The WEF Global Risks Report 2023 was published in January 2023 and highlights the different areas where the world is at a critical inflection point. In its 18th edition, the results of a Global Risks Perception Survey (GRPS) are presented, which collected responses from over 1,200 experts across academia, business, civil society, government and the international community on the evolving global risks landscape in the short-term (two years) and long-term (10 years). Complementing GRPS data on global risks, the report also draws on the WEF’s Executive Opinion Survey (EOS) to identify risks that pose the most severe threat to each country over the next two years, as revealed by over 12,000 business leaders in 121 economies3.
The report revealed that energy, food, inflation and the cost-of-living crisis are considered to be the most significant global risks. The cost-of-living crisis has been ranked as the most severe global risk over the next two years, followed by natural disasters and trade and technology wars. However, failure to mitigate and adapt to climate change were ranked as the two most pressing risks over the next 10 years, with biodiversity loss and ecosystem collapse regarded as one of the most rapidly escalating global risks in the long-term. Geoeconomic confrontation, cyber insecurity, widespread cybercrime, large-scale involuntary migration and the erosion of social cohesion and societal polarisation are global risks that all feature in the top 10 over the next decade3.
A call for urgent and collective action
Despite the range of risks that are occurring simultaneously worldwide, a shift away from a focus on short-term results (i.e. “short-termism”), crises-driven mindsets and solo approaches is a strong step to effectively manage and limit their consequences. The WEF has identified four key principles that are crucial to prevent a worsening of the risks outlook3,4:
- Although risks may have short- and long-term impacts, leaders must revaluate their perception of risk and act in the shortest timeframe possible (i.e. today) to address them. In today’s risk landscape, this means leaders must collaborate now to address climate and socioeconomic issues.
- There is a need for business and governments to invest in multi-domain, cross-sector risk preparedness by building societal resilience through financial inclusion, health, care, education, and climate-resilient infrastructure.
- The abundance of crises affecting humanity and the environment has caused nations to operate in a more insular manner. Despite the importance of national preparedness, there is a fundamental need for international coordination, data sharing and knowledge exchange to deal with several global risks, such as technology governance and climate change.
- Accurate predictions of risk in terms of timescale and impact must be bolstered at a global, national and institutional level. To strengthen the ability of leaders to better understand global risks, scenario analyses, scanning multistakeholder perceptions, appointing a risks officer function, and finding data on weak signals are all valuable ways to aid leaders in this process.
What does this mean for our future?
The world is facing several sustainability challenges that present an immediate threat to humanity and nature3. Given the scale, complexity and urgency with which they need to be addressed, pessimism and a feeling of futility abounds. Nevertheless, it was clear from the WEF’s 53rd Annual Meeting that international cooperation, holistic approaches and solidarity are key to tackling and preventing sustainability crises.
Bold leadership and cohesion across country borders is needed to improve the state of the world. If we all work together now, there is good reason to feel hopeful and optimistic about the future.
Author: James Beiny, Consultant at Simply Sustainable
Beyond reporting: How companies can use the CSRD as an accelerator of their sustainability agenda
The future of corporate sustainability reporting is taking shape. At the end of November 2022, the European Union Council gave its final approval to the Corporate Sustainability Reporting Directive (CSRD)1 and the European Financial Reporting Advisory Group delivered the first set of draft European Sustainability Reporting Standards (ESRS) to the European Commission.2 With these measures, the EU aims to accelerate the transition to a sustainable economy.
Under the new CSRD regulation, companies will soon be required to publish detailed information on sustainability matters. This will increase a company’s accountability for its impacts on the environment and society, and provide financial institutions with comparable, verified information on sustainability performance that should facilitate allocation of finance to sustainable activities.
The measures should also equip companies for implementing their own sustainability agenda. They can only make progress if they know where they stand – relative to their ambitions as well as their peers – and where they can improve.
What does CSRD compliance entail?
