By Ira Srivastava
1. Brazil joins EU, UK, US, and more in mandating sustainability reporting. Last week, Brazil’s Comissão de Valores Mobiliários (Securities and Exchange Commission, or CVM) announced that all Brazilian public companies will be required to report on sustainability and climate by 2026. This new requirement is based on the International Sustainability Standards Board’s new nature frameworks that were launched this year. Voluntary reporting can start in 2024 using the IFRS S1 and S2 standards, with mandatory reporting beginning in 2026. In 2027 and beyond, reports must be published at the same time as financial reports or three months after the fiscal year ends. The CVM hopes this will spur foreign investment in Brazilian companies, as investors are increasingly taking ESG and climate considerations into account when building their portfolios.
2. Australian board members ignore nature impacts at their own risk. An Australian legal opinion has concluded that companies should disclose nature dependencies and associated risks or else they could breach duty of care and diligence mandated under the Corporations Act. Breaches of the Act can result in fines, litigation from stakeholders and shareholders who have lost money, and removal from the board of directors. An example of a nature-related risk is the European Union’s import ban on beef raised on deforested land. This creates a risk for companies who raise cattle on deforested land, and those companies are recommended to disclose this risk. While this brief is only applicable to Australian companies, the same legal argument can be extended to jurisdictions around the world. Board directors will need to understand their company’s reliance and impacts on nature to avoid running afoul of regulations in the future.
3. General Partners still value ESG despite backlash. ESG backlash around the Western world in the past year has impacted the way companies discuss ESG issues, but general partners (GPs) have not changed their practices. The focus of a GP is financial, and many ESG issues have profound financial implications. The general public is also increasingly concerned about ethical and sustainable consumption, so demand for sustainable products will only grow. Investors are also aware that despite political backlash climate and nature risks such as ecosystem collapse, drought, and changing rain patterns will have huge impacts on businesses. Countries around the world are continuing to mandate ESG and sustainability reporting.
4. Companies must invest in plastic alternatives. According to a report from the Ellen MacArthur Foundation, companies are dragging their feet on finding alternatives to single use plastics due to cost competitiveness. More than 10 million tonnes of plastic ends up in our oceans annually, and less than 10% of the 460 million tonnes of plastic produced each year is recycled. Reducing plastic usage is a huge step in the carbon transition, as plastic production is a significant source of fossil fuel emissions. Businesses are likely to miss the United Nations Environment Programme’s target of reducing plastic pollution by 2025. In the shortterm there may be cost competitiveness issues with investing in plastic alternatives, but the phaseout of plastics is crucial in the long term. Countries around the world are banning single use plastics, and investors should engage with their portfolio to push them to take stronger action.
5. Bloomberg’s new climate risk indicator provides insight for companies. A partnership between Bloomberg and Riskthinking.AI has launched the world’s “first physical risk indicators that account for every climate scenario endorsed by the Intergovernmental Panel on Climate Change (IPCC)”. This tool will allow companies and investors to assess the impacts of floods, fires, droughts, and more on their operations and portfolios. By simulating all 40 of the climate scenarios under the IPCC, deeper insights can be gained. The models use data from 51 climate science centres and academic institutions to increase accuracy.
Ira Srivastava is Competent Boards’ Program Coordinator. Follow Competent Boards on LinkedIn.