Three weeks after COP26, we’ve now begun the tough job of aligning our aspirations with tangible actions. This week, the news exposes the good, the bad, and the ugly of whether we can fulfill its promises.
‘The Good’, ‘the Bad’, and ‘the Ugly’
Good news came out of the energy sector this week as research from IEA shows 2021 has been another record year for renewable energy, even during the pandemic. Renewable energy sources will account for a whopping 95% of the increase in global power generation through 2026. An analysis from the Transition Pathway Initiative reveals three of the world’s largest oil and gas companies have aligned with a 1.5C warming scenario; yet the same study also highlights how the overall sector remains 83% misaligned with the Paris Agreement.
GreenBiz founder Joel Makower emphasized “the Bad” in his recent opinion piece about how “ESG will still be like the wild west” in 2022. He cites a new report from a new report from the International Organization of Securities Commissions (IOSCO) pointing to the lack of clarity in ESG metrics and analytics, and lists several reports published after the COP meeting laying out the massive hurdles that must be overcome to achieve the aspirations set just a couple of weeks ago.
Increasing environmental degradation caused by climate change demonstrates “the Ugly.” This week, citizens in Iran held the country’s largest-ever environmental demonstration in response to climate-related droughts, which have left farmers and over 2 million people in the region destitute. Likewise, reports were released this week which indicate that rain will replace snow in the Arctic decades sooner than previously predicted, implying further sea-level rise. Another report by the National Intelligence Council named 11 countries which are vulnerable to climate change-induced geopolitical instability; namely, Afghanistan, Burma, Colombia, Guatemala, Haiti, Honduras, India, Iraq, Nicaragua, North Korea, and Pakistan.
Carbon Accounting, The Sheriff in Town
Climate disclosures, specifically “scope 3” emissions, continue to prove tricky. Scope 3 refers to the emissions from assets not owned or controlled by the reporting organization - they are the hardest to calculate and often comprise the most of a company’s carbon footprint.
An article in Fast Company outlines how companies, such as Timberland, claim great successes in reducing emissions from their own operations, yet the emissions from their supply chain partners and customers remain high. Only 19% of companies in the manufacturing industry and 22% in the service industry disclose supply chain carbon emissions and thus it’s excluded from the most of the ESG ratings used by investors.
Food waste is a massive problem in a world where more than 800 million people are hungry, and now a new report ties food waste to 36 million tons of carbon emissions in the UK alone. The report found that 74% of UK food companies do not track food waste in their emissions calculations.
Companies have to get serious about carbon accounting, treating it with the same rigor as financial reporting. This will require cutting-edge climate management and accounting platforms to ensure their carbon footprinting is accurate, transparent, and fully auditable. New regulations in the UK, Japan and New Zealand and emerging mandates in the European Union and the US will require climate disclosures to be integrated into company financial statements. This means that carbon accounting must be audited, assured, signed-off by company leadership – and that’s something that most businesses don’t do today.
Highlighting the importance of climate management and accounting platforms - congratulations go to Kentaro Kawamori - the CEO of my company Persefoni - who was named to Worth Media's "Worthy 100" - which highlights entrepreneurs who are advancing positive change in sustainability.
ISSB is Essential for Accountability
While the media focused on the international agreements at COP26, there were some game changing commitments from the private sector. For example, eleven large automobile manufacturers pledged to halt sales of internal combustion vehicles in their largest markets by 2035, and on a global basis by 2040. And more than 450 financial firms spanning 45 countries committed to provide by 2030 $130 trillion for investments that entail net zero emissions.
Regardless of how the commitments are framed, without accountability, they are all just promises. My article in Fast Company this week summarizing the outcomes of COP26 points to a bright spot for accountability: the announcement of the new International Sustainability Standards Board (ISSB). This new entity will create a “global common language” for climate disclosure by consolidating and standardizing ESG reporting and integrating it with financial disclosure.
Bob Eccles, outlined the ISSB’s keys to success:
Effective integration of the Climate Disclosure Standards Board and the Value Reporting Foundation under the IFRS Foundation.
Strong engagement of investors, companies, auditors, and regulators. Investors must visibly and vocally encourage regulators to support the ISSB.
Coordination with jurisdictions in charge of their own standard-setting efforts, in particular the EU and the US.
All relevant stakeholders must have a high level of participation in the early stages to ensure a running start.
As always, please comment, share, and subscribe. Also, here are a few other headlines that you may have missed:
Amazon is wasting no time in demonstrating that they are fully committed to a clean energy future, as they increased their renewable energy procurement by 40% in one year. Amazon, the largest corporate buyer of renewables, now has 274 renewable energy projects worldwide, enough to power 3 million US homes.
An alliance of financial institutions has banded together to launch the ESG Book, a free central ESG data source, which will provide a digital solution that connects companies through a central source for transparent and comparable ESG data.
Missed our previous edition of ESG & Climate News? Check it out now and stay in the know: October 29, 2021.