Written By Kevin James
I must have read through hundreds of integrated reports by now. An increasing number of companies align with, and report against, a plethora of initiatives, frameworks, standards, benchmarks and reporting formats to satisfy investor demand for greater transparency and strategic thinking around Environmental, Social and Governance (ESG) risk. Everyone has finally noticed that there is an elephant in the boardroom, and they are all paying very close attention. If not, a company’s indifference could be the difference, between having access to capital at the right price, or not!
If we drill down into the climate change issue alone, initiatives such as the SBT’s, CDP, PCAF, TCFD’s (just by way of example, there are many more) are all quite different by nature, but similar in that they are driven by investors and require compliance with a set of guidelines and protocols. Initiatives like these are defining the new frontier of climate and carbon accounting, reporting and disclosure. This represents a massive opportunity for companies to manage their climate risk and inform roadmaps to navigate the road to a low-carbon and warmer future.
Ignoring, or paying lip service to investor demands, poses a massive risk to organisations. While the intention of these initiatives is to drive authentic and strategic climate response and ESG behaviour, they can just as easily be manipulated to provide a veneer or distraction for companies to cherry coat what is actually quite ordinary (or sometimes non-existent, nor coherent) climate change risk management strategies.
A lot of companies in South Africa talk a good green game in the public domain however have little awareness and substance behind the words in reality. After a decade of seeing the best and worst of greenwashing, spin, sorcery, BS of the corporate reporting world, and knowing a bit more in many cases what is happening on the ground, I look at publicly disclosed sustainability reports with a bit of a jaundiced eye.
One thing that stands out for me about these disclosures is that, unlike financial reporting, you will struggle to find bad news. Everything is measured in varying degrees of positive.
Financial reporting, on the other hand, is brutal. If you do a good job, you make a profit. If you do a bad job, you make a loss. It’s always independently audited and published and investors praise or punish you. It’s only when ESG risks come to bear that the truth comes out.
So, I put together a “Top 10 cheat list” for investors and other interested parties on what to actually look for when assessing the maturity of a company’s climate and sustainability program.
- Precision Management: A data management and measurement platform that produces accurate data, performance benchmarking and insights to inform the right decision making.
- Leadership: These are new frontiers, the CEO needs to lead from the front. If not the CEO, then at least another senior executive, preferably with the words “sustainability” in their title.
- Accountability: Sustainability is best positioned in the CEO’s office or the Strategy practice of a company. Rather than being confined to a department (marketing, facilities etc), sustainability should be seen as a strategic imperative that impacts all aspects of the business.
- Bold Targets: Companies need to commit to ambitious targets. Net-Zero and Science-Based Targets (SBT’s) are targets and time frames determined by science. These targets should not be seen as ambitious but rather compliance with science.
- Performance Tracking: A baseline year against which all future environmental performance is measured and benchmarked.
- Carbon Footprint: Ongoing monitoring and management of the company’s carbon footprint, results of which should be published and independently verified on an annual basis.
- Strategic Roadmap: Including milestones on how the company plans to achieve their short, medium and long term goals.
- Strategic Imperative: A strong mandate and budget allocated to the sustainability department to build the capacity and the skills required to navigate the transition and effect meaningful change.
- Integrated into Strategy: The business strategy very carefully considers the impacts of climate change on the business as well as the business’s impact on climate change.
- Urgency: That there are medium and long term time horizons (15 to 30 years).
If a company can score 7/8 out of the above 10, they are on the right track.
One of the really non-negotiables, however, is “Precision Management” cheat number 1 on the list – which is the measurement and benchmarking of all data to provide a crystal clear line of sight on what environmental performance (carbon, energy, waste, water, fuel, travel, freight, gas) means across the length and breadth of the organisation.
Responding to climate change requires a massive shift in stakeholder behaviour. One of the stumbling blocks, always, is that managers have no idea what performance means in their day to day job, let alone how they are performing against their peers. Reliable and accurate financial and non-financial benchmarks are not readily available in a lot of companies. As a result, there is nothing for managers and their employees to measure themselves against to understand what and how much of their behaviour needs to change.
I have a fuel-efficient car. If I drive in a certain way, I will be able to drive 1000km off a 45-litre tank. All I need to do is to ensure that my behaviour allows this to happen. So, I look at the metrics. I happen to have a bit of an obsession with numbers particularly when it comes to the fuel efficiency of my car. I flick between the stats on my dashboard. It’s like a game. Sad, I know.
I have all the stats literally at my fingertips, able to monitor the correlation between the litres I use to drive every hundred kilometres and my ability to reach 1000km’s on a 45-litre tank. Quite simple arithmetic says I need to ensure I drive at an average of 4.5 litres/100kms. So that’s all I do. Simple.
I use this simple example to illustrate to clients that a company needs baselines and benchmarks across all assets and stakeholders that provide insight into how all the assets, activities, contractors and employees are performing.
Whether you’re a brand manager, facility manager, waste contractor, procurement manager, production manager, warehouse manager of the most granular assets to the CEO and other executives of a multinational conglomerate, everyone must have an unambiguous idea of what performance means at every level for an organisation to meet its climate goals. It’s your responsibility to manage certain activities that have an impact on the environment.
And for added enthusiasm and inspiration, add a solid strategy using either a carrot or a stick. Having accurate benchmarks and baselines allows a company to incentivise these kinds of managers much in the same way fund managers are financially rewarded for achieving the performance benchmarks required by the fund they manage.
The world is changing fast now. Companies who drag their feet for much longer will find themselves falling behind and becoming increasingly unattractive to the capital markets. Furthermore, ESG and carbon accounts need to be treated with the same discipline and rigour as financial accounting, reporting and disclosure. Companies that are doing badly at it, need to be represented by losses and liabilities and those doing well, by profits and assets. Only then will we know what’s what in the corporate sustainability world.
Kevin James is an eco-entrepreneur and sustainability professional with experience in strategic corporate sustainability as well as in the development of green, low carbon projects. He is the founder and CEO of GCX, a company that provides tools and expertise to large, complex organisations to set and track more ambitious environmental sustainability targets. He is also a non-executive director of Green Building Council South Africa.