At present, the whole world is engaged around a central challenge: climate change. According to ‘Big shifts, small steps’, KPMG’s Survey of Sustainability Reporting 2022, almost two-thirds of the G250 – the world’s top 250 companies – report climate change as a business risk. This acknowledges the importance of meeting global temperature targets – and developing strategies to cope with an environmentally uncertain future.
Many countries and organisations have pledged to reach net zero by 2050. This is a good start but pledges alone will not get us there. For net zero to become a reality, meaningful action must be taken. As the recent UN Emissions Gap Report 2022 indicates, we are far from being on the right path. The report shows, alarmingly, that urgent, system-wide transformation is the only way to avoid impending climate disaster.
Building trust through ESG reporting
Indeed, the bar is being raised on sustainability reporting. Established requirements like the GRI already have considerable traction, while new and emerging frameworks such as the TNFD are expanding the reporting landscape.
As disclosure standards become more comprehensive and consistent, they give companies a solid foundation for measuring their ESG impacts and outcomes – and for comparing themselves with peers. In addition, the more companies report, the better they become at tracking their own ESG performance.
Ninety-six percent of the G250 report on sustainability, along with 79 percent of the N100 – the 100 largest firms in each country surveyed. But on what are they reporting? There are may different ideas on what to report on and how to get to net zero, with some companies having well developed plans and others grappling on how to get from targets to an actionable plan.
Therefore, reporting standards matter. By setting expectations for what should be reported on, standards help ensure that everyone is on the same page regarding exposure to risks and opportunities. They also help businesses put effective ESG policies in place. However, they do not tell the whole story of which companies are (or are not) working to make the world a better place. What matters most is the actions businesses take to implement ESG in their business models and throughout their operations.
Embedding ESG
Value is created when people make ESG core in every business or investment strategy. It has to be taken into consideration when boards and management make decisions on how and where to grow and where they intend to have an impact in the future. It is the actions behind the ESG indicators that lead to progress and create value.
The bottom-line is that increased transparency brings greater accountability, but it also brings greater trust. Investors, regulators, customers, and employees want to see action on reducing carbon emissions, halting biodiversity loss, and tackling societal inequality.
With the eyes of the world on COP27 in Sharm El Sheikh, Egypt this month, it is more important than ever for companies to show how their plans, actions and progression towards net zero. This means keeping up the pace in sustainability reporting, not just to satisfy a diverse range of stakeholders, but also to measure how effectively organisations are executing against their pledges and targets.
Data is key
Opinions vary on ESG processes and how best to reach net zero, but one thing is for sure: we need accurate data to make it happen. Demands from stakeholders for accurate and transparent information pushes all industries to invest in better data for decarbonisation across all emissions scopes.
There is also a growing need for global ESG standards that compare apples to apples. The work of the International Sustainability Standards Board (ISSB) towards standardised reporting means Australia will soon have guiding standards that will help organisations report more consistently on their sustainability targets and outcomes. Australia will also soon have its own Sustainable Finance Taxonomy, which will inform the activities that are considered sustainable and influence investment the priorities and portfolios of ESG-conscious investors well into the future.
Australian capital markets are beginning to speak ESG. Organisations will do well to join the conversation with enhanced transparency, enabled by better ESG data.
Shifting the narrative
Corporate sustainability reporting offers a wonderful opportunity to drive a different type of business conversation – one that considers how companies are working towards non-financial goals like net zero, a low-waste circular economy, greater biodiversity, and respect for human rights.
For some, it may be quite a stretch to shift focus from what a company ‘must’ do (compliance) to what it ‘wants’ to do (bring change). Whereas others, like Patagonia, have taken the next step on their sustainability journey by formally making the earth their only shareholder.
It is time for companies in Australia to do the same. But it comes at a price.
Integrating traditional business and ESG goals calls for sustained discretionary spending, with ESG remaining a line item on the annual financial plan. Make no mistake – this is a long-term commitment, but a commitment that company leaders must now budget for and get comfortable with to ensure long-term prosperity of their businesses in a world where our impact matters.
Sustainability is no longer a choice
Today’s businesses are grappling with disrupted supply chains, resource shortages, rising inflation, and the looming threat of another recession. Still, they do not have the option of ignoring the challenges of implementing sustainable, transparent, and resilient business models, and creating a better world for future generations.
Sustainability should not be seen as an ‘either/or’ option. Instead, it should be front of the corporate mind, and the lens through which all business strategies, plans, and behaviours are viewed. At this critical intersection, the importance of creating longer-term, sustainable growth and value has never been more important.
We have the right tools and data. We have built momentum, knowledge, and awareness across diverse stakeholders. We are all responsible for making this transformation a reality.
Are you with us?
If you have any questions on the road to net zero or would like to discuss this article, please contact us.
