Sustainability & ESG insights June '22: What's driving Sustainability and the Circular Economy?

Via this monthly newsletter, we'll share more knowledge and content about what's arguably the most important domain of our generation: Sustainability and ESG. The goal is to inspire and share insights so each and everyone of us can make a difference in the Environmental, Social and Governance domain we call Sustainability.

This month we share several survey results and research papers about what's driving Sustainability and ESG initiatives. We also look into the Circular Economy and the ongoing regulatory changes and mandates around ESG.

Valuable ESG and Sustainability news of June '22

What are the top use cases and value drivers for?Sustainability software?

IDC released its first dedicated Sustainability Software Buyer Value Survey This IDC Survey examines the results of IDC's 2022?Global Sustainability Software Buyer?Value?Survey.?IDC's first global environmental, social, and governance (ESG) software survey explores buyer priorities, decision-making criteria, and demand drivers for software solutions that help organizations manage, track, and analyze their performance on ESG issues.

"While ESG reporting remains an important task for companies, they are also looking to use ESG data to make better business decisions in the same way that they are already using financial data," said Bjoern Stengel , IDC's Global Sustainability research lead. "Software vendors play a critical role in helping organizations operationalize ESG and move from target setting and strategizing to creating measurable impact in regard to their most material ESG issues."

G7 Leaders Pledge to Mobilize $600 Billion for Sustainable Infrastructure in Emerging Markets.

ESGToday.com shared that leaders of leading industrial nations at the German-hosted G7 summit announced the launch of the Partnership for Global Infrastructure (PGII), a formal collaboration aimed at mobilizing hundreds of billions of dollars of investment for “quality, sustainable infrastructure,” primarily focused on developing countries. Unveiled by US President Biden and Federal Chancellor Scholz, the PGII aims to help close the infrastructure gap in low- and middle-income economies, as they face massive capital requirements for investments in areas including climate mitigation, communications and healthcare.

Overall, the leaders stated that they aim to mobilize $600 billion in global infrastructure investment by 2027. One of the key pillars of the program outlined by President Biden are investments to help tackle the climate crisis and bolster energy security. Focus areas include investing in climate resilient infrastructure, energy technologies, and clean energy supply chains. Other focus investment areas include infrastructure for communications and power delivery, investments aimed at increasing opportunities for economic participation by women, and health systems development and improvement.

What is the circular economy and why does it matter?

The World Economic Forum and Victoria Masterson shared this article?earlier this month.?The way we live now is?using 60% more resources than the Earth can provide ?- and creating too much waste, according to experts. Switching to a circular economy is widely considered to be the way forward.

In a circular economy, things are made and consumed in a way that minimizes our use of the world’s resources, cuts waste and reduces carbon emissions. Products are kept in use for as long as possible, through repairing, recycling and redesign – so they can be used again and again. The circular economy is an alternative to traditional linear economies, where we take resources, make things, consume them and throw them away. This way of living uses up finite raw materials and produces vast quantities of waste. For example, the European Union produces more than?2.5 billion tonnes of waste a year . Extracting and processing raw materials impacts the environment and increases energy consumption and CO2 emissions. A?circular economy could unlock $4.5 trillion of value by 2030 , a report by Accenture estimated.

Image: European Parliament.

Private Equity Should Take the Lead in Sustainability

An insightful article in Harvard Business Review by Robert Eccles , Vinay Shandal , David Young , and Benedicte Montgomery . Despite their reputation in the 1980s as corporate raiders, most private equity firms attempt to improve the performance of their portfolio companies through better corporate governance. But while the G in ESG (environmental, social, and governance) has always been important in the industry, the E and the S have been virtually nonexistent. Private equity has been comfortable seeking returns with little concern for the long-term sustainability of portfolio companies or their wider impact on society. That needs to change, the authors write, because PE has grown so large that society’s most urgent challenges can’t be addressed without the industry’s active participation in the sustainability movement. Having interviewed a large sample of executives who run PE firms and the asset owners that fund them, the authors offer recommendations for how private equity can emerge as a leader in the ESG field—to benefit the wider world as well as its own long-term performance. The article can be access via https://hbr.org/2022/07/private-equity-should-take-the-lead-in-sustainability

Business leaders have a unique responsibility to help the world transition to a lower-carbon future. Are they up to the challenge?

