Environmental reporting is good for you… and me!2 December 2021
It may look like yet another task. In practice, high-quality sustainability reporting is designed to benefit us all as new ‘green’ stakeholders. It is already mandatory for large UK companies. However, small firms will soon be legally obliged to give a good environmental account of themselves too.
And that opens up a difficult question. Is it better for businesses to jump in and join up voluntarily now, or wait to be pushed later? I think the answer has to be to start making the plunge now.
One good reason is that in the near future it will be increasingly hard for supply chain partners to avoid being a valued part of someone else’s highly-detailed reporting structure.
A brief look at why reporting is becoming so important so quickly, what it involves, and its positive aspects, might be helpful.
No place to hide
Gilbert and Sullivan’s comic operetta ‘The Mikado’ perhaps helps to show in an improbable fantasy setting part of one of our most important high-level problems.
In it, the Japanese emperor is assured his powers are so great that when he says a “thing should be done” it is already “as good as done”. And, therefore, his anxious courtiers argue, “why bother to do it?”
Unfortunately, on the global stage, with wider worries about climate change, pollution, inefficient energy and raw material use, plus big biodiversity losses, simply hoping for the best is not enough.
ESG and the future
This is where ESG (environmental: social: governance) analysis and reporting (or disclosures) – which is essentially a dashboard of company performance in vital non-financial areas – is becoming increasingly important. I’ve included fuller details later.
The aspect that concerns us most directly is ‘E’ – minimising the environmental impacts of new and existing assets.
The starting point to improve ‘E’ in many cases is sound original design – a specialist area where Enzygo (https://www.enzygo.com/) has a good track record in helping.
This goes hand-in-hand with preparing information for detailed planning and permitting applications where our experience has been pivotal in winning consent for major sustainable development projects.
The key point to note here when it comes to ESG is the relevance, accuracy and consistency of data generated and used.
Big boost for green technology
We’ll look at ESG and ‘E’ more fully in a moment – and the importance of communicating clear information in annual reports to help stakeholders make well-informed decisions where both the risks and rewards are high.
However, ESG is not the only area where progress has been made recently that will affect infrastructure developments.
A new programme backed by 40 leading nations announced at the UN’s COP26 global climate summit in Scotland will make green technology a better commercial choice than old fossil-fuel equivalents (‘Glasgow Breakthroughs – Race to Zero and Race to Resilience’ – https://racetozero.unfccc.int/system/glasgow-breakthroughs/).
Technology alone will not be enough to reach net-zero. Government officials are keen to emphasise that low-carbon behaviour changes by all of us – from cycling to plant-based diets – are also needed.
Better big green finance
Treasury has also decided to make it mandatory for large UK firms and financial institutions to show precisely how they are planning to meet the UK’s tough net-zero target – an expert panel will set standards to avoid spin and ‘greenwash’.
Chancellor Rishi Sunak wants the UK to be the “first-ever net-zero aligned global financial centre”, with “Better and more consistent climate data; sovereign green bonds; mandatory sustainability disclosures: proper climate risk surveillance: and proper global reporting standards.”
The Government is also drawing up a verification scheme for corporate net-zero transition plans that will see high-emitting sectors publishing their net-zero transition plans by 2023. It will also develop a science-based ‘gold-standard’ verification scheme for plans to prevent ‘greenwashing’.
Money in the bank
Meanwhile, 450 organisations in the Glasgow Financial Alliance for Net Zero (GFANZ – https://www.gfanzero.com/ – led by ex-Bank of England governor Mark Carney) that control 40% of global private capital ($130 trillion: £95 trillion) have committed to keeping global warming down to 1.50C over pre-industrial levels.
Reporting standards and assurance
This is all positive and based on data disclosures – but still not enough.
As we will see in a moment, ESG which brings extra non-financial issues to the balance sheet, is a powerful tool that follows the improve-and-reiterate model which drives standards like ISO.
However, the Task Force on Climate-related Financial Disclosures (TCFD – https://www.fsb-tcfd.org/) is a global initiative that has “developed a set of recommendations that are changing the way organisations manage climate risks and opportunities”.
Since January 2021, all top UK companies have had to state in their annual reports whether their disclosures of information meet TCFD recommendations, and if not then explain clearly why not.
All included by 2025
As of 2025, the Government is planning to make TCFD-aligned disclosures mandatory across the UK economy.
More than an annual report tick-box exercise, the goal is to provide “consistent, decision-useful and forward-looking information on the material financial impacts of climate change” that will also pave the way to a sustainable corporate standard.
By highlighting risks in a consistent and comparable framework, the TCFD aim is also to help organisations future-proof their businesses.
How does ESG work?
Local communities, employees, members of management, special interest groups and local, national and international NGOs (non-governmental organisations) are all stakeholders.
However, investors are principal stakeholders who are becoming wary of funding projects with environmental risks not only for financial return reasons but also reputation and potential liabilities.
There seems to be no shortage of capital. But in an increasingly complex world, they need a rock-solid framework and system for well-informed decision-making.
