First think, then finance
With the 26th UN Climate Change Conference of the Parties (COP26) on the horizon and Covid-19 giving us a taste of the ramifications of systemic risks, climate change and Environmental, Social and Governance (ESG) are at the top of many agendas.
According to OECD data, US$6.9 trillion per year of investment into climate mitigation is needed to meet the goals of the Paris Agreement – not an insignificant number. However, a group of climate researchers found that on average, remaining under a global warming threshold of 1.5 °C limit would result in approximately $422 trillion accumulated net income globally until 2100.
Increasingly therefore, organisations are including ESG considerations into their business plans. For many, a large part of their efforts to help to mitigate the impacts of climate change lies in carbon offsetting.
Carbon offsetting is one way the private sector can engage with climate change, as quantified emissions can be traded as credits (offsets) in the free market. But carbon offset prices and quality of offsets can vary widely. Due to this complexity, it is important to be cautious when engaging with offsets.
In a strategy and offset selection process, firms need to consider concepts such as additionality*, permanence and the broader project impact on society and biodiversity. Moreover, as our understanding of greenhouse gas emissions and their mitigation deepens, the suitability of certain offsets should be re-evaluated. This is not a one-off action but an on-going process.
*An offset is additional if emissions avoided/removed exceed those that would occur without the underlying offset project
Consider your stakeholders – internal and external
Ensure that employees are involved in the development of a company-wide ESG narrative by listening to their ideas, making them aware of all the initiatives and bringing them into the implementation process. If you do not have time for in-depth research, consider bringing in an outside specialist agency that can guide you through the challenges.
Committing to a comprehensive ESG strategy and undertaking the necessary research takes a considerable investment of time and money. If you set up an ESG committee using employees, be aware that they will need to do significant research in addition to their regular work. Some aspects are highly complex and require a certain level of expertise. Failure to implement these correctly can increase the risk of ‘greenwashing’ and overall reputational damage.
What is greenwashing?
A lot of greenwashing stems from an organisation wanting to do better but failing to do the research needed to have a robust climate strategy. When it comes to ESG and corporate social responsibility (CSR), there is rarely instant gratification. Momentum has to build.
To combat greenwashing effectively, an organisation needs to embed its ESG strategy into its overarching business plan. Engaging with carbon offsetting is one aspect, but if you are found to be investing in fossil fuel companies or other environmentally harmful projects and products, or supporting them in other ways such as providing insurance, there may be a backlash over this perceived inconsistency. After considering your organisation’s existing reputation and ESG ambitions, you will then need to undertake a full risk assessment to identify risks and opportunities.
Avoid trying to stand for everything, as this is hard to do and almost inevitably will lead to certain areas being missed and your message becoming unclear. Instead, identify key interest areas and develop messaging around these. However, do prepare a consistent company response if asked to comment on recent news stories or events, even if that response is a simple ‘decline to comment’.
The whole package
The transition into focusing on an ESG strategy needs to be sustainable and must also engage with the social and governance aspects. A sudden ban on financing large emitters might sound like a good strategy to adopt. However, don’t forget that many people, especially in developing and emerging economies, rely on carbon-based fuels to provide warmth or the preparation of daily food. Simple solutions are not always available, and ramifications of actions can be complicated and have broad societal implications.
Be as transparent as possible when reporting on your ambitions and achievements. Outline your goals clearly and include tangible impacts of your efforts in reports and on your ESG/CSR website page. Storytelling provides clarity, so it’s beneficial to weave an overarching narrative through your reporting explaining what your chosen strategy and ambitions mean to your organisation. Personal stories help give context to your strategy and tend to be more interesting than broad, sweeping statements.
Talking about ESG is easy. The challenge lies in creating an effective, comprehensive strategy and framework that sets clear goals, which are achievable and well communicated. This approach can enable real change.