CSRD extends the scope and detail of the current Non-Financial Reporting Directive (NFRD). It will apply to all large EU and non-EU companies (listed and non-listed) operating within the EU market.3 Companies subject to CSRD will need to:
- Disclose principal actual or potential impacts related to the company’s own operations and the implementation and outcome of the due diligence process of the company’s value chain
- Describe the role of management boards and supervisory boards regarding sustainability matters
- Disclose set time-bound targets on sustainability matters and report on the progress of achieving such targets (KPIs)
- Assess and report both impacts of the company’s activities on sustainability matters and on sustainability matters affecting the company (the double-materiality principle)
- Obtain limited assurance opinion by a statutory auditor of reported sustainability information.
However, CSRD is about much more than just reporting
Preparing for CSRD compliance will force companies to revisit their strategic focus and bring a greater systematic approach to corporate sustainability, using common standards and frameworks. The required double-materiality assessment, for instance, can identify important topics that have previously been overlooked in corporate strategy and risk management. Target setting, as prescribed by the regulation, often kicks-off a process of redesigning performance management, defining new KPIs and setting up new systems and processes for measuring and monitoring progress.
CSRD compliance is a multi-year journey
Companies need to start planning their journey to becoming fully compliant by the time the Directive is mandatory to them, ranging from between 2024 to 2026. That may appear like a lot of time, however getting all the required elements in place will be a significant exercise for many companies.
Fortunately, many elements of the CSRD build on existing standards, including the GRI framework and the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, and there is an increasing body of experience of how to apply these robustly.
Even with existing guidance, much of the detail is still to be defined. Experience suggests that general, cross-industry standards need industry-specific guidance to account for sectoral differences.
Assessing the impacts of business activity will be very different in sectors where assets are mostly intangible, in comparison to in an industry that has substantial tangible assets. Appropriate governance structures in highly competitive industries may not be suitable for regulated industries. There is also a steep learning curve in creating standards for linking sustainability performance metrics to accounting metrics like CAPEX, OPEX and turnover, as prescribed by the EU Taxonomy.
Figuring all of this out will take time and close collaboration between companies and regulators, value-chain partners and industry bodies. It will get easier as practice builds, with companies benefiting from the learning experience of early adopters.
An historic opportunity
CSRD will be challenging to implement at pace within corporations and across value chains. It is also an historic opportunity to lean-in and tool-up for a more sustainable future.
Importantly, companies should look beyond regulatory compliance when preparing for CSRD. Next to gathering information for providing accountability externally, companies must create decision-ready data that guides a shift in corporate practices, and in turn delivers real-world impact.
What does this mean in practice?
- The assessment of material sustainability issues, risks and opportunities is fully integrated into business strategy and risk management processes, and is not a paper exercise for reporting purposes only
- Targets come with execution plans that lay out the journey of meeting them, in realistic, practical steps
- Communication internally to employees is as important as communication to external stakeholders. Employees are the primary agents that will deliver sustainable business in practice, and many are eager to do so.
Approached with this mindset, preparation for CSRD can be an accelerator for delivering corporate sustainability goals, rather than a time-consuming distraction. Done correctly, it will help large companies secure the long-term resilience of their business and of the environment that it depends on.
How Simply Sustainable can help
Our growing team of expert sustainability and ESG consultants are here to enable your company to adapt at pace to the changing landscape of sustainability legislation and transformational plans towards our shared goal of net-zero.
Book a call back to discuss your strategy here
3. A company is considered ‘large’ and subject to the CSRD if it meets two out of three criteria: (1) revenue over EUR 40 million; (2) total assets over EUR 20 million; (3) more than 250 employees.
Today, it is now widely acknowledged that companies cannot tackle the climate and nature crises without bold action. The arrival and ongoing development of corporate science-based targets (those in line with the ambition to keep global temperature increase below 2°C and ideally to 1.5°C above pre-industrial temperatures) has crucially set the minimum standard for climate action. Despite this, a significant quantity of greenhouse gas emissions still remain outside of companies value chains, presenting the need for companies to drive net-zero beyond the company boundary.
At Simply Sustainable, we help companies to deliver socially inclusive decarbonisation actions, mitigation measures and investments to avoid, reduce and then remove greenhouse gases that fall outside of the company’s direct value chain. This is referred to as ‘beyond value chain mitigation’. Importantly, such actions play a key role in reducing the emissions gap between today and our global net-zero target date of 2050.
