How To Think About Net Zero Transition Plans
As more ESG initiatives become commonplace, it becomes important to develop and follow unified forms of reporting. This is a massive roadblock because we know that ESG currently has a very broad definition beyond what the acronym stands for. Reporting takes the same approach, as what makes a company ESG-friendly varies between databases, based on the vastly diverse nature of the kind of ESG activities companies choose to undertake.
However, all of this looks set to change in the very near future, as with the example of the UK, which is expecting net zero transition plans in 2023 from several national financial institutions and other listed companies. To help with that, they assembled a new Transition Plan Taskforce which will set up science-based standards to assess transition plans. This task force is due to report by the end of 2022.
It not only sets a precedent for other countries to follow suit, but in early 2023 it will further define what ESG actually stands for and where businesses should be focussing in the future in terms of ESG standards.
But until the time that a clear regulatory path has been defined, it may seem that companies are left to their own devices in terms of what a transition plan will look like. Even if you’re running a small business, having some kind of plan in place for ESG is crucial moving forward.
The Transition Taskforce Standards
To begin, we do have some idea of what the transition plans are set to look like. The Transition Taskforce in the UK is looking at three core elements:
High-level targets the organisation is using to mitigate climate risk. This also includes greenhouse gas reduction targets.
Interim milestones that the company has set.
Action steps that the company plans to take in order to hit those targets.
A lot of these are qualities that we’ve seen already in some of the pledges companies have made both prior to and after the COP27 conference. Some examples are Orange, Brambles, Siemens AG, CDL, LafargeHolcim, Ford, Hon Hai, Polska Grupa Eergetyczna (PGE), Woolworths, American Airlines, JetBlue and many others. So far, roughly 3,900 companies worldwide have made pledges.
But what’s of concern about these particular standards is the first point made. Where things stand, a lot of companies are talking the talk, but perhaps not yet walking, at all. For one, they have massive staff issues, and many target pledges will be challenging to commit to without skilled workers helping companies reach those targets.
Beyond that, this puts other companies when they decide to take more conservative approaches to their pledges. While it’s a safer route, it largely depends on the company. Pepsi doubling their refillable and reusable packaging sounds ambitious until you know they pledged that by 2030. Coca-Cola is doing the exact same thing but at 100% and by 2025. Of course, in the context of the UK, we will only understand the whole picture once the plan is codified into law.
Bringing To Light Climate Risks
The plan that the UK government is setting out to accomplish is designed for larger corporations whose impact on the world is significant compared to smaller businesses. Even so, you can take a smaller and less ambitious approach to those standards while incorporating some other ideas.
One notable approach is bringing specific attention to climate risks. People are fully aware that the planet is warming up and that weather patterns are getting harsher every day, but previous attempts to warn about climate change usually entail scientists or climate change experts talking at length about the issue and using environmental science jargon.
It doesn’t sound appealing nor as straightforward as the solutions actually are.
All of the complexity can be simplified into actions that any standard business can present. To begin, showing off carbon emissions overall can be a solid step. Beyond that, it can entail educating companies and the general public about the technical nature of climate topics, measuring carbon footprints, and collecting climate data. The point is to take some measure of agency in the apparently insurmountable context of climate change. No significant problem can ever be assessed unless we are transparent in our understanding of its scale and impact. So, a transparent audit of your carbon footprint and emissions is the first step. Much like therapy, we start with acknowledgement.
We can then move on to relate such data at the operational level to the business. Disclosing how local weather events literally affect the business can be important, and a good example is grocery stores explaining why certain produce received a price hike or are out of stock. This has a direct impact for the consumer that links with climate.
Building Trust Through Transparency
With any transition plan, it’s important to record progress, but also to tell people about it and provide clear examples of the changes involved. A transition plan should be easy to digest for both the company and anyone else who reads it.
All of this is becoming easier to do thanks in part to data management practices and reporting technology solutions. These two tools help reduce risk and save a business time from having to collect data and fix any possible errors.
This also plays a role in crafting ESG messaging. Transparency is a core element of it, but some things to consider are:
How the business will meet the demands of people through disclosure and reporting.
Accessing disclosure examples from other businesses and piecing together what you can learn from those examples.
Staying current with climate news amongst your peers and the broader industry.
Consistently reflecting to better understand strengths, and opportunities to adapt.
Climate change and its current and future effects on business are quickly becoming the cornerstone of pragmatic thinking for companies today, and a transition plan to go to net zero sits at the heart of this.
The overarching theme can be summarised into clear messaging with reasonable targets based on what other businesses are doing and the industry’s efforts as a whole. With careful planning and effort, we may be able to hit net zero for many companies sooner than later. That must all start with ‘credible action’, however, and ‘credible’ means working out what is relevant for your particular business circumstances. Our Company ESG Profiles help you keep track of ESG Ratings and sustainability reports that outline how companies are making credible progress in the transition to net zero.