How the Right Climate Framework Can Help You Operate Your Business Sustainably
January 31, 2023
Today, more institutions across the public and private sector are developing climate frameworks. These frameworks are intended to help businesses operate more sustainably. While each framework can vary in scope, they set out targets tied to sustainability, reduced emissions, and other areas of focus that fall under the scope of Environmental, Social, and Governance topics. Some frameworks also offer specific tools that businesses can use to assess and manage their emissions.
Although companies are not legally required to publish sustainability reports, the practice is becoming increasingly popular. As of 2019, 90% of S&P 500 companies published sustainability reports. If you’re interested in adopting this practice for your business, you’ll need to kick off the process by researching applicable frameworks for your industry and location.Here are a few of the most important climate frameworks that government and business leaders should be aware of:
Sustainability Accounting Standards Board (SASB): The SASB Standards are used as a guidance tool for companies disclosing financially material sustainability information to their investors. This means that they hone in on the sustainability issues that affect financial performance. The Standards, which were modeled on financial accounting standards, are applicable to 77 industries. This information helps investors determine how industry-specific sustainability issues affect their portfolio’s risk exposure.
International Financial Reporting Standards Foundation: The IFRS Foundation sets out Accounting Standards, which outline how a company should prepare its financial statements, and Sustainability Disclosure Standards, which establish how businesses can disclose details about sustainability factors that could affect their future growth. Overall, these standards are intended to help companies provide investors with transparent details about their current financial performance and sustainability factors that could influence its enterprise value in the short-term and long-term.
Global Reporting Initiative (GRI): The GRI was established 25 years ago. Today, this organization offers “the most widely used sustainability reporting standards,” and companies can access the Universal Standards, Sector Standards, and Topic Standards for free. The GRI’s reporting standards encompass many areas of concern for various stakeholders, such as emissions, waste, biodiversity impact, and even diversity. They provide numerous resources to assist companies with reporting, including online courses, a certified training program, and a membership network.
Task Force on Climate-Related Financial Disclosures: The TFCD framework was developed to enable organizations effectively disclose climate-related financial risks. Through this reporting framework, organizations can also identify opportunities related to climate change and sustainability. The framework encompasses several topics of importance to investors and other stakeholders, including governance, business strategy, and risk management in relation to climate concerns. Furthermore, organizations can disclose the targets and metrics they use to evaluate these opportunities and risks. Overall, this framework allows investors to price climate-related risks.
Task Force on Nature-related Financial Disclosure (TFND): Currently, $44T of economic value generation is “moderately or highly dependent on nature.” This figure represents over 50% of the world’s entire economic output. The TFND sets out a risk management and disclosure framework centered around nature-related risks. Natural disasters negatively affect an organization’s finances and operational efficiency, but implementing sustainable, nature-positive programs can help businesses weather the changes that climate change will bring. With this framework, businesses and economic institutions can evaluate how natural conditions could impact their financial performance in the short and long-term. Additionally, they will be able to weigh these risks in strategic planning and asset management.
2030 Climate and Energy Framework: This particular framework was established in 2014 across EU countries. It includes three primary targets: slashing greenhouse gas levels by 40% compared to 1990s levels, achieving a 27% share of renewable energy consumption at minimum, and reaching 27% energy savings compared to the “business-as-usual” scenario. Accomplishing these goals by 2030 is intended to help the EU reach its more ambitious greenhouse gas reduction objectives by 2050.
Greenhouse Gas Protocol (GHG): The GHG represents “the world’s most widely used greenhouse gas accounting standards.” Today, nearly every corporate greenhouse gas reporting program in the world is built upon this accounting platform. They offer tools to businesses, cities, and nations to help leaders take inventory of their greenhouse gas emissions, monitor their progress towards climate goals, and turn their insights into action. Institutions can use these standards to assess the emissions impact of individual products, climate change mitigation projects, specific policies, or their entire value chain.
Carbon Disclosure Project (CDP): The CDP is a global charity that upholds “the gold standard of environmental reporting.” This organization maintains a worldwide disclosure system that supports various institutions in evaluating and reducing their environmental impacts. Every year, organizations in more than 90 countries disclose their environmental impacts through the CDP. The CDP provides scores based on standards set by the TCFD which reflect an organization’s current environmental impact, as well as their progress towards their goals. These scorecards include data from consecutive years of disclosure, and they illustrate an organization’s sustainability journey.
Science-Based Targets initiative (SBTi): Currently, 4,000 businesses worldwide utilize Science-Based Targets to align their organization’s sustainability goals with the emissions reduction objectives set out by the Paris Agreement. A target is considered “science-based” if it is build around “limiting global warming to well-below 2 degrees Celsius above pre-industrial levels and pursuing efforts to limit warming to 1.5 degrees Celsius.” Companies interested in setting targets with the SBTi must first send a letter of intent to the organization. Next, company leaders can develop a target based on the SBTi’s criteria, submit it for validation, announce the target to internal and external stakeholders, and continuously report their business’s emissions to track their progress over the years.
Which Framework is Right for Your Business?
Many business leaders are interested in setting sustainability goals, but in order to create evidence-based goals and continuously assess your progress, it helps to work within an established framework. But which framework should you choose? At the moment, there is no single reporting framework, and leaders can find themselves feeling confused and frustrated as they try to determine the best approach to reporting their emissions, environmental impact, and overall ESG performance.
It can help to look at industry competitors that are committed to publicly reporting their ESG impact. You may find that similar businesses within your sector tend to utilize certain frameworks, which can guide your decision making process. It’s also important to define the specific focus of your ESG initiatives and determine your target audience for reporting. Finally, remember that you are not limited to reporting within a singular framework. For example, if you want to evaluate and report on financially material factors, you might use a different framework than a business that needs to report on greenhouse gas emissions. You can report with multiple frameworks if your company has the resources to do so!
Preparing for Your First Sustainability Report
As you get ready to produce your company’s first sustainability report, you might feel overwhelmed by the work that lies ahead. Developing a basic strategy in advance can help you navigate the process with ease.
Establish Your Goals: To set realistic ESG goals, your sustainability team will need to coordinate with company leaders across different departments. Then, you can collaborate cross-functionally to determine the metrics you’ll use to measure your progress. Ongoing engagement with the team members who will be responsible for gathering sustainability data is key.
Research Competitors: Check out sustainability reports from your industry peers if you’re struggling to set goals. Which metrics do they report on? What kinds of data do they collect? As you move forward, you can use competitors’ reports to assess your progress and decide whether you need to strengthen your sustainability efforts in certain areas.
Utilize Existing Resources: You may be surprised by much relevant data your company already collects that you can incorporate into your reports. For instance, your marketing department may already have consumer research that illustrates your audience’s preferences for sustainable products, while your accounting department will have financial data on your utilities spending.
In the future, companies in the United States may be required to produce sustainability reports under a common framework. Therefore, implementing this practice today can help you stay ahead of potential regulations while promoting corporate responsibility. By researching current frameworks and adopting the right framework(s) for your company, you can invest in a sustainable future for your business.