At present however, there is an absence of clear industry guidance on beyond value chain mitigation. The SBTi (Science Based Targets initiative) for instance, is anticipated to release further guidance in 2023 whilst sector specific methodologies are underway. In the meantime, companies must pursue credible mitigation efforts to ensure a chance of achieving global net-zero in-line with the Paris Agreement.
To deliver credible beyond value chain mitigation, companies must consider near-term and long-term targets, align to the wider company strategy and values, and consider innovation and knowledge gaps in the achievement of net-zero. Additionally, such measures should be monitored and reported at least annually with minimum expectations to disclose the nature and scale of involvement, monetary contribution and value realised.
Here’s just a few examples of how we can support beyond value chain mitigation for your company:
- Delivering credible, socially inclusive net-zero strategies (with beyond value chain mitigation)
- Conducting just transition assessments to understand opportunity areas for socially inclusive partnerships to deliver net-zero
- Advisory on carbon offsetting and the purchase of high-quality, jurisdictional carbon credits (including nature-based solutions)
- Driving climate finance by setting an internal price of carbon and calculating the social cost of carbon of your business
- Developing research and development plans and opportunity metrics and targets for new climate solutions
- Assessing and improving climate skills, training and education to deliver decent and green jobs, education, skills, training and re-training for all.
By considering beyond value chain mitigation with foundational principles of social inclusion, fairness and equity, we can support companies to ensure no one is left behind as we strive towards net-zero. Ultimately, we can and must work together to collaborate and partner to deliver co-benefits for nature and people.
Fair tax systems are vital to enhancing public trust and to achieve a modern, sustainable and inclusive economy. Currently, the world is focused on the environmental and social consequences of what businesses do and are calling organisations to respond in a way that demonstrates positive impact. Tax reporting is an area that brings elements of environmental, social and governance (ESG) performance to life, with leaders preparing for a more transparent tax world. Tax transparency is a topic that has seen rapid change in recent years and recent scandals have highlighted the need to retain public and stakeholder trust. Simply Sustainable have a strong focus on addressing the most complex issues and opportunities our clients face. By combining our expertise and commercial mindset, we work to achieve your business goals.
Simply put, to stay competitive in the market, businesses must respond to the increased focused on tax strategies, policies, reporting and risk management in connection with responsible investment. Our approach is underpinned by these four principles:
It is important to know that tax lies within both ‘S’ and ‘G’ of ESG. So, what is the most effective way the tax function of a company be managed and governed that upholds social and moral values?
Corporate tax is becoming a reputational risk that companies must consider and is a means for stakeholders to evaluate if companies are paying their ‘fair share.’ This impact is seen on a local and international scale, with “unfair tax” depriving the low and medium Human Development Index countries of an estimated $100 billion per year.3 To follow through with good governance, a company must follow the general business and human rights logic and hold social and economic rights as a key obligation to operations. This means putting in place the right policies and processes to assess the impact of a company’s behaviours and minimise the potential harm done by irresponsible tax behaviour. These should all be measured for effective due diligence and robust impact assessments.
Taking a responsible approach to tax means that a company is open, progressive and considers all stakeholder interests – including taxpayers, communities, governments, lenders and the financial community.1 So, understanding tax from a social perspective means questioning how much tax is being paid and where, and what are the global tax strategies being undertaken by companies?
While pressure in different geographical regions varies, the consensus from the global stakeholder community is for companies to reflect on their contribution to society. Voluntary approaches included engaging with disclosures in Global Reporting Initiative (GRI)4, Fair Tax Mark accreditation, B Corp certification and the work done by Principles for Responsible Investment (PRI) such as the Engagement Guidance on Corporate Tax Responsibility and Investors’ Recommendations on Corporate Income Tax Disclosure.5
Companies will already be aware of mandatory requirements in certain regions and sectors. These include country by country reporting (CBCR) in the EU Accounting Directive, public country-by-country reporting (pCBCR) Directive, UK Tax Strategy Disclosures and Base Erosion and Profit Shifting Project (BEPS) for certain OECD countries.
