InsightsClimate risk disclosure is just the beginning
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In the first blog of our topical environmental, social and governance (ESG) series, CACI’s Matt Cooper explains why mandatory sustainability performance reporting in the world of big corporates has implications for companies of all sizes – and how we’re starting to make a difference together.
Climate risk and impact disclosure is officially on the table for large UK companies, the government announced ahead of the Glasgow COP26 conference. The government press release says, “Firms will be required to disclose climate-related financial information, ensuring they consider the risks and opportunities they face as a result of climate change.”
The new regulations come into force in April 2022. They’re based on recommendations by a task force set up in the wake of the 2017 Paris climate conference. The Task Force on Climate-related Financial Disclosures (TCFD) is focused on the challenges presented to investors, lenders and insurers by climate change. Natural disasters and environmental situations caused by climate change are creating new risks for some organisations. At the same time, initiatives and business practices designed to help reduce environmental impact could increase the value and sustainability of commercial businesses.
Commercial risk disclosure can drive positive change
Connecting climate risk and impact to financial markets and commercial investment is important, because it encourages investors and insurers to support the most sustainable organisations. This puts pressure on less sustainable businesses to change their ways, to the benefit of the environment, if they want to continue to prosper commercially. Private enterprise and industry have a major part to play in meeting national and global carbon reduction targets: the TCFD recommendations help to make this a necessary and desirable option from a business standpoint.
The Covid pandemic has shown the consequences of not considering a long-term risk. Global economic performance and the fortunes of thousands of businesses have been altered because of the virus. Some analysts and leaders (famously including Bill Gates) had previously identified this as a potential global risk. If organisations and governments had acted on these predictions, it’s possible that the pandemic could have played out differently.
In the case of climate change, forecasts and warnings are being taken seriously and publicised widely by the world’s media. Governments and powerful financial institutions are now taking tangible action, which includes regulations like these.
Customers also care about sustainable practices
But there’s a wider impact, beyond financial and underwriting markets. Deborah Brosnan, President of environmental consultancy Deborah Brosnan & Associates believes that consumers will increasingly take note of company performance on sustainability and make purchasing decisions accordingly. “Companies that are out ahead and can show how well they are managing risks and contributing to the environment and social well-being will have greater success. Those that aren’t will suffer consequences,” says Dorman, who believes that the younger generation of consumers will be particularly strongly influenced in their choices.
Hubbub CEO Trewin Restorick agrees on the consumer impact of decisions taken by national and corporate leaders. “The COP26 event in Glasgow will see governments and companies taking increased steps to reduce climate change emissions. The return of the USA to the Paris Climate Commitment will build added momentum, reinforced by growing citizen concern,” he comments in Pebble magazine.
Quantifying the cost or value of policies and practices affecting or affected by climate change should help to eradicate the rightly maligned practice of ‘greenwashing’. Investopedia defines this as “the process of conveying a false impression or providing misleading information about how a company’s products are more environmentally sound. Companies that make unsubstantiated claims that their products are environmentally safe or provide some green benefit are involved in greenwashing.”
Clear data is the obvious basis for climate responsibility reporting
The key is the data that large organisations will now have to provide. With a framework and defining metrics for disclosure, organisations must measure their performance against agreed standards. Investors, insurers, partners and consumers can compare these, to understand relative performance and commitment. Carefully worded claims will be exposed, if the organisation can’t back them up with data evidence.
The UK regulations will apply to around 1,300 of the largest commercial firms. But we believe there’s a clear call to action for smaller businesses and organisations. Consumer appetite for accountability should be at least as great an incentive for focus as a legal compliance requirement. If you’re in a B2B organisation, the decision-makers of the companies you serve are human too – ultimately, they represent colleagues and customers of their own who share consumer and societal perspectives. There’s no getting away from the significance of a public declaration of climate risk and opportunity. Now’s the time to report clearly on what you’re doing and to be explicit about your aims to improve.
The call to action for organisations of all sizes, in the UK and globally
At CACI, and among most of our customers, we don’t need to be guilted into action. We already know that we have a responsibility to be more sustainable. We’re motivated to take action and share effective practices, so we can all contribute to decarbonisation. That means thinking differently and innovatively about our products and services as well as making practical changes to our policies.
We’ve recently launched our updated CACI Environmental Policy as well as publishing our energy and carbon consumption and sharing our reporting methodology. As data specialists, we’re expecting increasing demand for advice and robust methodologies to help organisations gather and analyse increasingly sophisticated data. We all want to demonstrate our current achievement and continuing progress in sustainable practices.
This is our first blog in a regular series focusing on environmental, social and governance (ESG). It’s becoming a critical topic for successful and growing organisations in today’s markets. It matters to us as citizens, as an organisation and as data and technology specialists. There’s no doubt that insight and information will be key to monitoring and driving progress and understanding challenges and opportunities in a whole range of ESG areas. We’ll explore some of these in the coming weeks.
If you’d like to share your views on ESG or to talk to us about how data and tech can help your organisation report transparently and drive change, please get in touch.
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