Climate-related financial risk disclosure will be mandated across the UK by 2025, and New Zealand has passed climate disclosure laws for financial firms to be effective by 2023.
Although Australia has yet to make climate risk reporting mandatory, it is only a matter of time before climate-related risk disclosure will be mandated here too.
Not limited to government requirements for a business to be compliant, the benefits to understanding and communicating your business’ sustainability strategy include:
- Increased access to funding from investors with sustainability-focused mandates
- Attraction and retention of staff who are sustainability-conscious
- Increased competitiveness for tenders and proposals which require consideration of sustainability
- Long-term cost savings
- Increased brand and reputation.
Businesses who understand the need for adopting a sustainability strategy will be better positioned in responding to the growing demands of regulators, investors and consumers, thereby strengthening their competitive edge.
However, many business owners lack an understanding of how to devise and implement a sustainability strategy.
The following steps provide a good framework for considerations in developing such a strategy:
The starting point is to assess your business’ current position – what is the business’ carbon footprint now and into the future? Understanding this will allow you to identify the opportunities in the business which can help to reduce carbon emissions and make appropriate short and long-term investments to improve this position.
Without baseline numbers, it is difficult to make strategic decisions to improve your business’s sustainability position.
Business model realignment
The next step is to create a roadmap to incorporate sustainability into your current business model designed to promote a net-zero economy. Ways to reshape your business model may include procuring and sourcing materials differently, seeking better logistics and distribution opportunities, adopting leaner manufacturing processes, reducing waste and redundancies, and even developing new innovative product or service offerings.
Monitoring and reporting
It is critical to monitor and report your business’ path to sustainability.
Stakeholders are increasingly demanding insights of sustainability progress. 90 per cent of S&P500 Index companies have included corporate sustainability as a public report, which is an increase of 20 per cent from 2011.
It is important to set goals and KPIs which are periodically reviewed to ensure the sustainability strategy is acted upon and communicated to stakeholders.
To monitor and report your business’ sustainability strategy, ask the following questions:
- What metrics are available to report on your business’ progress against the plan?
- How are you measuring and reporting on your corporate social responsibility program?
- Which sustainability and reporting standards are best suited to report on your business activities and journey to net-zero?
- How can you best use your business’ chosen sustainability and reporting standards to shape your sustainability reporting?
- How are you keeping track of the government incentives?
- What are the latest regulations affecting your sector around the environmental, labour and social spheres?
Acting neutral and taking no action in mitigating the risk arising from the changing climate is found to reduce the long-term profitability of a business.
Carbon neutrality will be the new normal and transitioning early to a more sustainable business is paramount. Following the steps as outlined provides a roadmap through this process.
Authored by Natalie Tieck Assistant Manager, Corporate Advisory Sydney
This article was first published in the Winter 2022 issue of Financial Times.