Sustainability & ESG in 2022: Where Do We Go After COP26?
December 22, 2021
COP26 was not the resounding success we were hoping for. Following the Sixth Assessment Report of the Intergovernmental Panel on Climate Change, a Code Red for Humanity, this year’s U.N. Climate Change Conference in Glasgow saw the largest delegation from the fossil fuel industry. In other words, what could we expect?
There were certainly positive outcomes of the conference:
- One hundred countries pledged to reduce their methane emissions by 30% relative to 2020 during COP26.
- Another 100+ countries – a group with more than 85% of the world’s forests – pledged to half deforestation by 2030.
- Additionally, coal-producing India committed to net-zero emissions by 2070.
However, language surrounding fossil fuels was diluted to the point of irrelevancy. Wording on coal use shifted from “phase out” to “phase down.” Since national pledges are voluntary and unenforced, the weakening of the language further dampens whatever significance was originally attached to the phrasing. Again, we can thank the most sizable delegation.
So, where do we find hope? In the private sector. Companies must continue to move toward net-zero emissions and develop actionable pathways to achieving that goal. The best way to provide evidence of progress is through annual reporting.
If you’re wondering where to begin, it’s with a materiality assessment. This exercise provides deep insight into issues important to the business and to a variety of corporate stakeholders. It identifies and prioritizes both opportunities and risks to the business. Understanding the issues that employees, investors, activists, and consumers think are material risks and benefits to a business allows companies to focus on a core set of business-critical issues when developing sustainability plans and integrating these plans into their overall business operations.
It is important to establish a regular reporting cadence and evolve its structure over time. With this growing demand for transparency and disclosure focused on materiality, aligning with reporting structures like Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) is becoming increasingly common, and will soon be table stakes. Transparent and regular reporting provides year-round stories to tell stakeholders and illustrates how ESG is a business driver that gives a company a competitive edge.
- Metric Standardization: The market for sustainability reporting continues to consolidate, with the International Integrated Reporting Council (IIRC) and SASB merging to create the Value Reporting Foundation (VRF), and then the VRF consolidating with CDSB and IFRS Foundation. Prototype climate and general disclosure requirements have been drafted and are slated to be finalized next year. Disclosing through frameworks like this offer real comparability and the opportunity to demonstrate progress against goals, like achieving net-zero or science-based emissions reduction targets.
- Quality Data: Corporate stakeholders want comparability to make the most informed decisions, so it’s crucial for companies to a) collect the highest quality data, and as much data as possible to understand their emissions baseline, risks and opportunities, and other metrics; and b) report this information to stakeholders through recognized standards. The Science Based Targets initiative (SBTi) developed a Net-Zero Standard, which is the first global framework for net-zero target setting in line with climate science. The FINN Global Sustainability and Social Impact Team has extensive experience in creating reports and guiding companies along their disclosure journey.
Honest and Modest Language
Leadership needs to be concise and specific in its language about these issues. It is now demanded that corporate boards and leaders provide detailed and transparent ESG disclosures. They must be modest in their accomplishments, not appear to be “greenwashing” and be clear in articulating their goals and how they will accomplish their goals, even disclosing areas of risk or failure and how they are mitigating it. Walking the walk in this way builds trust and credibility.
We all have a role to play to combat climate change. It’s clear we can’t rely solely on one entity to monitor and ensure climate change is being addressed and impacts being scrutinized. As advisors to organizations in the public and private sector, it is our duty to continue sharing information and best practices. We will continue to push our clients to be leaders in climate change resiliency through identifying, reporting and working towards the achievement of realistic, measurable and impactful goals.
We owe this not only to ourselves but all future generations.