Engagement with Tax Authorities
Even if a certain regions tax regulations are unchanging, a company may still be subject to stringent regulation by tax authorities. Tax authorities are taking a more proactive enforcement to reduce the exploitation of international tax frameworks. Need for transparency and better disclosure has been the focus for global bodies such as the World Federation of Exchanges – include tax transparency as ‘material ESG metric for reporting’; International Accounting Standards Board (IASB), International Financial Reporting Standards (IFRS) Foundation – work on independent standard-setting on tax disclosures; and the International Federation of Accountants (IFAC).5
Tax risk management
Tax-related risks extend beyond short-term earnings, so companies should be proactive to changes in their business environments to tax rules. This may include being aware of incentives the company may take advantage of, reputational and brand risk, societal risk from aggressive tax strategies and challenging complex strategies. In addition, a company should understand the potential impact on key stakeholders to understand any long-term risks.
How Simply Sustainable can assist
Many recommendations from all actor groups share the same difficulty: how to distinguish between acceptable and unacceptable tax practices. To address this, Simply Sustainable follow the above four principles to develop an approach for our clients that embraces responsible tax. Our goal is to arrive at the correct tax metrics to support the overall ESG goals to achieve commercial success and wider stakeholder buy-in.
1 B Team. Why responsible tax belongs on the ESG agenda.
2 Fair Tax. About us.
3 Oxfam. Endless corporate tax scandals.
4 GRI 207. Tax 2019.
5 PRI. Advancing tax transparency: outcomes from the PRI collaborative engagement.
Greenwashing in the financial sector risks devaluing ESG, but there are three things that could help firms raise the bar; upskilling, target-setting and better reporting.
As Simply Sustainable is a technically experienced consultancy and having worked across financial services clients including banks, private equity portfolio companies and funds, we understand where improvements need to be made.
“In the finance sector, the level of awareness, knowledge and then implementation [of ESG criteria] has risen quickly and dramatically but there is still a journey to continue. What I’ve seen work well is the understanding of the financial risk of ESG and particularly climate change on businesses,” says Nicola Stopps CEO of Simply Sustainable.
The Taskforce on Climate-Related Financial Disclosures legislation coming in has been useful because this framework has helped improve knowledge of the risks of climate change and, by extension, other ESG topics too. Investment firms are “at the table on ESG”, asking the difficult questions of companies and setting the tone for the businesses in which they invest, forcing them to take ESG seriously.
What else can financial services do to make their businesses and those in which they invest, do better on ESG?
The industry needs to upskill and increase knowledge and education on all ESG topics, argues Stopps. Right now, it’s fairly easy to recruit at a junior level and there is higher education on sustainability that just didn’t exist until quite recently.
At the mid-management level and above, things are more challenging.
There is a really small talent pool of people with 20 years’ experience. We see senior leadership moving in to ESG without the skills and the knowledge. This is a really challenging area to work in, it’s not a quick fix to suggest a programme and implement it, it’s a long slog.
To do that you need purpose and drive to believe businesses can be a benefit to society and the environment, and you can be a cog in the wheel to support that. That is sometimes missed at that senior level.
- More than box-ticking
Firms should have a “very robust, strategic approach to ESG and sustainable businesses” to prevent greenwashing. This should be aligned to commercial strategies, and there should be good understanding of the financial risk to the organisation if it doesn’t take such an approach.
Currently, a lot of firms are still treating ESG as a box-ticking exercise or a data set rather than something to be integrated more holistically into every aspect of the business.
Setting science-bound targets and KPIs and then implementing them strategically is key, as well as being honest and transparent about how decisions are made.
- Better reporting
We encourage better reporting as companies prioritise ESG and integrate it into every business area. “How do you report transparently in a balanced, coherent, accessible and honest way?”
Standardisation of reporting criteria should help here: the International Sustainability Standards Board is looking at bringing in a global baseline for sustainability-related disclosure requirements.
However, this is not something new, GRI [Global Reporting Standards] has been the gold standard in reporting for decades now, so there’s a lot of experience in that area already. Nicola Stopps, CEO of Simply Sustainable states, ‘I don’t think we’ll end up with one standard, I think we’ll end up with a couple just like with the financial reporting, there will be a few but it will be a lot simpler.”
