Behind the ESG headlines - August 19, 2022

By mathew-loup

The pace of climate change, and its devastating effects worldwide on lives, biodiversity and companies, is increasing. A new study published last week in Communications, Earth and Environment revealed that the Arctic has warmed up four times faster than the rest of the planet since 1979. 

The mean temperature change over this period  was 0.73 degrees Celsius per decade, compared with a global mean of 0.19 degrees Celsius. This warming will have a series of knock-on effects, including disappearing sea ice, large tracts of thawing permafrost and losing even more of the planet’s shield that reflects the sun’s heat.

This is just another example of the complex environmental, social and governance (ESG) risks and opportunities that are affecting our planet and, as a result, companies everywhere. As a board director or senior business leader, your best hope is to get informed about these topics — now. Our world-class in-depth Designation and Certificate programs, as well as our new ESG Lite program, are your golden ticket. 

  1. Fresh aqua vitae. Ceres, a global non-profit organization working with capital market leaders to solve sustainability challenges, has just launched a new initiative aimed at 72 of the world’s largest water users and polluters to act on water as a financial risk. The Valuing Water Finance Initiative is a global investor-led plan to get companies to align their water use with the UN’s Sustainable Development Goals, with 64 initial signatories that have $9.8 trillion in assets. Its six main expectations are:
    – Water quantity: Companies do not negatively impact water availability in water-scarce areas across their value chain.
    – Water quality: Companies do not negatively impact water quality across their value chain.
    – Ecosystem protection: Companies do not contribute to the conversion of natural ecosystems critical to freshwater supplies and aquatic biodiversity and actively work to restore degraded habitats that their businesses depend upon.
    – Access to water and sanitation: Companies contribute to the social, economic and ecological resilience of communities that they interact with by contributing to achieving universal and equitable access to water, sanitation and hygiene across their value chain
    – Board oversight: Corporate boards and senior management oversee water management efforts
    – Public policy engagement: Companies ensure that all public policy engagement and lobbying activities are aligned with sustainable water resource management outcomes.

  2. High green standards. Danish energy giant Ørsted has set new expectations for its suppliers. By 2025, they want all parts of their supply chain to be using 100% renewable energy, making them the world’s first company with such a benchmark. This goal supports Ørsted’s overall goal of being net zero by 2040. Since 2006, Ørsted has reduced its Scope 1 and 2 carbon emissions by 87%. It was also the first company to have its targets certified under the Science Based Targets initiative’s (SBTi) Net Zero Standard.

  3. Incomplete data. A new report from Manifest Climate has laid bare the “patchy and inconsistent” emissions disclosures by many companies. Analyzing more than 110 major companies around the world, the analysis showed that only 55% reported on Scope 3 emissions. On top of that, just one third included emissions data in their regulatory filings, something that could soon be mandatory if the proposed US Securities and Exchange Commission (SEC) and International Sustainability Standards Board (ISSB) rules are ratified. Utilities companies were the industry sector (44%) that included Scope 1, 2 and 3 emissions data.

  4. Supply chains withering. The searing heatwaves across Europe have had serious consequences. Many lives have been lost due to the high temperatures, with water supplies drying up and rationing in place in some areas. The climate-changed induced weather has also impacted the economy and businesses. The Rhine river, which has been a commerce gateway for centuries, is about to become impassable in places, stranding millions of tons of shipping, including vital coal and food supplies. According to Eurostat, Europe’s canals and rivers carry the equivalent of more than 900kg of shipping every year for each EU resident. The waterways contribute around $80 billion to the region’s economy in transport alone. Josef Aschbacher, head of the European Space Agency, summed up the situation to Reuters: “Today, we are very concerned about the energy crisis, and rightly so,” Aschbache. “But this crisis is very small compared to the impact of climate change, which is of a much bigger magnitude and really has to be tackled extremely fast.”

  5. Addressing the externalities: A new McKinsey report has re-examined the intrinsic value of ESG for companies. Does ESG really matter — and why? addresses and answers many of the recent criticisms that the subject has faced of late, including being a distraction; not measurable; too difficult; and having no real relation to financial performance. The data, too, is startlingly positive:
    – Inflows into sustainable funds rose to nearly $70 billion in 2021
    – Those same funds gained $87 billion of net new money in the first quarter of 2022
    – More than 90% of S&P 500 companies now publish some kind of ESG report. Its overall conclusion: companies simply must understand and address their full range of externalities. “We believe that the importance of the underlying [ESG] ideas has not peaked; indeed, the imperative for companies to earn their social license appears to be rising.”

Mathew Loup is Competent Boards’ Director, Marketing & Communications. Follow Competent Boards on LinkedIn.

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