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U.S. and global regulators are calling for greater transparency in how companies report on their sustainability matters. In the U.S., we are expecting the Securities and Exchange Commission to release its long-awaited climate disclosure rule sometime in 2023. Globally, the European Commission finalized the first set of European Sustainability Reporting Standards (ESRS) in July, as part of the Corporate Sustainability Reporting Directive (CSRD) that is expected to go into effect on January 1, 2024.
Beyond holding organizations to a higher standard and integrating sustainability disclosures in financial filing and management reports, these upcoming rules present a great opportunity for companies to strengthen their sustainability programs and transform their businesses. To build resilience and value creation, we recommend companies focus on these key areas.
Evaluate sustainability impacts, risks and opportunities at enterprise and value chain levels
It is becoming essential that businesses assess and mitigate their sustainability impacts, risks and opportunities not only at the asset or operational levels, but across their value chain. This includes the suppliers and infrastructure they depend on, the employees and communities they operate in, and the customers, investors and markets they are targeting.
Companies can start by assessing the interdependencies between two dimensions: the impacts of their business on environment and society, and the financial materiality of potential risks, and opportunities that environmental and social issues could potentially pose to their business in the short, medium and long term.
Consider the magnitude of these risks and their severity and how they might impact costs, access to capital, competitive advantage, or revenue generation, while also evaluating the scale and likelihood of potential business impacts on environment and people. Examples include evaluating the potential impacts of climate physical risks on business continuity and resilience across the value chain. Or opportunities from decarbonization efforts through resources efficiency, market expansion, improved customer or investor relations, or employee engagement and retention. Or perhaps the reputational risks from employee relations and programs, or human rights risks from supplier activities.
Future proof your strategies, define your commitment and define credible implementation plans to mitigate risks and strengthen business resilience
Overall, testing the resilience of existing business model to these future risks and impacts and future proof to mitigate the risks and capture the opportunities is imperative. Companies are expected to move making commitments supported by targets and robust plans to truly mitigate risks and enhance business resilience such as developing credible decarbonization or biodiversity transition plans.
To support these efforts, companies should start by measuring their impacts by enhancing sustainability data quality and integrating digital tools and processes, and aligning sustainability-related disclosures with financial disclosures and timelines.
Having quality data and baselines enables the establishment of credible science-aligned targets, such as GHG emissions or nature-based targets and establishing credible plans to deliver on these targets, backed by the appropriate technology and nature-based solutions. As a part of these strategies and these plans, companies should consider bolstering their supplier engagement strategies for alignment with their sustainability values and mitigating their sustainability risks and impacts in their value chain And finally, transition from enterprise level strategies and reporting to asset and business unit level transformation, including asset level resilience planning, and decarbonization.
Strengthen sustainability governance across the organization
It goes without saying that governance is essential for successful sustainability programs and strategies. Companies can strengthen their sustainability governance establishing and refining sustainability governance and embedding it throughout the organization, from board and executive levels to management and functional levels. A sustainability director or chief sustainability officer with direct reporting to executive leadership, supported by a robust sustainability team, can enable successful implementation of the sustainability strategy and integration in key business functions. And finally lean on the right resources, both external and internal brings specialized expertise and insights to meeting sustainability requirements, now and in the future.
These considerations may seem demanding, but they are critical to delivering the efforts companies need to make to turn the mandates for sustainability reporting into business transformation opportunities.