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.