This should make the concept of ESG more accessible to organisations, she suggests.
The time is now
Overall, our belief is that financial services firms must raise the bar on sustainability, and the time for action is now.
“We’re in 2022. Businesses need to actually start delivering. They need to meet climate change challenges and the stakeholder expectations on them. It’s not good enough now just to have targets and KPIs, they need to look at their business systematically and deliver sustainable transformation across their business,” says Stopps.
“This year and next will be the years of delivery.”
Companies worldwide are experiencing mounting pressure from investors, regulators, the public and other stakeholders to take environmental, social and governance (ESG) matters seriously. In fact, the number of ESG reporting standards and regulations at a global level has almost doubled in the last 5 years.1 As there are more than 600 ESG reporting provisions currently available worldwide, with many having different interpretations of sustainability, the task of disclosing quality ESG information presents a major challenge for companies.1
The lack of a single, standardised framework for ESG reporting, coupled with low compliance to existing regulation, has unfortunately fuelled the disclosure of misleading and/or inaccurate information.2,3 Numerous international corporations, like Volkswagen and BP, have been exposed for greenwashing4 and a global review conducted by the Competition and Markets Authority (SMA) revealed that 40% of green claims made online by firms could be misleading consumers.5
While greenwashing appears to be rife and particularly problematic, companies are also starting to be exposed for misleading the public about how they treat their people. On International Women’s Day 2022, a day to celebrate the social, cultural, political and economic achievements of women, hundreds of British organisations posted to social media to show their support for the cause.6 However, on Twitter a bot was on the loose, which retweeted their posts but also shared the difference in median hourly pay between men and women at each firm.7 The Gender Pay Gap bot, which had the strapline ‘Deeds not words. Stop posting platitudes. Start fixing the problem’, highlighted the apparent hypocrisy between company posts and gender pay performance.7 In many instances, the gender pay disparity flagged by the bot was shocking, such as 68.6% difference at Ryanair.7 Companies in the public sector were not out of the firing line; Cancer Research UK, for instance, was revealed to have a 30.9% median gender pay gap in 2021.8
Consequently, and unsurprisingly, scepticism is high among investors with regards to ESG claims that companies make. Indeed, research conducted by Edelman in 2021 found that 86% of global investors believe companies exaggerate their ESG performance when disclosing results, and 72% do not think they will live up to their ESG commitments.9 Another recent survey of more than 4,600 individual investors across the UK, US, France and Germany obtained similar findings: 90% of respondents stated that they struggle to trust ESG claims made by businesses at face value.10
How can we rebuild trust and confidence among investors concerning ESG disclosures?
In response to growing calls from international investors for high quality, reliable, transparent and comparable reporting by companies worldwide on ESG issues, the International Financial Reporting Standards (IFRS) Foundation announced the formation of the International Sustainability Standards Board (ISSB) at COP26 in November 2021.11 The ISSB has been tasked with developing a comprehensive global baseline of sustainability-related disclosures standards, providing investors and other capital market participants with the information they need to make informed decisions.11 While a host of reporting standards already exist, there is optimism that the ISSB standards will be widely accepted and adopted – the IFRS sets financial accounting rules that companies in more than 140 countries adhere to, and because the standards build on existing ESG frameworks developed by other sustainability reporting initiatives, such as the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI).1,12 By creating a comprehensive and detailed corporate reporting standards framework, companies will be able to measure and report their ESG performance in a consistent manner.11 Ultimately, it will restore trust and confidence among investors and other key stakeholders in the ESG disclosures that companies make.
It is becoming more pertinent that companies need to transparently disclose their ESG performance to reduce the risk of reputational damage. Adherence to globally accepted standards, such as the GRI and SASB, can help companies to understand and effectively report their ESG performance; the imminent release of ISSB standards is anticipated to significantly ESG reporting worldwide.
At Simply Sustainable, we support an array of international organisations with their sustainability reporting, employing best-practice global standards (e.g., GRI) to ensure their disclosures meet the needs of key stakeholders. If you are looking for support with your sustainability reporting, please contact us using the details below.
