Why actively measuring sustainability performance is so important for businesses in 2022

Sweco author: Charlotte Parkin, Senior Environmental Consultant 

Customers, and prospective employees, are demanding more from organisations when it comes to climate action – with both social and economic motivators. Indeed, most big UK firms and financial institutions will be forced to show how they intend to hit climate change targets, under proposed Treasury rules. Here, our senior environment consultant looks at why full, supported evaluation is so critical as we aim to get back on track in the fight to avert climate catastrophe.

Sweco has launched a pioneering Sustainability Sun tool to help organisations evaluate and asses their climate performance

Why is sustainability important in business from a social point of view?

There is an increasing awareness of climate change in wider society, particularly following a stark report from the IPCC this summer. But while the desire for change is nothing new, there is mounting urgency for us all to take meaningful steps to do something about the crisis unfolding. Mumblings of discontent have evolved into an intra-generational outcry for tangible change, with demonstrations such as the School strike for Climate literally demonstrating how young role models now appear to be effectively influencing policy and demanding genuine commitment to sustainability at business and governmental level.

There has also been increased public engagement with the UNSDGs, and a keen build up to COP26, the UN’s Climate Change conference of the Parties in Glasgow next month. It’s important -and concerning- to note that 2020 was the first year in which we saw a real backtrack in the progress of the SDGs.

Companies large and small are being held more and more accountable for past poor performance, and commercially there has been a growing focus on systemic, institutional corporate responsibility. This is a particularly tricky landscape to manoeuvre, given consumers are becomingly increasingly aware of the phenomenon of ‘green washing’.

Charlotte Bithell Senior Environmental Consultant

Why is sustainability important in business from a financial standpoint?

The World Economic Forum Global Risks Report 2021 lists extreme weather, climate action failure, human environmental damage, and biodiversity loss among the most likely risks to affect the planet within the next ten years.

Increased physical climate-related risks (sea level rise, temperature rises and increased frequency of extreme weather events) could result in both market risks (reductions in the value of financial assets) and credit risks (credit losses due to reduction in income and reductions in the value of assets used as collateral). There are also insurance underwriting risks associated with higher-than expected claims against firms that provide insurance for physical risks.

Between 1980 and 2019, climate-related extremes caused economic losses totalling an estimated EUR 446 billion in the European Economic Area.

Within the financial sector, there is a real sense of urgency when it comes to addressing these extremes. Up to £639 billion investment in low carbon infrastructure will be needed by 2031 in the UK and $90 trillion worldwide over the next 15 years – which in one breath shows both the scale of the problem, and the size of the opportunity for businesses to benefit from the transition to a low carbon economy.

The financial sector has the capacity to drive change and climate action through focussing on the transition to net zero, the financing of new technologies and enabling savers and investors to choose investments that align with their own values through greater transparency.  For instance, easier identification of greener pensions and investment portfolios.  Governments need to show the way by articulating a clear plan for a transition to net zero and provide public funding or government back institutions such as the UK infrastructure Bank  to address existing market failures and help lower the risk and price of capital flowing into transition technologies and sectors, and for nature-based carbon negative restoration solutions.

Sustainable investing is becoming much more mainstream. Global ESG investing may account for £35 trillion by 2025, or more than a third of total assets under management. Aviva published survey data in October 2020 suggesting that 69% of investors considering ESG factors have started doing so within the last 12 months, and data suggests these investment classes can outperform other stocks, creating positive feedback of further development in lower carbon technologies, positive investor returns and lowering future emissions.

Alongside a strengthening focus on ESG, there is a growing requirement for companies to report on their understanding of their own transition risks and be clear about their plans to achieve net zero through mechanisms such as mandatory climate-related financial disclosures required in the UK by 2025 (very recently backed by the G7 countries) and the proposed mandatory human rights due diligence within the EU.

So, who is on the right and wrong side of climate history? Which companies have green momentum, and which could be climate roadkill?

Mark Carney 2020 Reith Lecture

All companies need to be able to navigate this new reality to deliver value within society’s expectation of climate and sustainability values. Find out more about our innovative Sustainability Sun tool here, or contact our team to discuss your sustainability challenges below.