Last July’s first full week witnessed a series of broken temperature records across the globe. From July 2nd to July 8th, 2023, the highest global average temperature since data collection began was surpassed thrice. On July 3rd, the temperature peaked at 17.01 degrees Celsius, followed by a spike to 17.18 degrees Celsius the next day, and 17.23 degrees Celsius on July 6th. The world has recorded abnormally high temperatures, with Antarctica, currently in its winter season, not spared. This year’s El Niño, a recurring climate event happening every two to seven years, has significantly raised ocean and air temperatures worldwide. Climate change exacerbates El Niño’s global impacts despite being a natural phenomenon.
As the urgency to take meaningful action to mitigate climate change grows, business leaders and board members must be informed of changing regulations and societal expectations. Our world-class Global Competent Boards ESG and Climate & Biodiversity programs will provide a toolkit for boards and business leaders to navigate these challenging times.
1. Corporate world is lagging in net zero action. Research conducted by Fidelity International reveals that less than two-thirds of companies are expected to meet their net-zero targets by 2050. Furthermore, only one-quarter of companies will be able to reduce their emissions by 45% by 2030. While there has been a significant mobilization of resources to support the transition to net-zero emissions in the last decade, more action is needed to avert the most severe impacts of global warming. Fidelity’s research found that there needs to be more follow-through on commitments, a lack of technology to support the transition and inadequate funding. The study also highlights the crucial role that governments and lawmakers will play in driving change, with legislation and regulation being cited as one of the primary drivers.
2. Challenging conventional wisdom on ESG. Consider London Business School Professor Alex Edmans’ research in light of BlackRock CEO Larry Fink’s recent comments about moving away from the term ESG. Edmans suggests that the conventional approach to integrating ESG into corporate strategy may need to be revised and companies should reevaluate their approach. Here are some key points from his research:
- ESG metrics alone are insufficient for capturing a company’s impact on society. Improving reporting on individual metrics will not address external issues.
- Focusing solely on carbon emissions is inadequate for measuring climate risk as it only accounts for transitional risk rather than physical risk.
- Boosting shareholder engagement may only sometimes be beneficial as shareholders may have differing opinions on ESG and may need to be better informed.
For more detailed information, refer to Edmans’ research.
3. ESG is a top priority among executives. The annual Global Chief Procurement Officer (CPO) survey by Deloitte was released last week. According to the survey, ESG ranks second in priority for CPOs globally. This observation indicates that companies are acknowledging the increasing public and regulatory pressure to prioritize sustainability and human rights in supply chains. The survey also revealed that 85% of respondents believe that procurement plays an active influential role in decision-making regarding ESG. However, despite the growing significance of ESG, many respondents reported that their companies were in the early stages of establishing and tracking measurable sustainability metrics.
4. Manufacturers must embrace ESG. Suppliers who prioritize having strong ESG strategies in place to ensure ethical sourcing are becoming increasingly important to companies. While this may be challenging for smaller suppliers, it’s crucial for SMEs to take steps towards sustainability. Forbes Council Member and Head of Business Development and Co-CEO at The Nearshore Company, Jorge Henrichsen, shares the reasons behind this:
- Changing consumer demographics. Millennials, who will soon be the largest consumer group, strongly support companies that focus on ESG and sustainability.
- Shifting manufacturing hubs. Manufacturing hubs are shifting as concerns over labour practices in countries like China continue to increase.
- Growing public awareness of climate change. Consumers overwhelmingly support lower carbon options, and suppliers who fail to minimize their carbon emissions risk losing business to more environmentally conscious organizations.
5. Reporting standards consolidate further. According to EY, there are over 600 ESG reporting standards and frameworks worldwide, making it challenging to navigate. The International Sustainability Standards Board (ISSB) aims to consolidate reporting standards and make the process easier for companies. The International Financial Reporting Standards (IFRS) Foundation, the parent organisation of the ISSB, has already merged the Value Reporting Fund and Climate Disclosure Standards Board. Last week, the IFRS announced its decision to assume control of the Task Force on Climate-related Financial Disclosures (TCFD).
Ira Srivastava is Competent Boards’ Program Coordinator. Follow Competent Boards on LinkedIn.Back To News & Views