Cority’s North American team had the opportunity to attend GreenBiz 23 in Arizona, USA, in February. This three-day event had an action-packed agenda of keynote sessions, breakouts, workshops, roundtables and networking events that brought over 1,600 sustainability professionals together to harness each other’s knowledge and address the complex issues they face day-to-day. The Cority team attended several panel discussions that revolved around topics such as supply chain resilience, net zero, sustainability leadership, finance and ESG, and more. In this article, the Cority team shares five key topics that were discussed at the event.
1. New ambition for sustainability
During one of the keynote sessions, Dr. Sally Uren, Chief Executive at Forum for the Future, spoke on the need for deep transformation in the world’s systems to ensure sustainability change can occur at the necessary speed and scale. As part of this transformation, Dr. Uren challenged sustainability professionals to shift their mindsets and focus on a new ambition for sustainability.
Outlined below is the journey sustainability has taken over the years along with where it is challenged to go in order to produce just and regenerative outcomes.
- Version 1.0: minimizing negative impacts and doing less harm.
- Version 2.0: becoming neutral and heading to zero whilst making sure you’re not doing any harm.
- Version 3.0: where we’ve been for the past few years in sustainability, which is focusing on net positive to give back into the environment more than we take out.
- Version 4.0: the next generation of sustainability, which is deliberate in reconfiguring the systems we depend upon to enable them to thrive in the long term. This is the new ambition that is not just focused on doing less harm, but on creating socially just, regenerative systems that thrive.
2. ESG vs Sustainability
Another topic often discussed was the difference between ESG and sustainability. Traditionally, these terms are often used interchangeably, but there are important distinctions between the two.
The following definitions come from an MIT article that was shared during the conference.
ESG: “… is focused on screening companies for investments, largely by understanding how a business is affected by environment and social issues (with an additional focus on whether a company has good governance in place to manage those risks and pressures).”
Sustainability: “… is a much broader idea, focusing on a company’s role in society, how it creates value by managing its environmental and social impacts (both positive and negative), and how its actions affect a long range of stakeholders.”
3. Disclosure vs Impact
With the distinct definitions of ESG and sustainability in mind, attendees were challenged to think about what is lost when they focus on ESG and not on broader sustainability. With ESG being mainly focused on disclosures for investment, organizations can run the risk of losing sight of the need for actual impact.
Some considerations to make when balancing disclosure and impacts have been outlined in more detail below.
Raters and Rankers
Investors increasingly rely on ESG raters and rankers when making decisions, but the question was posed if we have gone too far with them. While these raters and rankers can be advantageous tools, there are also disadvantages and considerations to be made:
Advantages:
- Sophistication – ESG raters and rankers typically use sophisticated methods to assess companies’ sustainability performance, drawing on a wide range of data sources and research that can provide meaningful insights into risk and opportunities.
- Leadership buy-in/push – Companies may find that ESG raters and rankers can help build executive support for sustainability goals and initiatives in efforts to improve ratings and stakeholder perceptions.
Disadvantages:
- ‘Check the box’ exercise (reporting for reporting’s sake) –
ESG disclosure has the risk of becoming a box-ticking exercise, rather than a meaningful effort to drive progress on sustainability. - Resource allocation – Responding to ESG raters and rankers can be a time-consuming and resource-intensive process for companies, particularly for smaller organizations or those with limited sustainability teams. With resources spent on disclosure, there can be little left over for implementing processes that drive sustainability.
- Scores that doesn’t reflect actual progress – ESG scores may not always accurately reflect a company’s actual sustainability performance, and there is a risk that companies may selectively disclose information to improve their scores.
Materiality as a Bridge between Disclosure and Impact
Materiality assessments help bridge the gap between disclosure and impact in that they help inform organizations on which topics have impact and also what is important to the company’s stakeholders and investors. When looking through a double materiality lens, financial importance can be identified as well.
Importance of Storytelling
One potential drawback of relying too heavily on ESG raters and rankers is that it can sometimes detract from the importance of storytelling in sustainability reporting. While sustainability reporting is often focused on disclosing quantitative data and metrics, it is also important to tell the story of a company’s sustainability journey, and to highlight the positive impact that it has on its stakeholders and the broader community.
Progress Over Perfection
One key consideration in sustainability reporting is the tension between striving for perfection and focusing on progress. While it is important to ensure that data is accurate and complete, it is also important to remember that sustainability is a journey, and progress towards goals is ultimately what matters most.
4. Regulatory Updates – SEC Proposed Rule
During the event, there was a discussion about the future of mandatory sustainability disclosures, including the proposed rule by SEC. Currently, the proposed rule would require disclosure of climate-related risks, impacts, and governance processes as well as Scope 1 and 2 GHG emissions. Scope 3 emissions are proposed to be required if deemed material or if the company has set a GHG emissions reduction target that includes Scope 3.
Additional insights from the discussion are shared below.
