Why I joined a carbon management startup
As the former Chief Executive of GRI, I worked on establishing global ESG (Environmental, Social and Governance) disclosure standards. After stepping down, I have joined a carbon management startup company – Persefoni AI.
While I continue to be active across a broad range of sustainability issues, this move requires some explanation. Startups are fun and can be rewarding, but there are a few other reasons worth mentioning.
INFORMATION FOR CHANGE
At GRI, I said “it’s not about the report, it’s about what you do with the information to make change.” Reporting is only useful if it is used, but most companies – even the sustainability leaders – use rudimentary tools to manage their ESG information. Because ESG has been regarded as reputational, typically the data is gathered on spreadsheets and reported in an annual report looking back at the prior year. In short, it has not crossed over into the mainstream of enterprise reporting where it can influence decisions.
In the words of Bob Dylan…the times they are a changin'. Companies are facing a myriad of new demands that require an updated approach.
There are a few forces driving this change. First, investors are demanding it. The clearest sign of this demand is the rapid adoption and investor support of the carbon reporting framework issued by the Task Force on Climate-related Financial Disclosures created by the G20 Financial Stability Board. Since the recommendations were finalized in 2017, more than 1,500 organizations have supported the TCFD recommendations (a year over year increase of more than 85% compared with 2019). The latest status report states that “Nearly 60% of the world’s 100 largest public companies support the TCFD, report in line with the TCFD recommendations, or both.”
The second reason is good old-fashioned regulation. Regulations requiring ESG disclosure are taking off around the world. The best example comes from the European Union: Next year the EU is slated to revise its ‘Non-Financial Reporting Directive’ and, after proposing to cut greenhouse gas emissions by at least 55% by 2030, it’s a safe bet that climate disclosure will be required.
The UK is not waiting. After announcing a plan to plan to cut greenhouse gas emissions by 68%, the Financial Conduct Authority released a final rule that will require a TCFD statement in company financial disclosure for accounting periods after January 2021.
And, as the incoming Biden Administration rejoins the Paris climate agreement and fields an all-star climate team, it’s likely that there will be a push for more climate disclosure in the US as well.
WHAT COMES NEXT
In my prior role at GRI, I helped drive the convergence of ESG Standards to create a globally accepted disclosure system much like we have for financial standards. The signs are encouraging that this work is bearing fruit as the incumbent ESG standards organizations recently issued a prototype climate disclosure standard. This will be especially helpful for IFRS Foundation as they consider taking up sustainability standards with climate as their first target issue.
All signs are pointing toward mandatory carbon reporting based on globally consistent standards. Yet, there is a huge gap between how most companies account for their carbon footprint today and what will be required in the near future.
The good news is that carbon accounting has been around for a long time, the procedures are well established and most large companies have some experience reporting on carbon emissions. The challenge is that managing carbon on an enterprise level is a massive undertaking. There are hundreds of pages of the greenhouse gas protocol that have to be properly connected to the activities of complex, dynamic corporations to produce an enterprise-level carbon reporting system.
In short, we need to manage carbon with the same capabilities and confidence used to manage corporate financial transactions. This means real-time, reliable carbon data across the enterprise with the ability to forecast emissions and predict risks.
So, the way I see it, incorporating sustainability issues – starting with carbon – into enterprise level management systems is essential if we are to take on these challenges. With multi-national company revenues now exceeding the GDP of many nations, companies must lead the way to make a real difference. To quote Peter Drucker: “you can’t fix what you don’t measure.”
The bottom line is that the fight against climate change is urgent and by bringing together the sustainability and software worlds, we can create the innovations necessary to make change at scale. That’s what I’m doing now.