1 EY. Future of sustainability reporting standards.
2 City AM. Better regulations, not more, are the answer to greenwashing controversies.
3 Carbon Market Watch. EU works to beef up regulations on green claims.
4 Earth Org. 10 companies and corporations called out for greenwashing.
5 UK Government. Global sweep finds 40% of firms’ green claims could be misleading.
6 Forbes. Twitter bot trolls organisations for hypocrisy on International Women’s Day.
7 Personnel Today. International Women’s Day.
8 Civil Society News. Cancer Research UK ‘disappointed’ by widening gender pay gap.
9 Edelman. 2021 trust barometer special report: institutional investors.
10 Edie. Survey.
11 IFRS. ISSB
12 The Globe and Mail. Is a reporting standard finally on the horizon
Here is what we know. More than half of global economic output, a total of US$44 trillion of value generation, is moderately or highly dependent on nature.2 Every dollar invested in nature restoration creates up to US$30 in economic benefits.3 And alarmingly, £300 billion of UK pension money is invested in companies and financial institutions that are exposed to high deforestation risk.4 Clearly, Earth’s ecosystems have massive value. But these systems are in jeopardy due to an unprecedented onslaught of human-induced biodiversity loss.
‘The sectors that are most immediately likely to be affected by the depletion of natural capital are those that exploit it most directly.’ – Mike Scott
Nature’s warning calls are at extreme levels. Global numbers of mammals, birds, fish, amphibians and reptiles have dropped by an average of 68% since 1970.1 Biodiversity loss and collapse of ecosystems from human-made damage has been widely recognised as an existential global threat. Despite the efforts of international economic and financial organisations to draft elements of nature into their growth models, there is still an absence of nature as an essential entity in our economic lives.
What is TFND and why should businesses engage and disclose with prior to release?
It is undeniable that a nature-positive approach to doing business is urgently required. Following the steps of the Taskforce on Climate-Related Financial Disclosures (TCFD), the Taskforce on Nature-related Financial Disclosures (TNFD) acts on behalf of nature. The Taskforce’s approach strikes a balance between science and market participants for clear, transparent, and comparable information. Decision-making can place nature-related risks front and centre, capital reallocation can be catalysed to protect and restore nature. By fostering knowledge, sharing and collaborating on nature-related risks and opportunities, the TNFD creates and delivers a risk management and disclosure framework for organisations of all sizes. The plan is to guide financial institutions and companies to act on evolving nature-related risks, as well as to identify opportunities that ultimately shift global financial flows to nature-positive outcomes. On the release of their second prototype framework, the TNFD outlined overall guidance and illustrative metrics to be consulted by global stakeholders with the inaugural framework being released towards the end of 2023.
Core concepts include:
- Metrics and targets that include a cross-sector approach
- Additional guidance materials to assist market participants
- Nature-related risk and opportunity assessment for financial institutions
Importantly, it is possible for companies of all sizes to engage in nature and biodiversity to promote innovative solutions to a global problem. To ensure success, it is vital to focus on internal drivers and recognise an organisation’s impact from the outset. Nature can be included across all aspects of ESG with the social aspects reflected in business through the conscious creation of urban biodiversity as well as nature-related employee perks.
So, what is on the horizon for businesses, financiers and nature-related risks and opportunities?
As the business community is navigating its expanding role as a key driver of sustainable growth, there is a broad range of market-led, science-based measures to take. By acknowledging that people are part of nature, businesses can engage from a range of aspects across the full spectrum of environmental, social and governance (ESG).
Since the time for action is now, there is an increasing number of leading companies recognising that a prosperous business relies heavily upon nature. However, businesses will be at different stages in their journey to nature net gain – an approach outlined by TNFD to managing an businesses impact that leave the natural environment in a measurably better state than it was beforehand.5 Larger companies will already be reporting nature-related metrics and targets against current ESG frameworks that include GRESB, Global Reporting Initiative (GRI), and non-GHG pollution. For smaller companies, there are many waves to move nature to be the centre of their brand. By engaging with restoration projects on a corporate level and introducing sustainability into procurement strategies leading to reduced impact on natural resources and greater engagement by working with suppliers that meet circular economy targets.
