By Tracy Rohan, head of Edge Media and Sonia Zugel, founder and CEO of ESG Playbook
Zero years left as emissions push warming to 1.5°C Human activities are estimated to have caused around 1°C of global warming, with a likely range of 0.8°C to 1.2°C above pre-industrial levels. It is anticipated that global warming is likely to reach 1.5°C between 2030 and 2052. This is a critical threshold that world leaders agree warming should remain below to avoid worsening impacts.
Greenhouse gas emissions continue to rise and the world is on a path to warming of 3°C or higher by the end of the century. Scientifically, we know that in order to limit global warming to a safe level of 1.5°C, we must cut greenhouse gas emissions in half by 2030, and reduce them to net-zero by 2050.
‘The bottom line is that we have zero years left to avoid dangerous climate change, because it’s here,’ says Michael Mann, co-author of the IPCC’s Sixth Assessment Report.
Source: IPCC AR6 Working Group I report
ESG assets may hit $53 tn by 2025 The inherent risks of unsustainable production and consumption, up and down the value chain, permeates every aspect of a company’s strategic and operational decision-making processes. Investors are increasingly aware of these unsustainable risks and are using the power of investor intent to change regulations and increase transparency related to environmental risks. This can be seen by the rapid growth of ESG funds: according to Bloomberg, these may hit $53 tn by 2025.
Sources: GSIA, Bloomberg Intelligence
According to Yo Takatsuki, head of investment stewardship for Europe, the Middle East and Africa at JPMorgan Asset Management, ‘The transition to net-zero has to be scientifically credible. Responsibility, accountability and delivery of a credible net-zero transition plan –coupled with the provision of good-quality data – must therefore be implemented by the board of investee companies.’
Mandatory climate reporting proposal by year-end Gary Gensler, chair of the SEC, is aiming to have proposed rules for mandatory climate risk reporting by the end of this year. It is hoped these rules will bring greater clarity to climate risk disclosures, with increased ‘decision-useful’ levels of qualitative and quantitative data to help investors compare company disclosures. Gensler cites investor demand as the key driver of the move toward revamped reporting rules, saying: ‘Investors increasingly want to understand the climate risks of the firms whose stock they own or might buy.’
He says investors are requesting that listed companies disclose a climate transition plan, provide a routine vote on the implementation of the net-zero transition plan and identify the director responsible for the plan. It's anticipated the proposal will be aligned with TCFD recommendations and use the Climate Action 100+ Net-Zero Company Benchmark.
IROs fast becoming sustainability specialists – where do you start? In response to the strong investor demand for climate-change policies, many companies are setting net-zero targets, 10-point plans and corporate sustainability policies but, as this is new territory, many do not know where to begin or how to deliver on these targets, plans and policies.
Investor relations professionals are being asked to take on the additional role of sustainability specialist. This, in turn, raises many questions:
Given the overwhelming range of issues under the ESG umbrella, many firms focus first on the low-hanging fruit, which can lead to some quick wins and mobilize resources within the company to do more. But investors like BlackRock and State Street prefer companies to focus on the issues that are most material to their business model and operations.
Materiality, in the context of ESG, refers to the effectiveness and financial significance of a specific measure as part of a firm's overall ESG analysis. Material factors are financial elements deemed fundamental to the long-term success of a company’s ESG strategy.
While materiality often varies across industries, and even companies within the same industry, climate change has emerged as one of the most important universal issues. This is for good reason: climate-related risks can manifest in multiple ways, posing significant threats to companies across their business operations.
For example, more extreme weather events can lead to physical or asset-level risks, new regulations targeting greenhouse gas emissions may present compliance risks, and the increased cost of raw materials may create market risk.
Source: CRO Forum
Two degrees of climate disclosures Comprehensive climate reporting is complex, but the two key areas that investors tend to focus on are climate-related risk management processes and quantitative climate metric disclosures.
The first step in building an effective climate-related risk management process is to identify two categories of risk: the threats that climate change poses to the company and the impact of the company’s operations and assets on climate change.
Essentially, the foundation of any effective climate disclosure begins with the company’s ability to demonstrate that it understands the specific ways in which it may affect and be affected by climate change. Companies need to explain how climate-related issues may affect an organization’s strategy and financial planning over the short, medium and long term. This is important as investors use this information to establish expectations of the future performance of a firm.
ESG Playbook, one platform with a carbon calculator for all companies Climate reporting, which is largely carbon reporting, needs to use best practices to be credible. The ESG Playbook platform brings you a comprehensive carbon calculator, using only best practices, whether you are a large or small company.
Learn more in this one-minute video.
Visit our website at www.esgplaybook.com and schedule your demo – we’d be happy to walk you through the steps. ESG Playbook is proud to help companies with their sustainability initiatives and we are the only platform with all the ESG reporting tools and frameworks you need.
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