“Coming out of COP26, one thing is clear: net-zero is now a core principle for business.
But how will companies move from pledges and commitments to clear, detailed plans?
The transition will be complicated, which only makes the call for courageous leadership ring louder.
Whether your organization is contemplating joining global coalitions for change, thinking about how to finance the transition, or mitigating risk while confronting price volatility, the time for action is now.”
This is the valued opinion of leading consultancy firm McKinsey
McKinsey further highlights the need of every company to plan.
“Such plans will vary in their specifics, of course, but well-formed ones will feature certain elements:
· Emissions targets for Scopes 1, 2, and 3 (the hardest to meet); these should include long-term targets, as well as near-term goals for 2025 and 2030, all aligned with science-based mitigation trajectories or sector-specific trajectories from credible authorities
· a strategic view of climate risks and opportunities for each part of the company’s portfolio, covering both competitive dynamics and environmental exposures
· an assessment on the spending of transition capital that will be required to reduce emissions, especially from existing emissions-intensive assets, coupled with a credible stance on the use of high-quality carbon credits
· a program for building capabilities to monitor external conditions, make decisions about how to update the company’s plan and implement it
With this intro, I ask — Why is this the most important area for your Business to adopt as part of its core principles?
This article will explore some of the ramifications, trends, needs resulting from the recent announcements.
ESG affects all Companies as all companies are suppliers to larger companies who require supply chain oversight.
It can be daunting, and you may as Business Owner, Director, CFO think — I have enough on my plate just running my business and ask — Why do I need this headache? Why do I need this extra expense, a layer of reporting and governance?
I propose the oppositive — this is a business opportunity. Firstly, if you are an SME- your Business itself is threatened. ESG is not a Risk but an Opportunity. By adopting ESG, companies can win more business, save costs , increase Valuations and ability to raise Funds.
1. Environment — Your biggest customers will insist, if not already, on you meeting the standards,
For example, Tesco is set to become the first UK retailer to offer its supply base sustainability-linked supply chain finance, in a move the retailer hopes will encourage more suppliers to sign up to science-based emissions reduction targets.
2. Social — by treating your staff you can increase productivity, by treating your customers better you can increase sales.
3. Governance -by putting in a proper Governance and oversight that focuses on both risks and opportunities — you can increase value for all stakeholders.
Yes — the task is daunting -and you rightly ask where can I start?
You can go to the Big Accountancy firms, large consultancy firms and get an expensive quote, and you can hire a Head of ESG, or ask your CFO to start the process.
You can read articles like this. No one has all the answers or a view of your business or industry, so there is a learning process, but there are various steps that are applicable to all businesses.
One thing that is clear is there is sense of purpose by Government, Businesses, and the Individual to be on the same page. Many Businesses have voluntarily adopted ESG principles which are based on UN SDG or forced by investors, coerced by staff or customers, and now by legislation.
This process has started and will be the biggest change to the way Financial Statements are going to be prepared and reported. Here I wear my accountant hat. We can go back to the 1930s when Accounting Standards started and until today not much has changed. Now — Companies are going to be required by law to calculate the cost of the business to the environment and provide for liabilities. So, no longer can big mining and petrol companies get away with the exploitation of the world’s natural resources — Big brother is watching. The ship has sailed. If you as a business owner fail to get on the ESG ship, then you run the risk of drowning.
These issues are further explored in a book called “Accountants can save the Planet” by Professor Mervyn King who together with Sir Ronald Cohen are leading the fight for greater transparency and accounting by companies for Impact / ESG. Sir Ronald Cohen is based in Israel has brought out a few books one of which is called “IMPACT: Reshaping Capitalism to Drive Real Change”.
Where is ESG going?
· New Accounting Standards
· One trend is that it will be led by Accounting Firms, CFOs as ESG Reports are part of Financials.
· ESG will be digitally embedded into your business
· Data Capture — There ultimately needs to be automated capture, use of Blockchain to track data, etc., and Dashboards, different Report Outputs
· ESG Accounting Packages
· While measurement is coming into focus, reduction is ultimately going to drive this.
· While the emphasis is currently on the E- Environment, there is a growing need to develop Metrics for S — Social — analyze staffing, extract Payroll data, benefits, diversity, training/advancement for Staff, staff surveys, complaints, happiness, customer Complaints + Level of service.
· Director Disclosure Risk and the need for a Robust G — Governance — Board Reporting & Risk Assessment
· Growing legislation
· Link up with Stock Exchanges
· Measurement + Reporting designed to combat greenwashing
· ESG Finance — This is a big area.
· ESG Audits — like Annual Audits, but to effect effective change needs to be quarterly.
So, why I am sharing this?
I am very passionate about this discussion about Environmental and Social Impact. These two go together. We — Man, have exploited both the Environment in pursuit of profit and lifestyle. We have also exploited people and countries. It is time for a rethink.
I encourage you to learn more about ESG, why this is such a big thing, and why this is the biggest global trend in the global business world today. This is being led by Investors, Banks, Stock Exchanges, and you and me. This will filter down to every single business. Companies that do not embrace ESG face existential risks and lose out on opportunities for growth and funding.
I am actively learning, sharing ideas, and setting up initiatives embracing ESG.
Most importantly, I want to help Companies adopt ESG and help bring about change. I am collaborating with some of the leading-edge providers of ESG solutions. I can offer you; your Company an easy way to start to adopt a holistic, real ESG Solution. It is not as complex, or expensive to get started as you think.
Call to action
If you want to learn more about ESG, and want a clear strategy and real implementation of how to transition to your company, or receive a copy of my ESG White Paper — please be in contact with me at: email@example.com
Souce of McKinsey qoute