February 24, 2022 - ESG and Climate News

Sustainability in times of conflict

It is difficult to write this week’s edition as war has erupted in Ukraine. These events are overwhelming the ESG and Climate news team and our hearts go out to the victims. Some of our colleagues have been displaced or are in harm's way, making it even harder to focus on this week’s ESG news.  

We cannot ignore aggression and, sadly, it is a repeating pattern that dominates human history.  

But, even in the face of aggression, the important work to save our planet must continue. Like all conflicts, this one will eventually run its course - hopefully quickly and with minimal loss - our work remains important because, when it's over, we still need a place for our children to live. 

I wonder if lemmings are busy fighting amongst themselves as they head over the cliff. 

The sustainability split

As war in Ukraine broke out, so did conflict among the sustainability community. A “family-feud” erupted when my colleague Robert Eccles posted an article published in the Harvard Business Review we featured in last week's newsletter. What he thought was an “innocuous little piece” elicited an unexpected response. 

Bob’s article, called on companies to support the new International Sustainability Standards Board (ISSB).  Heated criticism broke out in the comments section on the LinkedIn post - which unfortunately became personal in some cases with comments like “WTF Bob?!?” 

Living in a material world 

The criticism laid bare a conflict that has been simmering in the sustainability community for some time: whether double materiality and single materiality can co-exist. This conflict is likely incomprehensible if you aren't deep into the weeds of ESG disclosure policy. At the risk of becoming the next target of criticism, I will attempt to explain:  

Sustainability reporting has been around for more than 20 years. In fact, more than 90% of the S&P 500 companies now report on sustainability matters. 

All of this reporting is voluntary, and thus most of it is not audited or assured. Because it’s voluntary, companies and their stakeholders get to choose which issues they report and which they leave out, and all of the disclosure is based on “double materiality.”  

What is that you ask?  Double materiality considers the impact of the company on the world and the impact of the world on the company. Single materiality (or financial materiality) considers only the latter - the impacts of the world on corporate finances.  

What is changing, and the reason for the debate, is that sustainability issues (specifically climate change) are beginning to cross the threshold from voluntary disclosure to regulatory disclosure.  These regulated reports will have to be audited, assured, and integrated into a company’s financial statements. And, most importantly, they will be limited to financially material impacts to the company.  

The spat goes viral

As someone with more than 30 years in the sustainability field, it was painful to see my friends take sides. But lines were indeed drawn and, as the rhetoric heated up, it spilled into the pages of the Financial Times under the apt title “Sustainability Schism Raising questions of the ISSB.”

One side argued that the coming regulations and standards will skew attention to focus solely on financial results at the expense of impacts to people and the environment. Bob’s position was that the coming change will be additive and thus accelerate progress.

In response to the debate, Bob wrote an article in Forbes: “A Personal Message To The Cantankerous Critics Of The International Sustainability Standards Board.”  The article answered the critics and acknowledged some of their points. He conceded that the ISSB and other reporting schemes are not perfect but advised not to “let the perfect be the enemy of the good.” While most of the commenters on this post sought to mend the rift, some used it as a platform to continue their criticisms. 

The argument continued in comments to another of Bob’s articles on how the coming changes will affect finance and sustainability professionals.  While this article was on the changes professionals can expect, the message got lost as it became another venue for the now overheated rhetoric. The message is important though - as executive compensation is increasingly linked to ESG performance, CEOs and CFOs have to learn more about sustainability and CSOs (Chief Sustainability Officers) must learn finance and business strategy. In my humble opinion, that’s a win-win and will present growth opportunities for all involved. 

Taking sides

ESG and Climate News attempts to report the news without bias, but sometimes we have to take a side. Internecine battles such as the one that erupted this week only weaken the overall sustainability movement. Whether you support single or double materiality reporting, the opportunity costs of the argument are immense. 

Both are valid approaches and can produce great benefits simultaneously. More importantly, if sustainability leaders collaborate to connect these approaches, we will have increased their collective benefits by orders of magnitude.  

GreenBiz22 a rip-roaring success

This debate was played out live in a panel I took part in at last week’s GreenBiz conference titled "ESG Standards: The State of Play." The main points of the spirited discussion were shared in this Greenbiz article. With a capacity crowd of more than 1,300 attendees turning up in-person, the event was a whopping success. 

Biden Fights Back

In last week's issue, we highlighted how the Biden administration has been stymied on their climate agenda. This week came the push back as the administration halted new oil and gas drilling on federal lands. The move trumped a court ruling outlawing the application of the social costs of carbon for drilling on federal land.

Trillions at stake in US climate action

A new study from Deloitte underscored the importance of climate action. The study found that, if left unchecked, the cost of climate change could reach $14.5 trillion by 2070 in the US alone. Whereas, if we act now, $3 trillion could be added to GDP by 2070.

Hydrogen making headlines

Elon Musk once called Hydrogen fuel cells “fool sells,” claiming they are an “extremely silly” technology. The tech billionaire will be eating a slice of humble pie as the hydrogen market emerges as a credible alternative to fossil fuels. Hydrogen technology has literally taken off this year, with Airbus planning to test hydrogen-fueled superjumbo A380 as part of its pledge to bring zero-emissions aircraft into service by 2035.

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Missed last week's ESG & Climate News? Check it out now and stay in the know: February 18, 2022.

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