The future of corporate sustainability
Read time: 5 mins Added: 08/09/2020
As businesses look to rebuild following the effects of the Covid-19 pandemic there is a growing consensus that the economic recovery needs to be positioned in a way that also helps towards meeting global climate change targets.
Focusing on a ‘green recovery’ will not only help businesses meet sustainability goals, it can help create significant employment and economic growth within the green economy and help build businesses’ resilience, putting them in a better position to adapt to future shocks.
We take a look at some of the challenges and opportunities which will emerge over the coming months as businesses look to rebuild and grow in sustainable ways.
1. There’ll be an increased focus on Environmental, Social and Governance (ESG) reporting and rising expectations that actions will be taken to address social and environmental issues
Comprehensive disclosure of climate risks is a critical part of the transition towards net-zero and while larger businesses in particular are making strides in this area, there’s still significant work to be done. The Task Force on Climate-Related Financial Disclosures (TCFD) recommendations are gaining considerable momentum, with more than 1,000 companies signing up for voluntary reporting and it is widely expected to become mandatory in 2021i.
In particular, uptake among Financial Institutions (FIs) has been significant, with the Prudential Regulation Authority (PRA) stating that all regulated firms should have fully embedded their approaches to climate-related risks by the end of 2021. We can expect to see this cascade down as they work with clients and start to increase transparency in their own loan books.
However, as Thomas Vergunst of the University of Cambridge Institute for Sustainability Leadership (CISL) explains, businesses need to go beyond just reporting information about their impact on the world. We need to see tangible action.
“There is sometimes a mindset that disclosure will solve everything,” he says. “But actually, given how little time we have to decarbonise the global economy, companies need to be able to meaningfully translate what the environmental data they’re collecting means in term of risks and opportunities and then use their findings to drive tangible action. We now see leading companies setting bold decarbonisation targets, consistent with limiting global warming to no more than 1.5 degrees above pre-industrial levels, as a means of driving internal innovation and action.”
"This can be a real challenge and there needs to be far greater consistency and depth in our collective understanding of what corporate leadership should look like in a post-pandemic world."
Thomas Vergunst, Programme Director, Cambridge Institute for Sustainability Leadership (CISL)
Key takeaway: It’s not enough just to collect and report environmental data – companies need to set bold decarbonisation targets that are aligned with climate science. These can then be used to mitigate climate related risks and, importantly, to help organisations innovate and unlock the new opportunities created by the transition to a net zero carbon economy.
2. Biodiversity will come under the spotlight
While most corporate sustainability efforts have focused on climate change and reducing carbon emissions, experts expect that the coming years will see biodiversity issues coming under the spotlight.
At the start of 2020, the United Nations (UN) proposed a 2030 deadline for the conservation and restoration of ecosystems and wildlife that perform crucial services for humans. It also drafted its Global Biodiversity Framework, which is due to be finalised at the UN summit in Rome this October. In particular, the UN has called on the world’s biggest financial firms to address the biodiversity loss caused by organisations within their portfolios, with research showing that none of the world’s 75 biggest asset managers have a dedicated biodiversity policy for their operations or portfoliosii.
To ensure they are in a good position to work towards the proposed 2030 targets, the UN is advising FIs and large corporations to adopt biodiversity targets which are “specific, measurable, ambitious, realistic and time-bound”.
Companies are also being encouraged to back the Taskforce on Nature-related Financial Disclosures (TNFD) which aims to create a global framework to measure and publicly report the financial risks posed by nature, biodiversity and habitat degradation.
“Many areas of our economy are propped up by environmental services, such as pollination, water purification and flood defences, but in many parts of the world these naturally provided services are reaching a breaking point,” says Thomas Vergunst of CISL. “Millions of pounds worth of global crops are at risk from declines in pollinator species, threatening global food systems. There is also clear evidence that the destruction of the natural world greatly increases the risk of pandemics occurring as novel animal borne diseases increasingly come into contact with humans. Biodiversity risk needs to be recognised as a threat equal to climate change – and in fact they are both intimately linked. Businesses are increasingly starting to address the extent of the problem as our global supply chains reach ever deeper into remote parts of the globe. The challenge now is how to collect data and put actionable plans in place to protect the natural world while also respecting individuals’ livelihoods and the broader needs of society.”
Key takeaway: Companies are being called upon to commit to specific, measurable and time-bound biodiversity targets and to find ways to regenerate nature as a means of reversing the significant decline that has already been experienced in many parts of the world.
3. Companies will collaborate on sustainability
Sustainability is a complex and fast-moving area and a growing number of businesses are opting to collaborate on environmental and social initiatives to help ensure they get off the ground and have a real impact.
"We’re seeing a lot of larger corporations teaming up with innovative smaller companies and start-ups who have aligned their core value proposition with delivering against global challenges."
Thomas Vergunst, Programme Director, Cambridge Institute for Sustainability Leadership (CISL)
A good example of a sustainability collaboration in action is IKEA-backed Space10’s blockchain-based energy project SolarVille which aims to use distributed ledger technology (DLT) to provide a self-sufficient electricity network. In this case, Space10 provides the technical expertise and IKEA provides funding and a large customer base, resulting in a very profitable partnership.
However, Thomas Vergunst adds that if companies are looking for a sustainability collaborator, it’s important to find a partner who shares the same values and overall objectives as you. It’s also essential to draw clear lines of responsibility and detail how any risks and rewards will be shared.
Key takeaway: To find the right sustainability collaborator, consider companies which offer different skillsets and ways of working, but which have similar overall values with a clear commitment to deliver positive social and environmental outcomes.
4. We will see a move to the circular economy
The shift to a circular economy, which prioritises reusing and recycling materials rather than disposing of them, has been gaining traction in recent years and is becoming more prominent in light of the Covid-19 pandemic as businesses look to rebuild in sustainable ways.
“Moving to a circular economy opens up opportunities for new business models which meet growing customer demands for green products and services,” says Thomas Vergunst. “There is a lot of interest now in how circular economy principles can be applied as a way of operationalising sustainability and improving resource efficiency across a whole range of economic sectors.”
Many companies have already made strides in moving towards a circular way of working, for example clothing manufacturer Teemill, which produces t-shirts from recycled material. The brand has also opened up its circular supply chain platform to thousands of brands, allowing them to order t-shirts which can then be sent back and remade when they’re worn out.
IKEA is also developing circular ways of working and has trialled kitchen and furniture rental schemes aimed at prolonging the lifecycle of products. Items which have been leased will be refurbished and rented again once they’re returned.
Key takeaway: Embracing circular economy principles can help embed sustainability into your overall business strategy and open up new opportunities for value creation.
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