Mandatory Disclosure Is ‘Inevitable’ and Could Address Certain Challenges
- Investors look at risk and reward – climate is a huge risk
Extreme weather events and regulatory changes can impact the financial performance of companies. This is why investors want more information from companies to better evaluate these factors. Mandatory disclosure can provide investors with the necessary information in a standardized format to make informed investment decisions and address challenges related to climate change.
- Investments committed to Net Zero
Over $66 trillion in assets are already covered by a net zero plan, indicating that many investors are working towards reducing their carbon footprint. Companies can disclose climate-related information to help investors evaluate their progress towards achieving net zero targets. This information can include emissions data and information on climate-related risks and opportunities.
- Need for comparable data in a comparable place
Investors are calling for standardized disclosure that provides comparable data in a single location. Currently, investors are requesting different types of disclosures such as SASB, SBTi and TCFD, which can create confusion and make it difficult to compare data between companies. A standardized approach would make it easier for investors to evaluate companies and for companies themselves to provide the necessary information.
- Raters/rankers create a selective disclosure problem
As mentioned previously, rating agencies and ranking systems can create a selective disclosure problem and reporting overload, particularly when companies are asked to report to multiple frameworks. The proposed mandatory disclosure rule by SEC has the potential to decrease the number of frameworks that companies need to report to. Instead, companies can direct investors and stakeholders to their SEC filings for the necessary information.
How Companies Can Prepare
- Align reporting to the GHG Protocol and TCFD
To prepare for the upcoming mandatory disclosure, companies should consider aligning their reporting with the Task Force for Climate-Related Financial Disclosure (TCFD)’s framework and with the Greenhouse Gas Protocol’s emissions accounting methodology as a proposed rule was modelled off them.
- Examine climate risks and opportunities
Companies should also take a closer look at their climate risks and opportunities and build processes to address them. This includes setting up processes to measure and report on emissions, identifying areas of improvement, and implementing solutions to reduce the company’s carbon footprint.
5. Scope 3 Emissions
Scope 3 emissions emerged as a key topic of concern during moderated sessions and networking events. We find it encouraging that sustainability professionals are all facing the challenges of Scope 3 emissions calculation and disclosure together. The reality is that no company has perfected it yet, and this is a complex issue that will require ongoing collaboration and effort to address.
While the GHG Protocol breaks Scope 3 down into 15 categories, the most common challenges around Scope 3 with GreenBiz attendees stemmed from purchased goods and services, including supply chain engagement, and emissions associated with sold products. The following sections share additional details on these topics of concern.
Supplier Engagement and Data Collection
- Provide tools to help suppliers/share best practices
It is key to establish a partnership with suppliers and provide them with the necessary tools and knowledge to help them improve their sustainability practices. Sharing best practices can also be beneficial for suppliers to learn from one another and enhance their sustainability efforts.
- Make it clear why you are asking for certain information
To enhance supplier engagement, it’s crucial to provide clarity on the purpose behind requesting specific information. Instead of simply sending out a questionnaire, companies should add some context to it, explaining why they need the information and how it will help them achieve their net-zero targets or improve their performance metrics.
- Include sustainability as a performance metric
By including sustainability as a performance metric, suppliers are more likely to comply with disclosing information. This can be achieved by incorporating sustainability goals and disclosure requirements into their contract language. When suppliers are held accountable for meeting these goals and disclosing information, it can increase their motivation to comply with your company’s sustainability reporting requirements.
- Screen to identify hot spots
Speakers on the subject emphasized the importance of conducting a screening to identify “hot spots” when assessing suppliers. This allows companies to prioritize their efforts and avoid wasting time on areas that may not be material or suppliers that are less impactful.
- Collect primary data instead of using spend-based calculation
It was highlighted that spend-based calculations for Scope 3 emissions present challenges and limitations. While it may be a good starting point, companies should aim to focus on primary data as they progress further in their sustainability reporting journey. Without primary data, the emissions of the supplier will be viewed as standard for that category, and any innovations or emissions reductions progress they have made will not be captured.
LCA and Sold Product Emissions
Many manufacturing companies and those that sell products in the market are placing a significant focus on life cycle analysis (LCA) and sold-product emissions. However, it’s worth noting that many and organizations are still figuring out the optimal approach. Open-source LCA sites were mentioned as helpful, but if your organization has the resources, conducting an LCA on your own products is more beneficial. Similar to the spend-based approach for suppliers, having primary data for your products is crucial, and you can then fill in any gaps as needed.
Scope 3 Data Quality
As mentioned, sustainability professionals are still grappling with how best to calculate Scope 3 emissions. As such, it’s important to get comfortable with restatements and prepare leadership for them. It’s common and often expected for data to change as enhancements in data collection and calculation are made and companies should be sure to be as transparent as possible when there are any restatements in their disclosures.
To find out more about how Cority’s award-winning sustainability reporting software can help you achieve your sustainability goals, please talk to us.
