November 22, 2022 Climate, energy and COP27
Regardless of whether you see COP27 as a success or a missed opportunity, there is no denying the fact that climate, energy and sustainability are all firmly on the global agenda. And not just on the global agenda either. One of the clear messages from COP27 was that climate and net zero targets belonged not just to countries but also to every entity. Speaking at the event, UN Secretary-General António Guterres commented that targets must cover all greenhouse gas emissions and all scopes of emissions, adding:
- “For financial institutions, this means all financed activities.
- For businesses, it means all emissions — direct, indirect and those originating from supply chains.
- And for cities and regions, it means all territorial emissions.”
With that in mind, what does this new climate change impetus mean for companies? Well, larger entities in the UK are already required to include climate change risk in the strategic report and elsewhere. And an FRC report on net zero disclosures in October 2022 highlighted the importance of providing sufficient information to enable investors and others to understand a company’s net zero commitments.
That FRC report revealed how investors value transparent net zero disclosures, using information provided to understand the level of an organisation’s commitment as well as to compare net zero ambitions between different companies. What investors don’t want, says the report, is high level commitment with limited detail or commitments which are heavily caveated in smaller print. This sentiment was echoed by António Guterres in his COP27 speech when he called for businesses and others to deliver publicly available plans which detail concrete actions to meet net zero targets. He also commented that “management must be accountable for delivering on these pledges.”
It may well be that the current energy crisis is forcing some organisations into re-evaluating their current energy processes rather faster than they might otherwise have done. And, depending on the sector, that re-evaluation may result in a call for help from the UK Infrastructure Bank which the Government announced in the latest Autumn Statement is to become a key institution that will “facilitate long-term investment in infrastructure to tackle climate change.”
Whatever the incentive, the message is clear. It’s not enough to have grand ambitions which are not able to be fully integrated into business processes and daily life. As investor expectations and reporting requirements increase the FRC expects that the level of market disclosure required will evolve. In the meantime, whilst actions do speak louder than words, companies should be prepared for those actions to be transparent and accountable, enabling investors and others to understand how climate and net zero plans impact on the current and future success of the company.