Climate reporting legislation: how to stay ahead of new regulations
Our research shows that most firms are not prepared for climate change related reporting which presents both a risk as well as a major opportunity for organizations who act now.
Our research shows that most firms are not prepared for climate change related reporting, which presents both a risk as well as a major opportunity for organizations who act now.
For example, the Corporate Sustainability Reporting Directive (CSRD) came into force last month in the EU and the U.S. Securities and Exchange Commission’s (SEC) proposed rules to enhance and standardize climate-related disclosures all align with the IFRS Sustainability Disclosure Standards.
More recently, the International Sustainability Standards Board (ISSB) announced this month that its initial IFRS Sustainability Disclosure Standards, Scope 1 (S1) and Scope 2 (S2) will become effective starting January 2024. This is a strong signal of intent as common, global sustainability baseline standards are gathering traction moving from voluntary requirements to mandatory regulations.
Having a comprehensive ESG strategy in place
Creating a successful ESG strategy rests on really listening to key stakeholders and identifying what they ultimately want to achieve and then aligning their responses with the longer-term overall business objectives. These facets are drawn from carrying out an ESG materiality assessment where you understand the ESG issues most important to your business. Conclusions drawn from the materiality assessment then shape disclosures, including climate-related disclosures, which inform the development of your comprehensive ESG strategy.
Understanding locational compliance requirements
The best place to start understanding your global regulatory landscape is by talking to your regulatory compliance leads in each jurisdiction. These conversations will give you a view on things you must do as opposed to things you want to do that tie into your strategy. As the speed of regulations relating to climate change accelerates you should consider voluntary aspects that are likely to become mandatory in the future to futureproof your approach and systems. Also, don’t forget to document this valuable information in a tracker, spreadsheet, or tool for future reference.
Leading proactive dialogue with investors
Make sure to pay close attention to what your investors are saying about climate change strategies/requirements for their investment portfolios. Some of the world’s largest investors, including BlackRock, are publicly stating that they equate climate risk with investment risk, and are making concerted efforts to get the companies that they are investing in to chart a path toward pro-active management of their climate-related physical and transition risks. Having open, regular, and meaningful conversations with them should help your company form a more accurate view on how the landscape for climate-related disclosures could evolve.
Making the best use of existing systems
Global organizations already have a plethora of existing systems so auditing your current digital landscape that could in turn support your ESG strategy is sensible. We tend to advise clients to make the most of the capabilities of systems and digital infrastructure already in place wherever possible. New specific systems and digital tools can then be brought in to supplement where necessary.
Getting to grips with your business culture and people
There is no one size fits all approach for a business to stay ahead of the forthcoming and evolving climate change reporting regulations. Each organization has its own unique business culture and people so understanding your organizational DNA and culture is critical. By doing this, you will foster real change and get the mindset and behavioural shifts necessary to successfully deliver climate change reporting.
As requested by our stakeholders we have built from existing market-accepted frameworks and standards. This means that the thousands of companies already using the TCFD Recommendations and SASB Standards will be in a strong position to use ISSB S1 and S2.
KEY TAKEAWAYS:
1. ADOPT TCFD AS YOUR STARTING POINT
No matter what jurisdiction you operate in, the Task Force on Climate-Related Financial Disclosures (TCFD) framework for reporting climate-related financial information is a good foundation to build your strategic climate change response from. Although the TCFD framework is voluntary, regulators like the International Sustainability Standards Board (ISSB) are modelling their forthcoming requirements on the TCFD framework approach. If you align your disclosures to the recommendations of the TCFD, you will be in an advantageous position as voluntary requirements move towards being mandatory in different territories and jurisdictions in the coming years.
2. CONNECT CLIMATE TO YOUR BUSINESS OBJECTIVES
For ESG to work, you must understand why ESG is important now and what that means for your organization and business objectives. From this you can develop a strategy that responds to the answers that arise.
Understanding your key business drivers and those of your key stakeholders is imperative. MSCI’s recent report on ESG investors views on climate risks, opportunities and trends gives useful insights as to where the financial markets are headed including demanding more substantiated evidence as part of climate change reporting to unlock finance.
We worked with Tate & Lyle, a major food production business headquartered in the UK, to understand the climate related risks and opportunities to their business. Every firm has its own unique ecosystem and drivers and at AECOM we help you to understand and navigate through those in a bespoke way that works for you.
3. ADOPT A LONGER-TERM OUTLOOK
The conversation about climate change has shifted from whether it exists to one of adaptation and mitigation to deal with its increasingly obvious impacts. It is about shifting your perspective from short-term gains to a mid to long-term view as shown in this case study for clear returns on coastal protection investment in Florida.
By looking to horizons of 5, 10, 20+ years ahead and creating scenarios to demonstrate the impact that climate change itself may have on your business assets and operations equips you with insights to make the right strategic investments now for tomorrow.
4. PHASE YOUR ESG STRATEGY ACTIONS
To comply with forthcoming climate change regulation the key is not only having a robust ESG strategy in place but consolidating the findings into tangible action. How can you make your strategy digestible so that stakeholders commit to delivering it? By grouping the strategy together into phases, you make it more manageable and more implementable. Then once that is solidified it is about developing the right systems, including digital infrastructure, processes, and people to form the governance to make the plan happen.
For more up-to-the-minute ESG insights from Robert Spencer and our ESG Advisors around the world, sign up to get The ESG Advisor every month direct to your inbox.