As has been done with climate in the past, these efforts can be built upon by embedding nature into governance through introducing nature into risk management. Recognising the high material financial risk that nature loss poses, it is important to integrate this exposure into decision-making to locate risks and opportunities. Transition opportunities will be high on the agenda, especially relating to evolving markets and policy. A robust understanding of the physical and financial risks and opportunities can guarantee subsequent control measures will be implemented in a timely manner. In light of the Green Claims Code, there is great potential to be transparent about diversifying portfolios into the growing market of green finance and taxation.
At Simply Sustainable, we understand that putting things right will take collaborative action to enable the natural world to flourish abundantly. Our work includes supporting international businesses from across the economy to align their reporting to current disclosure and frameworks related to nature through GRI, GRESB, and communication reviews. We welcome the market-led science-based TNFD framework to promote year-on-year improvements on a company’s journey to full disclosure.
1 World Wildlife Fund. Living Planet Report.
2 UN Environment Programme. Cutting Edge Biodiversity Module.
3 UN Environment Programme. Ecosystem Restoration for People, Nature and Climate 2021 Report.
4 Global Canopy Organisation. UK pensions.
5 UK GOV. Biodiversity Net Gain.
Much attention is being given to the environmental claims that businesses make when marketing their products and services. As demand for eco-friendly products skyrocket, in the UK alone, one third of consumers want to shop responsibly by choosing more environmentally friendly products and services.1 By exploiting consumer’s genuine ethical concerns, greenwashing impacts a consumer’s ability to make a sound environmentally friendly decision – generating confusion, scepticism and increased perceived risks around ‘green products.’ As stakeholders are increasingly exposed to the material risk of greenwashing, how are the businesses that are responsible held to account?
There are many statements made about the environmental and sustainable credentials – nicknamed green claims – of products in advertising, packaging, and other marketing materials. Getting these wrong is bad for business, bad for consumers and bad for the planet. That’s where we, whether consuming as an individual or on behalf of an organisation, need assistance to better understand and trust green claims. In September 2021, the Committee of Advertising Practice launched the Green Claims Code. The principles are designed to highlight the standards that businesses need to adhere to when making claims about their environmental impacts.
The rules are simple, claims must:
- Be truthful and accurate
- Be clear and unambiguous
- Not omit or hide important and relevant information
- Be fair and meaningful when comparing to competitor
- Consider full life cycle of product or service
- Be substantiated.
So, what do these six principles set out for businesses and who is affected?
The code helps businesses understand and comply with best practice around marketing and advertising. By supporting the Advertising Standards Agency (ASA), the code enforces new guidance on misleading and socially irresponsible environmental claims. By delivering clear and explicit instructions, the entire lifecycle of a product, service, process, or brand is covered by the code. A tough route for a business to navigate when faced with the current macroenvironment of supply chain issues, inflation and rising cost of living impacting a volatile labour market.
Beyond the legal penalties for failing to comply, neglecting these six principles risks separating a company from their customer base. And as informed public opinion and expectations rapidly evolve, a company’s reputation is increasingly exposed to this danger. Over a 12-month period, the ASA found 16 advertising campaigns had either exaggerated their company’s green credentials or made unsubstantiated environmental claims. 2 Major companies caught up in this scandal included Innocent Drinks, Oatly and Alpro.3 Other household names such as Amazon, Ikea and Unilever were among companies to be exposed to fall short of promises that reach net-zero by the middle of the century.3 Showcasing the increased stakes of marketing credibly, with action by regulators such as CMA set to grow.
As trust in green claims is fragile, the Green Claims Code is a welcomed intervention that will play a vital role in levelling the playing field. Bridging the gap between marketing and sustainability requires a big shift in mindset. Businesses that have been doing the work to mitigate their social and environmental impact – with data to support – will see the code as a golden opportunity to gain commercial advantage and improved performance.
At Simply Sustainable, we support the current trends of increased transparency in disclosures and can guide you to comply with existing obligations on environmental claims.
 Forbes. One third of UK consumers want to shop responsibly.
2 Independent. Number of adverts banned for ‘greenwashing’ triples in a year.
3 The Guardian. Biggest net zero claims.
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