In recent years, there has been a groundswell of headlines, conversations, and complaints centered around climate and carbon disclosures. While these are certainly necessary and relevant topics given recent regulations and standard setting, they are only a small piece of the climate puzzle.
We have been warned year after year that we’re running toward a tipping point. In their recently released Sixth Assessment Report, the Intergovernmental Panel on Climate Change (IPCC) states that the “Pace and scale of climate action are insufficient to tackle climate change.” The world is necessitating that we move past “what is” to focus on “what can be.” Therefore, we must shift our focus to making data and disclosure actionable for the purpose of meaningful decarbonization.
Corporations, financial institutions, and investors are facing increasing pressure to decarbonize their operations, supply chains, and portfolios. Whether driven by regulators, consumers, stakeholders, or the ever-present existential crisis of a pending global climate collapse, the need is clear. We are experiencing devastating global weather events, extreme temperatures,‘unprecedented’ biodiversity loss, and irreversible ice melt. Simply having the data is no longer sufficient.
Momentum around decarbonization is growing, with more and more companies committing to carbon reduction goals. By the end of 2022, the number of global companies with Science Based Targets in-line with the Paris Agreement grew to over 3,700–marking an almost 400% increase since 2020. Furthermore, more than 90% of the global economy is covered by national net zero commitments.
Decarbonization is also critical to the investor community, including in private equity, according to a 2022 survey by Bain & Company and the Institutional Limited Partners Association (ILPA). Bain found that 31% of limited partners (LPs), including 52% of LPs in Europe, have set net zero commitments. Despite these commitments from investors, funds struggle to collect comprehensive greenhouse gas (GHG) emissions data from their portfolio companies, let alone help those companies create the decarbonization plans necessary for investors to meet their net zero commitments.
Despite the increased public momentum around decarbonization, setting a clear path to get there is often a daunting task. In a 2022 study, Bain & Company found that one-third of companies missed their 2020 scope 1 and 2 decarbonization targets. Now more than ever, organizations need tools and insights to enable them to understand what carbon reduction actions they can take to deliver the highest impact to their organizations.
That’s what inspired the creation of the Net Zero Navigator, developed by Persefoni and our partners at Bain & Company. Through more than a thousand client cases, proprietary research, and deep industry knowledge, Bain has built deep expertise around decarbonization strategy, planning, and staging. This experience has enabled them to amass an extensive, industry-specific decarbonization lever database. We’ve worked together to develop Net Zero Navigator to intelligently apply their insights and levers to clients’ emissions data or estimates.
Data alone is extremely powerful, but we have brought it to life through our technology by incorporating research, experience, and insights - to take the guesswork out of decarbonization and accelerate progress toward net zero. "At Bain and Company, we always focus on results and impact. This is no different for Net Zero Navigator from how we designed the levers (to be pragmatic), to our collaboration with Persefoni on developing a tool that’s easy to use, yet insightful and actionable," shared Gerry Mattios, Partner and Carbon Reduction Global Practice Leader. "Our clients have so far loved the tool and are starting to adopt it to chart their decarbonization journey."
Now, in a matter of minutes, organizations can glean powerful insights and customize actions and timelines to ensure their decarbonization strategy is tailored to their unique business operations and goals. Net Zero Navigator can be used in a variety of use cases:
- Corporations: Develop custom net zero strategies and track progress against reduction targets (including SBTs)
- Private markets:Embed carbon considerations into due diligence and create post-acquisition net-zero plans with relevant time constraints
- Financial sector: Support customers utilizing sustainability-linked loans with their own net zero strategies
Net Zero Navigator also acts as a powerful compliance solution. Regulators increasingly expect companies to ‘show their work’ when it comes to sustainability, particularly in the EU. Draft implementation standards for the EU’s Corporate Sustainability Reporting Directive (CSRD) state that companies with GHG emission reduction targets will need to describe their expected decarbonization levers, including the estimated quantitative benefits of those levers. Starting from scratch, this can be an intimidating ask. Net Zero Navigator’s proprietary library of decarbonization levers dramatically accelerates and simplifies the process of compliance. Though the CSRD is an EU regulation, its scope is global: CSRD reporting requirements will also apply to non-EU companies with major operations in the EU. Worldwide, companies will need to establish strategies to disclose the details behind their sustainability plans, and technology can help.
There is no perfect solution to solve the climate crisis, but we must work collaboratively and exhaust every possible option. The time for action is now, and the decisions we make over the next few years will determine the world we leave to future generations.
Climate & ESG News Roundup
Global assurance standards for sustainability disclosure are right around the corner
On March 28, the International Organization of Securities Commissions (IOSCO) published a report on the development of a Global Assurance Framework for Sustainability-Related Corporate Reporting. IOSCO acts as the global policy coordinating body for securities committees from 130 jurisdictions (including the SEC in the United States), and covers 95% of global securities markets. IOSCO’s report describes the strong global momentum to make sustainability related disclosures reliable and investor-grade.
