BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

To Fight Climate Change, Businesses Should Welcome New Standards And Regulations

Following
This article is more than 2 years old.

At the recent UN Climate Change Conference (COP26), while a lot of the public focus was on the attendance (and lack of attendance) of governments, the business community had a larger presence than ever before. This was a good thing. That participation and engagement is critical as governments and international standards bodies work to create policies that address our climate crisis.

Putting climate policies into practice both impacts businesses and depends on them. Companies – and entire industries – will have to change their operations and in some cases, their core focus as these changes drive knock-on implications across their supply chains. For example, auto companies are investing heavily in developing and manufacturing electrical vehicles, and are being incented to do so by governmental policy. For this to yield full environmental benefits we also need energy companies and utilities to shift from fossil fuels to renewable energy – and for these programs to be measured and coordinated in tandem and in a consistent way.

While many businesses are already working to make their operations sustainable, this has mostly been on a voluntary basis using a mixture of measurement schemes. The lack of true common, cross-industry standards has been a challenge. During COP26, the International Financial Reporting Standards Foundation announced the formation of the International Sustainability Standards Board (ISSB), which will consolidate the array of voluntary guidance that currently exists so that businesses will have global consistency and clarity to optimize operations for sustainability. That’s progress.

Those global sustainability standards, which should be released by the end of 2022, will also pave the way for incredible innovation. Tech companies and other businesses will be laser-focused on providing the tools and capabilities that companies will need to monitor, measure, and improve their environmental, social, and governance (ESG) performance.

Being able to demonstrate a strong and steadily improving ESG performance (as defined by those global standards) will become a requirement for companies to land partnerships, sales, contracts, investment, and financing. Governments will start requiring companies to report against those standards much like they require financial disclosures of public companies today.

In the meantime, more and more governments are stepping up with goals to help combat climate change. For example, the U.K. has set ambitious targets to reduce emissions 68% below 1990 levels by 2030, and to reach 78% by 2035. Goals like this, and the regulations that follow, will dramatically affect business’ operations in those countries and throughout global supply chains. It is inevitable that formal standards and measurement requirements will follow these goals, and companies’ networks of suppliers, manufacturers, partners, and logistics providers will need to change operations in order to comply – regardless of where they operate.

Build the Foundation Now

Even though we’re still almost a year away from the release of the ISSB standards, businesses must start preparing now. More progressive companies have a big head start, because they’re already collecting data around sustainability in their operations. When the standards are released, they will need to model their databases and reporting accordingly, but they have the crucial groundwork laid.

Many other companies have a bigger task ahead. They may not have technologies in place to collect the required ESG data, and to do so would involve manually pulling data from multiple separate systems, sorting through various data models, and consolidating the information—often on a spreadsheet. It’s slow, tedious, episodic, and likely very inaccurate. As a result, those businesses should focus on preparing their data ecosystem for the new demands ahead. Because the international standards will combine the various ESG standards already in place today, the protocols that currently exist do provide a reasonable starting place. The key will be to have technology that is flexible, and those that can adapt and move fast will have an advantage. In addition, those that are best able to use the insights gained by this data will be best able to navigate and exploit the opportunities created by this shifting environmental and regulatory landscape.

Climate Change and Water

One of the people I met at COP26 was Gary White, the CEO of Water.org, a non-governmental organization whose mission is to bring water and sanitation to the world. He said something to me that really resonated: that we will experience climate change through water issues—floods and droughts. Water is the canary in the coal mine, in that a small amount of climate change can have a big amount of water impact. And a small amount of water impact can have a big impact on agriculture and the people that depend on it, which could then trigger mass movements of population. Our political systems are ill-equipped to support such large-scale movements of people. Climate change therefore is not so much about the planet burning up, but about it setting fire to our political and national systems. 

Final Thoughts on COP26

While almost 200 countries signed the Glasgow Climate Pact at the end of COP26, after two weeks of intense negotiations, there was still much more to do. The agreement included accelerating the phasedown of coal (rather than the initial proposal of a phase out) and providing financial help to developing countries to help them prepare for more frequent and extreme weather events. It also included an agreement on methane – a highly potent greenhouse gas. Some of the more optimistic projections indicate that if all the agreed goals are met, the global temperature would rise by 1.8C by 2050. Above, but close to the target of 1.5C. Perhaps the best way to look at it is that COP26 set the groundwork for this year’s climate conference, where countries are encouraged to return with more ambitious pledges to cut emissions by 2030. The key of course is not goal setting, but goal achievement.

The combination of that global pressure, public demand for businesses to address ESG issues, and consistent ESG standards will hopefully help drive the delivery meaningful improvements. Economic incentives will also come into play. In addition to ESG data becoming a factor in a company’s access to capital, we can anticipate more governments putting a price on carbon.

The bottom line is that businesses need to be ready for a new era—and a huge opportunity to help drive the change the world needs.

Follow me on Twitter or LinkedInCheck out my website