The WHY is now clear to all. The UN has set the goal of limiting warming to 1.5° Celsius above pre-industrial levels, as set out in the Paris Agreement, global greenhouse gas emissions will need to peak before 2025. Then they must decline by 43 per cent by 2030 and to net zero by 2050.
Canada has set similar goals, with a 2030 target of 40% less than 2005 emissions and net zero by 2050 – in line with the UN directive. The US Department of State issued a brief in November of 2021 outlining the same goals. Legislation has been and will continue to be tabled to move the needle in that direction.
Larger, public corporations have been under increasing scrutiny from fund managers for some time now. Amundi, ranked among the top 10 asset managers in the world with over 2 trillion USD under management, has tied executive compensation to ESG performance since late 2021.
But what does this mean to you, the business owner? And what can you do?
As ESG and climate change legislation becomes more and more prevalent, smaller companies will need to begin working on their own net-zero strategy. This may seem very far away – but real targets have been set for 2030, and to reach those targets, governments will enact more and more regulations in the very near term. In Canada, Bill S211 received Royal Ascent on May 11, 2023. It comes into effect Jan 1, 2024. SB 657 in California has been tabled to the same end.
To successfully navigate the ESG landscape, here are the 4 main steps all companies, big and small, should be working towards:
1 – Understand where you are at. Calculating Scope 1 and 2 emissions can seem overwhelming at first, but there are plenty of tools available to facilitate this task. From carbon calculators which return your scope 1 and 2 – to supply chain mapping platforms which enable you to engage all your vendors and your value chain to reach into scope 3 and social aspects such as forced labor. All these tools can be integrated with your current business software to establish a baseline, with minimal additional effort from your employees.
2 – Develop a strategic plan. Once you understand where you are at, you can then identify the areas which will be most impactful to your business. If you run a fleet of trucks, then emissions from those vehicles would be a high priority. If you are operating a manufacturing facility, perhaps energy consumption would be highest on your list. As a retailer, working conditions in your overseas vendor base might be top of mind. Focusing on the most important and impactful initiatives for your business will ensure meaningful progress towards your goals.
3 – Institutionalize your action plan. Armed with the knowledge that came from hard data, you now need to put concrete action plans into motion across your entire organization. Sustainability is not a “department” – it is a mindset. From procurement asking the right questions of your vendors, to HR working to communicate your initiatives internally. It touches everyone in the organization in some capacity. This change management is where the rubber hits the road. From an execution perspective the main success factor will be to develop a corporate culture of sustainability.
4 – Communicate to everyone your progress. This will not be optional for much longer – the same as GAAP and financial regulatory bodies mandate how you report and disclose financial information, ISSB is moving towards standardized reporting with regards to ESG related data and disclosures. Communication to everyone means your investors, your employees, and your customers. Use social media platforms, your website, as well as your financial statements/disclosures to show all stakeholders the progress being made towards your ESG related goals. This will serve to engage everyone in your plan, as well as instilling accountability with all stakeholders to further support your initiatives.
In addition to the above steps, it is critical to stay on top of the constantly changing ESG regulations. It is an extremely dynamic environment, especially if you are operating in different geographies. Regulations vary from country to country, and from industry to industry. To make matters more challenging, regulations are constantly changing as government and industry bodies continue to pull levers to bring us to the 2050 net zero goal. Discovering after the fact that you are not in compliance with a certain region’s requirements could be disastrous for you and your customer.
The WHY is clear – but now you need to understand the HOW.
We can help. Whether you are just starting off and struggling to respond to your clients’ requests for ESG data, or if you are trying to make a difference but it does not feel like the needle is moving.
Give us a call, and let’s have a conversation regarding your ESG approach.