"ESG" is not one issue

Safe and just Earth system boundaries

This is a must-read [scientific] article demonstrating once again that we are living beyond the means of our ecosystem and therefore living on borrowed time. What should no longer be a surprise to anyone is the finding that seven of eight globally quantified safe and just Earth system boundaries (ESB) and at least two regional safe and just ESBs in over half of global land area are already exceeded. What is particularly interesting about the authors’ approach is the juxtaposition of environmental safety and social justice in determining Earth system boundaries for climate, the biosphere, water and nutrient cycles, and aerosols, and that the more stringent of the two should determine the boundary.

“We propose a set of safe and just Earth system boundaries (ESBs) for climate, the biosphere, fresh water, nutrients and air pollution at global and subglobal scales. These domains were chosen for the following reasons. They span the major components of the Earth system (atmosphere, hydrosphere, geosphere, biosphere and cryosphere) and their interlinked processes (carbon, water and nutrient cycles), the ‘global commons’ that underpin the planet’s life-support systems and, thereby, human well-being on Earth; they have impacts on policy-relevant timescales; they are threatened by human activities; and they could affect Earth system stability and future development globally. Our proposed ESBs are based on existing scholarship, expert judgement and widely shared norms, such as Agenda 2030. They are meant as a transparent proposal for further debate and refinement by scholars and wider society.”

I encourage you to look at the explanation of the ‘3I’ justice criteria used to analyse safe ESBs: interspecies justice, intergenerational justice, and intragenerational justice. Makes total sense. It also describes the mindset shift required to effect systems-level change. The notion of justice beckons policy and legal changes, which we’re increasingly seeing not only related to climate, but nature and human rights as well.

Understanding Anti-Corruption Reporting

The International Federation of Accountants (IFAC), Transparency International UK, and the World Economic Forum's Partnering Against Corruption have released a very detailed and data-rich report on the anti-corruption corporate reporting practices of the largest publicly traded companies worldwide (i.e., the largest 40 companies in 15 countries). They find “a pressing need for improved quality, reliability, comparability, and consistency in this critical area of reporting”.

• Nearly all (95%) of companies reviewed disclose some information about anti-corruption policies, training, and/or results;
• Majority use internationally recognized sustainability standards (GRI and/or SASB) to report anti-corruption information; [yet]
• There is little comparability between anti-corruption disclosure;
• Few companies disclose corruption incidents (37%) or the costs of corruption (4%);
• The majority (71%) of companies are not obtaining assurance on anti-corruption information.

In a recent article, the Director, global engagement and policy at IFAC was asked what good anti-corruption reporting looks like. He referred to the breadth of topics that are covered, such as “different types of training, different types of procedures, incident reporting costs associated with it, assurance over that anti-corruption reporting, the governance of it, which part of the organization has responsibility for governance”. He was also asked what he would respond to a company saying: 'we are in favour of transparency and would be happy to report on these things but, ultimately, there are some jurisdictions we wouldn't be able to operate in without paying bribes... and we may look bad by reporting that when we don't have options.' His initial response, to consider the likely negative reaction of the company’s institutional investors, seems a little na?ve in my opinion, given the limitations of investor engagement we are witnessing these days. ?Perhaps more insightful is the suggestion that participating in that type of corruption will have negative impacts on the company and “it might be a short-term solution but, in the long run, you may end up in a lawsuit that costs you more both financially and in reputational damage.” I would add that when considering dependencies and impacts on their ecosystem, companies engaging in corruption are part of the problem; not doing so would be part of the solution. Of course, they cannot do this alone.

Circular Transition Indicators v4.0

The World Business Council on Sustainable Development (WBCSD) has released the fourth edition of its Circular Transition Indicators, intended as a universal and quantitative framework for evaluating how circular a company’s activities are.

“The circular economy, through the adoption of circular sourcing and design strategies, longer and multiple product lives, and the closing of resource loops, is a fundamental building block of the transformations we need for a world where more than nine billion people can live well within the limits of the planet, by 2050.”

This is a useful tool for companies seeking to address the circularity of their value chain. In addition to detailed quantitative indicators, it describes a process for implementation and a includes a detailed user guide. In addition, to support companies through the process of implementing Circular Transition Indicators, WBCSD has partnered with Circular IQ to develop the CTI Online Tool.

For anyone looking to take a deeper dive on the topic of circularity – or lack thereof – I strongly recommend the Circularity Gap Report 2023, which clearly explains that the global economy is only 7.2% circular and that it’s actually getting worse year over year, driven by rising material extraction and use (…another very data-rich report!). Circularity is a topic not yet well covered by existing standards and frameworks, however the [mandatory]?European Sustainability Reporting Standards (ESRS) do have the ESRS E5-Resource use and circular economy disclosure standard.

Enhancing GHG Reporting

IFAC has released a very short two-part guidance to help CFOs, accountants and finance professionals undertake or enhance GHG reporting, as companies prepare for mandatory climate-related disclosures in many jurisdictions. For me, this practical resource speaks to the interconnection of financial and sustainability performance and reporting, the changing role of the CFO, and their necessary collaboration with sustainability leaders throughout the company (aka all the other departments). Of note for companies just beginning their sustainability reporting journey, the guidance proposes to address issues (in this case climate change, but any issue really) by starting with inter-departmental collaboration, risks and materiality assessments, and Board buy-in… well before undertaking to collect any data. This speaks to the need to first understand what issues material to your business are (or how they’re material), how you manage them, and how you measure your performance.