Companies and their sustainability departments all over the world are adjusting to a new era of corporate Environmental, Social and Governance (ESG) reporting, to a growing array of voluntary and regulatory standards. The jury is still out on whether all this reporting will result in bigger actions and better outcomes for businesses, people and the planet.
It is possible for companies to have both a robust approach to reporting and major progress on sustainability, in a competitive and cost-effective manner. Let’s take a look at the interplay between carbon reporting and decarbonization as an example.
Between 2015 and 2022, there was a 233% rise in Carbon Disclosure Project (CDP) reporting, pre-dating the European regulatory regime. There was an 87% increase in the number of companies having their Science Based Climate targets validated compared to 2021.
In addition to more reporting, companies are being more transparent and holistic in their reporting. Where previously, companies would only report the footprint related to their own emissions (Scope 1 and 2) and set targets to reduce their own impact, today it is becoming increasingly common for companies to also report on and set targets for the emissions of their value chain (Scope 3).
At this point, companies that are not reporting their emissions are behind their peers and will also soon be at risk of being unable to trade in Europe unless they do so, among a range of other ESG metrics that are now required.
Action and innovation have always been challenging, and there is concern that the increased reporting requirements have overtaken action to reduce emissions. We see a few reasons for this:
• Sustainability departments are retrenching to understand the reporting landscape. It is natural that companies want to ensure they understand the new reporting requirements and what they must do to meet them. This takes time and effort, and there are only so many hours in the day.
• A wider group of internal stakeholders are paying attention to the reporting regulation. The onus on good reporting data has gone up and implicates more stakeholders within the company. Departments that previously did not have to have more than a passing knowledge of sustainability are now required to understand the regulation and take action. For example, Legal departments are grappling with regulatory requirements that vary across countries and regions, and Operations are having to understand emissions as it relates to their companies’ activities.
• There is still limited budget available for sustainability. The budget for sustainability is not increasing in line with the new expectations, and Sustainability departments may still struggle to properly value both risk mitigation and opportunity generated from their efforts. This means that companies are often making make trade-offs between reporting and action.
While the sustainability trend right now is firmly on getting reporting right, this does not mean that action and innovation can pause. On the contrary, the scrutiny that will be placed on corporate sustainability reports means the reporting must be underpinned by solid and credible actions and data. Focusing simply on counting the data will not lead to decarbonization – the actions must continue to show year-on-year progress.
When it comes to carbon emissions, efforts to reduce emissions in the most critical part of the companies’ footprints must continue. Companies can use their verified sustainability reports to drive action. There are things to get on with: Making investments in upgrading facilities, switching to low carbon energy and materials, engaging with suppliers, etc. In addition, quicker and less capital-intensive wins include ensuring the right policies are in place to drive action – for example company car and travel policies.
The following three suggestions may help companies navigate the complex challenge of decarbonization and ESG reporting across sectors:
1. Outsource the education of your internal stakeholders to sustainability experts.
It is important to move fast to get those in your business up-to-speed on the regulatory regime, to demystify jargon-heavy ESG reporting, and to stress the link between reporting and continued action.
2. Ensure you are capturing meaningful data from suppliers.
Scope 3 upstream emissions are particularly complex due to their broad scope, requiring extensive collaboration with suppliers to enhance emission tracking and implement sustainable practices. Accurate data collection is challenging due to inconsistent methodologies from suppliers and the need for significant investment in monitoring systems.
Achieving this level of transparency requires robust and reliable data and analytics tools to enable businesses to monitor and manage their supply chain ESG risks, and importantly for decarbonization, harmonize the data collection.
3. Get your reports verified by a partner that can help you use your report to drive action.
Now more than ever, businesses must be laser-focused on verifying their environmental impacts if they want to be seen as a competitive contender in their sector. But whilst crucial, and in many cases, mandatory, verification of sustainability claims can vary in accuracy, and understanding the assurance process in which these claims have been validated is becoming increasingly important.
In addition, a verified report can also then point to the critical areas for action. Working with an organization that has an experienced verification team and separately, ESG and decarbonization experts who can work with the data and help your business understand what can be done to decarbonize, can help you to deliver actions that will matter most to your decarbonization goal.
Tara Norton is Senior Director – Advisory for leading global assurance partner, LRQA. She is also a senior associate and tutor at the University of Cambridge Institute for Sustainability Leadership. As an experienced sustainability leader, Tara has worked in nonprofit and corporate environments for more than twenty years, transforming businesses and supply chains across industries into more socially and environmentally sustainable systems.
Previously, Tara has held senior sustainability roles at ENGIE, BSR, BAA and Sedex, and she served as a United States Peace Corps volunteer in Ukraine. Tara is a dual citizen of the United States and the United Kingdom, has lived in six countries, speaks fluent French, and considers herself a global citizen. She holds an M.B.A. from London Business School and a B.A. in International Studies and French from Northwestern University.
