by Fathia Murphy, ESG Product Specialist at NAVEX
Last month, on the 4th of April 2022, the IPCC published the Six Assessment report, highlighting where the world currently stands in limiting global warming. The world is currently at a worrying global temperature of 0.85 °C, according to NASA Global Climate Change, and we need to reach the recommended goal of an average global temperature below 1.5C as defined in the IPCC report and SBT initiative. It seems like a mammoth change – and it is, but it’s not impossible. So, what type of actions and policies do businesses need to implement to support climate mitigation?
1.5 C aligned targets
According to NASA Global Climate Change, warming above 1.5C furthers climate hazard risks such as sea level rising, wildfires, hurricanes and typhoons, leading to biodiversity loss and species extinction. These hazards often lead to food and water scarcity resulting in health issues and extreme poverty for populations affected as found by the Met Office. It’s also foreseen that climate change will trigger unprecedented financial losses with increased costs in healthcare, supply chain materials and food supply. It will cause an overall disruption to access infrastructure and social service support.
An opportunity to meet climate targets
From the IPCC findings, it is clear that we’re falling short of reaching such climate targets, however, it’s in all our power to make a positive impact – from governments, investors to private sectors where corporations play a key role.
The most impactful industries and those that see the biggest emission rates include energy, transport, real estate, services, manufacturing, agriculture and forestry. These sectors have a real chance to rewrite the future and achieve net zero by utilising both nature-based solutions and technology. However, this can only work in conjunction to a well needed acceleration of investments and capital redirection.
Impending climate change challenges and urgently moving away from fossil fuels are a new reality for corporations and I’m pleased we are beginning to see global action. However, a common question remains; where to start and what are the best practices to mitigate climate risks?
How do businesses get the basics right?
- Good governance: Embedding your climate action plan in your overall business strategy is the very first step. Engaging and securing executive level support is key for developing a robust climate strategy and making a long-term commitment.
- Stakeholder engagement: Involving key internal and external stakeholders early, helps organisations understand what was achieved so far and what policies already exist in order to allocate the right resources.
- Materiality assessment: Understanding what areas your company should prioritise by conducting a materiality assessment or a gap analysis is another crucial step. Some sectors consume more GHG emissions, produce more waste and some have a more extended supply chain. Those organisations will have to set targets with realistic time horizons and find ways to capture emissions across the entire value chain.
- Measuring and tracking: The next step is setting material KPIs to allow for tracking progress and addressing areas for improvement. Typically, organisations will calculate Scope 1, 2 and 3 emissions and track use over time.
- Data centralisation and automation: As the required data for generating those key indicators often sits in different locations and files, it’s imperative to have a centralised platform to manage and automate the workflow.
- Setting target reductions: Once you have a consolidated view of your carbon emissions, water and waste consumptions through consistent and comparable data, you can set target reductions. While companies can merely set carbon, waste and water consumption reduction, others have more ambitious plans and will be seeking to align with the Net Zero Science-based target Initiatives (SBTis) Standard by setting near term targets (5 to 10 years) and long-term horizon by achieving Net Zero or > 90% decarbonisation across Scope 1, 2 and 3 emissions by 2050. A lot of organisations have joined this initiative and already 1,318 companies have had approved targets.
- Efficiency and improvements: Tracking and benchmarking emissions at a granular level allows businesses to make actionable improvements, whether it is transitioning to renewable energy, installing solar panels, doing retrofitting, moving to electric/ hybrid vehicles or managing and preserving lands.
- Transparency and accountability: Being able to share your climate strategy with internal and external stakeholders such as employees, investors, and customers make businesses accountable for committing to reduce impact and importantly executing on those goals.
Frameworks for success
Several initiatives have emerged over the last two decades to support organisations in disclosing climate-related information and offer excellent guidance to which data should be reported. While all frameworks include baseline emission metrics as a minimum, there are two frameworks that are fully dedicated to measuring climate change impact.
The first is the Carbon Disclosure Project known as CDP with dedicated questionnaires to climate change, water security and forests. Its Climate change 2022 version sees the welcome inclusion of biodiversity considerations while we advance in launching Natural Capital frameworks such as Taskforce on Nature related Financial disclosures (TNFD) or The PBAF (Partnership for Biodiversity Accounting Financials).
The other framework that plays a key role in understanding climate risks and opportunities is the Taskforce for Climate-related financial disclosures (TCFD) which looks closely at companies’ physical and transition risks. It requires companies to describe their business model’s resilience to climate change by describing their governance and risk management strategy as well as including climate-related scenarios.
TCFD has been gaining ground over the last few years and its recommendations are being adopted across the world. As of the 6th April 2022, in the UK, it has become mandatory for publicly quoted companies, large private companies and LLPs to disclose climate-related financial information, using the TCFD guidelines.
Further TCFD alignment can be found in the International Sustainability Standards Board (ISSB) climate disclosures draft published last month after IFRS announced the launch of the newly created ISSB: a consolidation of Value Reporting Foundation (formerly SASB and International Integrated Reporting Council) and the Climate Disclosure Standards Board. These frameworks introduced for longer term consolidation.
The future of ESG frameworks
While there is still a long way to go until we have full harmonisation and consolidation of ESG frameworks, governments, regulators and industry bodies are working at pace to make it more straightforward for organisations to leverage the right resources to reach ambitious climate goals.
By following the eight steps along with the alignment of the appropriate framework(s), businesses will be well on their way to a best practice approach for a successful climate strategy.