Below we summarize two key takeaways from the report.
First, there is strong worldwide demand from companies and investors to create global assurance standards for sustainability-related information, particularly GHG emissions. IOSCO finds that “investors typically see reasonable assurance as the long-term target, especially in respect of metrics such as those related to GHG emissions.” IOSCO also notes that companies are “generally supportive of eventual mandatory sustainability-related reporting and assurance requirements for larger listed entities and financial institutions.”
Second, global assurance standards are coming soon. IOSCO expects drafts in 2023 (September and December) and finalization in 2024. Two key bodies are developing these standards: (i) the International Auditing and Assurance Standards Board (IAASB), which is crafting assurance standards covering limited and reasonable assurance, and (ii) the International Ethics Standards Board for Accountants (IESBA), which is developing ethics standards for both professional accountants and other assurance providers. In light of these developments, companies should soon expect greater demands to prepare sustainability disclosures that can withstand external, independent scrutiny.
Updated UK Green Finance Strategy addresses scope 3, ISSB reporting, and a UK Green Taxonomy
On March 30, the UK Government published updates to their Green Finance Strategy, setting up next steps as they progress towards their target of becoming the world’s first net-zero aligned financial center. The Strategy outlines how it will help to promote growth and investment and enable markets to align with the UK’s climate targets, placing emphasis on increased transparency to ensure markets have the proper data needed to manage risks and allocate capital.
To advance alignment towards targets, the UK government announced their plans to consult on expanding the requirement for transition plan disclosures, from listed companies and large asset owners and managers to also include UK’s largest companies. The UK will also be setting up a framework to assess the International Sustainability Standards Board’s standards for adoption suitability when they are published later in 2023. On the topic of scope 3 emissions, the Strategy announced an upcoming call for evidence in scope 3 reporting to “better understand the costs and benefits of producing and using this information.” In response to this call for evidence, the UK will plan to update its Environmental Reporting Guidelines, including for Streamlined Energy and Carbon Reporting (SECR).
To better provide investors the information they need for advancing green finance, the UK government announced their intention to deliver a consultation for a UK Green Taxonomy in autumn 2023. The government hopes this will improve the quality of standards, labels, and disclosures used to characterize ‘green’ economic activities. The Strategy is quite comprehensive, spanning 130 pages, and further highlights the opportunities for the UK to be at the forefront of growth and competitiveness in the transition to a low carbon economy, as well as the acknowledgment that an additional £50-60 billion capital investment will be required each year through the 2020s and 2030s to build climate resiliency and deliver on the net zero economy.
Proposed anti-ESG legislation could cost state pension funds billions
As ESG continues to rise to the top of mind for business owners, investors, regulators, and other stakeholders in the corporate world, many conservative politicians and lawmakers are proceeding forward in their anti-ESG efforts. Among the alliance of outspoken “anti-woke” states is Texas, represented by Republican senator Bryan Hughes, who recently proposed the latest of anti-ESG legislation, SB 1446. The proposed bill would create additional regulation and restrictions on the investment decisions of state pension fund asset managers.
If passed, a state retirement fund investment agent or governing body would be violating the law if they are determined to be furthering "any social, political, or ideological interest beyond what federal or state law requires." At first glance, many could likely agree that personal socio-political ideologies should not interfere with how public funds are managed; however, the underlying assumption is that factoring ESG-related financial risk into an investment decision is inherently political, and not merely responsible financial stewardship.
Texas County and District Retirement System Executive Director, Amy Bishop, spoke out against the bill, explaining that it would prevent them from being able to maximize the return on investments for their employers and collaborating with some of the world's best investment managers. Additionally, she stated that if they were required to modify the allocation of their assets, it could cost an estimated $6 billion over 10 years and more than double the cost to their employers.
State officials in other parts of the country are also seeing similar pushback to their anti-ESG efforts. SB 224, also known as the "Kansas Protection of Pensions and Businesses Against Ideological Interference Act" was determined by the Kansas budget division to cost the state pension system up to $3.6 billion in lost returns. Indiana House Bill 1008, almost identical to TX SB 1446, is estimated to cause a loss of $6.7 billion in returns on pension investments.
Events You Can't Miss
- See Persefoni’s Co-founder and Chief Digital and Information Officer, Kim Stroh, speak on Unlocking the Potential of Digital Climate Entrepreneurship, on April 20. You can register for this free virtual webinar now.
- Learn how to set yourself and your business up for success through the net-zero economic transition at City Week UK 2023. Register to attend the in-person event on April 24-26 in Guildhall, London, or watch the live stream on City Week’s media channels.
- Registration is open for Environmental Finance’s The Future of ESG Data America conference in Washington, D.C. on April 24, where you can hear expert insights on ESG data, investing, and reporting.
- Bloomberg Green Summit will cover all things green: climate-conscious economy, green living, global changemakers, and cleantech. Register now to attend in-person in New York or virtually on April 26.
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