What does 23/24 look like for ESG reporting?
We’re gearing up for the new financial year here at Sustainit, and it’s going to be a busy one! We’ve taken a moment to pause and think about what 2023-2024 looks like in ESG reporting and its ever-changing landscape.
One thing is for certain, there’s a big rise in smaller companies starting their sustainability journey. If you’re one of those, our golden advice is this: Track. Your. Data.
Currently, reporting on environmental data is only a legal requirement for companies with over 500 employees. But, with the net zero deadline fast approaching and no reductions big enough to meet the Paris Agreement Pathway… how long will it be until SMEs are required to track and report their ESG data?
We’ve had a quick look at the most exciting (to us) things that are set to happen this financial year and what we think you should do:
The revised universal GRI standards have officially become effective
The GRI Standards are the most widely used set of ESG reporting standards. They were developed to provide a clear, voluntary framework for all companies and industries to disclose sustainability information to stakeholders. The Standards were revised in 2021, coming into full force at the start of this year.
The updates include: strengthened accountability, increased rigour with materiality assessments, and a unified core standard. Don’t forget that this is a voluntary framework only. That being said, these updated standards are better aligned to help companies meet legal requirements. It’s recommended businesses check they’re using the most up-to-date standards which include:
- Disclosing and embedding policy commitments
- Compliance with laws and regulations
- Human-rights related disclosures
Biodiversity assessment & disclosures
It was decided at COP15 – 2022 UN Montreal Biodiversity Conference – that it’ll be mandatory to include an assessment on biodiversity as part of ESG disclosure requirements for businesses. This is a huge step in improving companies’ wider sustainability strategy – rich biodiversity is essential to support all life on Earth. There are over 40,000 endangered species, and it’s becoming very clear that biodiversity and the climate crisis are intrinsically linked.
Other pledges included restoring 30% of degraded ecosystems by 2030, halting the extinction of known species by 2050, and reducing the risk from pesticides by at least 50%. So, it’s safe to say that nature-based solutions will become more prevalent in the battle against climate. If businesses fall under the European Corporate Sustainability Reporting Directive, they will already be looking at assessing their impacts on biodiversity (by means of an environmental impact assessment). They should also be making plans to reduce any negative impacts on biodiversity in line with the Directive, as well as the wider EU Biodiversity Strategy.
Transition plan taskforce
This framework was published by the UK government to provide some guidance for companies and financial institutions to develop robust climate transition plans whilst making the move to net zero. The guidance is based on 3 key principles – ambition, action and accountability. It’s currently in review – the consultation period closed in February. It’s then expected the official framework and supporting guidance will be published by the summer. It will be another useful tool for ensuring minimum ESG reporting requirements are met. And, having a clear plan in place will set you apart from your competitors. The disclosure framework will broadly look like this:
- Objectives, priorities and business model implications
- Implementation strategy
- Planning and ops, products and services, policies
- Engagement strategy
- With value chain, industry, government and public sector bodies
- Metrics & targets
- Governance and operational metrics, financials, emission reductions and targets and carbon credits
- Board oversight, reporting, accountability, culture, training
Task force on climate-related financial disclosures
2022 saw (through the TCFD) reporting requirements become mandatory for over 1,300 companies in the UK. Set up in 2015, these requirements which started as voluntary, help businesses navigate international financial stability post financial crisis. By adhering to them, companies and investors are better placed to incorporate climate-related risks and opportunities into their future decision-making process. Making sure companies have to go through a unified process when sharing details should help put climate change at the heart of business decision-making moving forward.
At the moment, it only applies to UK companies with over 500 employees and a turnover of more than £500m. However, it’s likely this will be significantly expanded by 2025. Getting ahead of the game will be sure to save you time and stress later on down the line. It will also help you stand out as a company working towards mitigating risks of climate change and championing transparency. As the first country in the G20 to enshrine these voluntary standards into law, it’s safe to say that the UK is at the forefront of shaping the ESG reporting landscape.
What else is in discussion for ESG reporting in 23/24?
Future disclosure framework
The Financial Conduct Authority (FCA) recently published a discussion paper called the ‘Future Disclosure Framework’, for retail. Its focus is to enable greater innovation in disclosure to benefit retail investors and firms. As part of this, they’ll explore sustainable disclosure requirements for products and services offered by entities such as fund managers, insurance brokers, credit institutions and investment firms that have ESG claims too. The paper closes for responses this month, so it’s expected that some changes will take place. ,
This is a big topic. UK taxonomy was originally planned to come into force at the start of this year (much like in the EU, where this is a legal requirement for over 50,000 businesses). But, the House of Commons published a written statement in December 2022 confirming that the deadline to legislate on this had been missed. The Government is working with the Green Technical Advisory Group to review the development of this UK-specific taxonomy and ensure that its implementation maximises its usefulness to the market. We’ll be keeping an eye out for developments with this, and expect to see some further announcements this year.
The energy crisis and scope 3 emissions
Other notable topics worth mentioning are the energy crisis and tackling scope 3 emissions. With major disruptions in energy supplies across Europe dramatically increasing prices, there’s never been a better time for companies of all shapes and sizes to invest in renewable energy. Doing so will save money and future-proof your business. It’ll also save you the hassle of having to report on your scope 2 emissions.… leaving more bandwidth to focus on scope 3 – which can sometimes feel like a bottomless pit.
Tackling scope 3 emissions is still a huge head-scratcher. And that’s concerning, given that they can account for up to 90% of a company’s emissions. As we loom closer to net zero, companies will have to start finding innovative solutions to help reduce those emissions.
We suggest thinking about how to engage with stakeholders to reduce their emissions, incorporate nature-based solutions, and (most importantly) ensure data accuracy. Approximating scope 3 data just won’t work – accurate insights are key in tackling this head-on.
Supply chain management
Finally, expect more frequent conversations on supply chain management. Many companies have been forced to adapt to rising costs, reshaping their entire supply chains. The current global landscape presents both challenges and opportunities in sustainability and decarbonising supply chains (which are, as we know, from those pesky scope 3s!). Policy changes in the last few years mean businesses will have to disclose information about deforestation in their supply chain, as well as the COP15 biodiversity treaty. Expect to see a focus on decarbonisation, strong water stewardship, biodiversity reporting and forestry disclosure in the new financial year.
Our 3 top tips for 23/24:
- ESG reporting standards are a compass pointing towards adding value across your business. They can help you prepare for future socio-economic and environmental challenges effectively. They are not a tick-box exercise.
- Make sure you are disclosing information that is accurate, and driven by high-quality data
- Try and think of the environment as a type of wider stakeholder. Climate change should not be forgotten about in strategic business planning and stakeholder engagement.
Whether it’s mounting external stakeholder pressures, or the letter of the law, soon all companies will be adopting ESG reporting standards of some sort. So, if you haven’t already, now is the time to get started.
Some studies suggest the transition to a net zero economy will create business opportunities worth up to $12trn dollars a year. Aside from this, one thing for sure is that sustainability reporting can only be described as the catalyst for impactful activity. By disclosing information that is concise and evidence-based, businesses will give themselves the best opportunity to share performance data that aligns with their values and meet climate change realist measurable climate change targets.
Still unsure where to start? We’re experts, so if you’d like to chat to us get in touch today.