Customers face similar challenges. They are anxious that products have a reliable environmental provenance, and that suppliers bolster and do not harm their own green credentials.
Triple-pillars of sustainability
ESG – sometimes used interchangeably with sustainability – stands on three pillars.
Environmental considers how companies use energy and affect the environment through energy efficiency (how much or how little they use), climate change, carbon emissions, biodiversity, air and water quality, deforestation, and waste management.
Social looks at corporate relationships with people and culture via factors like inclusivity, gender, diversity, employee engagement, customer experience, data protection and human rights.
Governance, meanwhile, takes into account internal company controls, practices and procedures that include communications with regulators. Part of its remit is also shareholder rights, bribery, corruption, lobbying, political contributions and whistle-blower issues.
On the increase
While still largely voluntary, there has been a massive surge towards ESG reporting in recent years. Research also shows that companies that understand its importance and include it actively in their business strategies do far better.
Companies that communicate ESG information in their annual reports tend to see higher investment returns, reduce their risks, and build up strong resilience to spring back from all manner of crises.
Conversely, in the present febrile environment, investors are increasingly avoiding companies that chose not to report increasing ESK risks.
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Pen to paper
Writing an effective report with the right balance of issues goes beyond the scope of this post and is often best achieved with ESG professionals.
The general advice is to decide what a report must accomplish, and focus on key stakeholders and material issues in a company-specific context, while developing a realistic roadmap for achieving these goals within a recognised reporting framework.
At the same time, reporting needs to be responsive, objective, above all transparent, and set within a bigger picture with challenging but reasonable ambitions.
What is not to like?
The downside is that collecting accurate, meaningful, and considered data can be costly and difficult without proper systems and structures.
However, assembling high-quality environmental information in the field is a fundamental area where Enzygo’s experience and expertise is important in major infrastructure projects, residential housing schemes, and renewable energy programmes (https://www.enzygo.com/about/).
As an independent multi-disciplinary environmental consultancy, our integrated teams of specialists are able to bring together within cost-effective solutions many different factors that can collectively make or break pathfinding projects.
Specifically, the team’s environmental disciplines include planning, air quality, hydrology and drainage, permitting and regulation, landscape, ecology, transport, geo-environmental and hydrogeology, noise and vibration, and arboriculture (https://www.enzygo.com/our-services/).
As such, they have a detailed understanding of what makes up carbon footprints and environmental footprints, plus innovative mitigation methods that can help to reduce both.
The data and information they create and gather can feed directly into the ‘E’ part of ESG, and because of its broad nature, indirectly into ‘S’ and ‘G’.
Our project remit is broad. It includes, for example, leisure parks where traffic movements, noise and visual amenity are important ‘E’ but also ‘S’ considerations for local communities; preparing for and responding to major flooding events is also increasingly important.
In contrast, our work in bringing major ‘waste-to-fuel’, ‘waste-to-energy’, and a pioneering ‘waste-to-jet fuel’ project for Velocys in Northeast Lincolnshire, into being puts us at the centre of a new generation of low-carbon technologies.
It was particularly important that Enzygo won flexible planning consent for Velocys with ‘E’, ‘S’ and ‘G’ implications (https://www.enzygo.com/enzygo-secures-planning-permission-waste-to-jet-fuel/).
More support for green technology
Glasgow Breakthroughs promises important support for emerging sustainable technologies in areas like making ‘green steel’ with hydrogen or renewable energy.
The bonus according to the Prime Minister is that: “By making clean technology the most affordable, accessible and attractive choice, the default go-to in what are currently the most polluting sectors, we can cut emissions right around the world”.
However, other initiatives were launched at COP26 based on the International Energy Agency’s net-zero by 2050 roadmap in which 50% of emission cuts must come from technologies that are not yet mature.
A partnership of 23 governments that include the UK, US and EU, but also China and India, has announced plans to catalyse ‘cleantech’ investments as part of the ‘Mission Innovation’ platform created in the 2015 Paris Agreement.
Missions to be accomplished
In fact, four new missions have been announced. The first is the ‘Urban Transitions Mission’ focussed on reducing emissions from city buildings, transport networks and resource consumption.
The second is the ‘net-zero industries mission’ which will concentrate on cutting emissions from heating processes and materials used in heavy industries like steel, cement and chemicals.
Third on the list is the ‘integrated biorefineries mission’ designed to develop drop-in replacements for fossil-based fuels in the transport and chemicals sectors.
The final mission aims to bring on-stream carbon dioxide removal (CDR) technologies to capture some 100 million metric tonnes of CO2e globally by 2030. At present, such systems are removing circa 38.5 million metric tonnes of CO2e annually – less than a thousandth of the world’s total.
It all comes back to information
Being part of these initiatives will help to create local solutions but also export opportunities providing the right sustainability measures and data reporting systems are in place.
Happy to discuss any of the issues above. Please feel free to contact me directly.
Matt Travis, Company Director, Enzygo Ltd