by Dr. Tauni Lanier, Director Sustainability and ESG Hub BDO UK, and Marte Bjelland, Manager Sustainability Services BDO Norway
The focus of late around climate change is around pathways and targets. Both the corporate world as well as the financial world has been crying out for guidance for years. Now that legislative bodies and business organisations, such as the World Business Council for Sustainable Development, have become active in delivering reporting guidance, for example on ISSB and ESRS, the demand on companies and investors to report on their material climate change issues is growing and is part of compliance. Yet it would behove all who are interested in pursuing a serious climate change strategy, to step back and think about the bigger picture. How will targets impact the transformation positioning of corporates and investors, how will they impact the growth strategies, how will supply chains adapt, and how will appropriate and effective climate change strategies buoy resilience? These are some of the overall questions that should be asked at the start, during, and end of a climate change journey.
The UN-hosted Climate Ambition Summit will convene in September to discuss solutions and ideas around climate change delivery. This year the message is one of urgency, it is one of ‘less talk, and more action.’ The phrases linked to this summit are around ‘calls to action’, calls for leaders to “step up – from governments, business, cities and regions, civil society and finance.” The message is a stark reminder that effective, innovative, creative, and workable solutions must be found NOW. The climate actions need to be credible and tangible, based on solutions that will ‘move the needle.’
Establishing targets and KPIs around climate change is no longer an activity of creative development, but one of adaptation. It is no longer the responsibility of the company or investor to come up with viable and science-based targets and KPIs. These can be borrowed/adapted from internationally recognised frameworks; such as those credible frameworks (For example: Science Based Targets) that give clear and concise guidance on what is required, if net zero or decarbonisation is in their sights. Yet, creativity, once the parameters have been set, is within the strategy of both companies and investors. The ambition of the targets, credibility of the KPIs, and the implementation of the strategy of the transition pathways require both a look forward and a look back.
This missive is for those companies, sectors, industries, and investors who are interested in moving the needle, who have no patience for back-sliders, greenwashers, or the climate-blind. This approach suggests one that requires building on your strengths and jettisoning the bad, being dynamic and serious about the pathway forward. So, back to the questions mentioned above. Firms may not be able to answer the initial questions, but they are a context to starting on the path toward understanding the wider business implications of moving the needle on sustainability.
Below are some elemental questions to set an overall mindset, which focuses companies’ and investors’ attention on wider business implications, highlighting robustness and context to business action.
The inference of these questions is on the much broader impact of companies, moving them from reactive to proactive, and to put into context how companies can realistically make an appropriate impact. There is no more time for big promises and no action. The planet needs us to accelerate, and stakeholders are expecting charge. The essential steps outlined below are for organisations wanting to ensure that they are joining the action train, and not left to die in the land of lack-of-climate-action. Are you ready to get on board?
Create understanding, engage stakeholders and be transparent:
An effective climate action strategy requires not only a business mindset but also a genuine commitment to creating a positive impact on the environment and society. Making such a commitment (a commitment to Net Zero transition) requires comprehensive change, investment and consistency over time. This has to be understood by stakeholders, must be actionable, and requires knowledge-building as well as involvement to get everyone on board. Understanding the impact this commitment has on your business and operations (understanding the context of the questions above) is therefore a key first step. Change and action does not happen behind a desk; it happens when employees, customers, suppliers, investors, and other stakeholders join in your climate action efforts.
Transparency, authenticity, credibility, and consistent efforts are key to building trust and encouraging lasting change. Start by providing educational content to inform stakeholders about the importance of climate action, the science behind it, and the role they can play together with you. Continued communication and learning are essential for everyone to stay committed. Communicate your goals, progress, and successes transparently to build support and enthusiasm for your climate transition, and keep yourself accountable.
This is not a step that you finish, but an ongoing initiative that is essential for delivering on your climate strategy.
Set clear goals and objectives:
Define specific and measurable goals for your climate action initiative. Ensure that goals are set based on where you can have the biggest impact and are aligned with your business’s values and operations. Start by evaluating your current environmental impact and identify areas where improvements can be made. If you haven’t already, get started by completing a GHG inventory/screening of scope 1, 2 and 3 emissions according to the GHG Protocol. This will allow you to pinpoint the most impactful material areas for action and ensures a fact-based approach to climate action. A full GHG inventory is also required if you are to use existing frameworks such as the Science Based Targets Initiative (SBTi).
Clear goals provide a roadmap for your efforts and motivate the stakeholder spectrum to work towards a common purpose.
Adapt appropriate targets and KPI frameworks
Appropriate targets and Key Performance Indicators (KPIs) for climate action depend on the nature of your business, industry, and the specific goals you aim to achieve. Make sure you tailor your climate targets to your business's size, sector, broader environment, and impact. By using a framework such as SBTi you will define specific climate-related goals that align with your business's values and operations, as well as the Paris Agreement.
For example, if you're in manufacturing, one area of focus might be reducing or increasing the efficiency of energy consumption in the production processes. This might forge metrics like energy efficiency, carbon intensity, or waste reduction. Setting specific and location-based targets and KPIs will help track efforts effectively. Make sure that responsibility is distributed to management and employees who have the influence to make the necessary changes to reach the targets. Track progress towards your goals, and that climate related KPIs are included in incentive schemes alongside financial KPIs.
Develop and carry out actionable plans:
Once you have your goals and KPIs in place, create concrete plans outlining how you'll achieve them. Create a detailed plan that outlines the steps, timeline, and resources required to achieve your goals. Prioritise initiatives based on their potential for positive impact and feasibility. This could involve energy efficiency improvements, waste reduction programmes, sustainable sourcing, and more.
Break down the larger goals into smaller, actionable steps. For instance, if your goal is to reduce emissions, your plan could include initiatives such as switching to renewable energy, optimszing transportation routes, or changing to lower impact input factors.
There are some Net Zero transition pathways that are being developed, which can offer added guidance and clarity. One such transition pathway is GFANZ, the Glasgow Financial Global Alliance for Net Zero. It is, “a global coalition of leading financial institutions committed to accelerating the decarbonisation of the economy.” Although the alliance members come from the investment sector, there is much to guide the activities and lend intelligence to other sector’s roadmaps. The transition to a net zero economy is one that is shared by every sector and every size company. By leveraging existing guidance you can reduce time to action.
Monitor, measure and adjust:
Ensure you are making the desired progress and climate impact by regularly tracking progress by using the KPIs you establish. For many, this means implementing new systems to track and measure the effectiveness of your climate action initiatives. We suggest that these are aligned with financial monitoring to ensure it is not a once-a-year exercise. Regularly reviewing your progress against your goals allows you to make adjustments based on data and feedback to ensure continuous improvement. This flexibility ensures that your efforts stay aligned with changing circumstances and new opportunities, enabling you to stay on course toward your climate goals.
Are you ready?
By following these practical steps, your firm can demonstrate its commitment to climate action through tangible efforts. This approach not only contributes to the broader global effort to address climate change but also positively impacts your business's reputation, customer loyalty, and long-term sustainability. BDO has sustainability experts across the globe who are ready to support you on the journey.
Remember that an effective climate action strategy is a dynamic and ongoing process. It requires commitment, collaboration, and adaptation as you work towards creating a more sustainable future.