Behind the ESG headlines - August 5, 2022

By mathew-loup

The countdown to COP27 is on. There are less than 100 days to go now until the next UN Climate Change Conference in Egypt. 

Mitigation, adaptation, collaboration and finance are the themes in another turbulent year for the world. A just transition is high on the to-do list.

So what can you as a board director or senior business leader do? If you’re not on the invite list, you can still make a difference by making sure that environmental, social and governance (ESG) risks and opportunities, especially climate change, are on your company’s radar.

You can start that process in the best possible way with one of our world-class Designation and Certificate programs. The importance of education and competency has never been more critical.

1. Meeting of sustainability minds. The International Financial Reporting Standards (IFRS) Foundation and the Value Reporting Foundation (VRF) have completed their consolidation. This new combined sustainability powerhouse will provide the impetus for the work of the new International Sustainability Standards Board (see below), one of the key commitments to emerge from the COP26 conference last fall. This is a significant step towards meeting the ever-growing demands from companies, investors and regulators to make sustainability disclosures simpler and more practical around the world. 

2. Climate crisis impact. Munich Re, one of the world’s leading reinsurance companies, has issued its natural disaster review for the first half of this year. The climate crisis plays a big part in natural disasters that have cost more than US $66 billion. Extreme heat, drought and wildfires are increasing in many regions of the world, while eastern Australia experienced record rainfall and flooding. “The recently published IPCC report warned of the need for insurers to adapt their loss models to adequately assess the changing risk. Loss prevention is a fundamental component in mitigating the economic effects of climate change,” said Torsten Jeworrek, Munich Re board member, in a news release. 

3. Setting new standards. The proposed IFRS Sustainability Disclosure Standards, put forward by the International Sustainability Standards Board (ISSB), have drawn a collective response from more than 80 of the world’s leading chief financial officers (CFOs). Investors are seeking data that looks at not only the environmental and social impacts on a company but also the company’s impact on the environment and society. The CFOs had six suggested improvements:

  • Align with relevant existing and emerging sustainability reporting standards to ensure harmonization and convergence, to the greatest extent possible. 
  • Consider the dynamic, industry-specific nature of materiality and provide clarity around the assessment of users’ expectations on what constitutes enterprise value, recognizing that investors may need disclosures on broader social and environmental impacts to assess risk and inform investment decisions. 
  • Have clear definitions and guidelines that enable preparers to report in a transparent, consistent and comparable manner. 
  • Recognize that reporting is a means to an end, not an end in itself. 
  • Connect to financial reporting standards and promote integrated thinking as illustrated through frameworks such as the Integrated Reporting Framework.
  • Address the broad set of environmental, social and economic issues that materially impact decision making.

4. Green ambition Down Under. The Australian government has unveiled plans to put its carbon emissions targets into law for the first time. The proposed legislation aims for a  43% reduction in greenhouse gas emissions by 2030 compared with 2005 levels. The second stage, achieving net zero, is slated for 2050 at the latest. As part of the new laws, the Minister for Climate Change would have to report annually on progress, based on the independent Climate Change Authority’s assessments. As a further incentive, the Australian government expects the new laws to stimulate economic growth, in particular new jobs in battery manufacturing, and the aluminium, cobalt, copper, lithium and nickel industries to meet electric vehicle demands.

5. Shocks to the system. A new report by the European Central Bank (ECB) and the European Systemic Risk Board (ESRB) has highlighted the harm that climate change can do to companies and banks. The report looked at the interconnectedness of risks in relation to climate transition,such a surge in carbon prices leading to a domino effect of companies defaulting. The report’s scenario analysis suggests that an orderly transition towards net zero of companies by 2050 would lessen the impact of these climate shocks on the financial system. The report also looked at the scope for macroprudential policies in Europe to address the wide financial impact of climate change. 

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

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