Deloitte 2022 CxO Sustainability Report showed that CxOs’ apprehensions about the planet’s climate have increased over the last several months, as has their optimism that immediate action can make a difference. But there are multiple disconnects between these business leaders’ opinions and motivations, the actions their organizations are taking, and the impact they’re having, according to Deloitte’s survey of more than 2,000 CxOs across 21 countries. Key insights include:

1.?????Approximately two-thirds of executives said their companies are very concerned about climate change and 79% see the world at a climate change tipping point—a number that was 59% in a similar Deloitte survey taken in early 2021. Their concern is consistent with the impact climate change is already having: ?

• 97% of companies have already felt negative impacts of climate change.
• Eight in 10 CxOs said they’ve been personally impacted by climate events over the past year.
• They’re feeling pressure to act from their stakeholders.

2.?????Yet, there is a prevailing sense of optimism with 88% agreed that with immediate action, we can limit the worst impacts of climate change. That figure was 63% earlier.

3.?????CxOs continue to struggle with the short-term costs of transitioning to a low-carbon future. The five lowest-ranked benefits of climate strategies cited by CxOs were: revenue from both longstanding and new business, asset values, cost of investment, and operating margins.

4.?????Lessons can be learned from leaders—representing 19% of the total survey sample— who are implementing at least four of five of the following “needle-moving” actions:

• Developing new, climate-friendly products or services;
• Requiring suppliers and business partners to meet specific sustainability criteria;
• Updating or relocating facilities to make them more resistant to climate impacts;
• Incorporating climate considerations into lobbying and political donations; and
• Tying senior leader compensation to sustainability performance. These leaders are more likely than others to see the benefits of their efforts and less likely to see cost and short-term priorities as obstacles—perhaps an indication they grasp the price of climate inaction. The report further explores the disconnects between ambition, action, and impact as well as steps CxOs can take to start to bridge the gaps.

Image: Deloitte CxO Sustainability Report

New rules on corporate sustainability reporting: provisional political agreement between the Council and the European Parliament

The Council and European Parliament reached a provisional political agreement on the?corporate sustainability reporting directive (CSRD). The Corporate Sustainability Reporting Directive is the new EU legislation?requiring all large companies to publish regular reports on their environmental and social impact activities. The proposal aims to?address shortcomings in the existing rules?on disclosure of non-financial information, which was of insufficient quality to allow it to be properly taken into account by investors. Such shortcomings hinder the transition to a sustainable economy.

The corporate sustainability reporting directive amends the 2014 non-financial reporting directive. It introduces?more detailed?reporting requirements and ensures that large companies are required to?report on sustainability issues?such as environmental rights, social rights, human rights and governance factors. The CSRD also introduces a certification requirement for sustainability reporting as well as?improved accessibility?of information, by requiring its publication in a dedicated section of company management reports.

• Who will be covered by the directive? EU rules on non-financial information apply to?all large companies?and?all companies listed?on regulated markets. These companies are also responsible for assessing the information at the level of?their subsidiaries. The rules also apply to listed?SMEs, taking into account their specific characteristics. An opt-out will be possible for SMEs during a transitional period, meaning that they will be exempted from the application of the directive until 2028. For?non-European companies, the requirement to provide a sustainability report applies to all companies generating a net turnover of €150?million in the EU and which have at least one subsidiary or branch in the EU. These companies must provide a report on their ESG impacts, namely on environmental, social and governance impacts, as defined in this directive.
• From what date will the rules apply? The application of the regulation will take place in three stages:

1. 1 January 2024 for companies already subject to the non-financial reporting directive
2. 1 January 2025 for large companies that are not presently subject to the non-financial reporting directive
3. 1 January 2026 for listed SMEs, small and non-complex credit institutions and captive insurance undertakings

More info via https://www.consilium.europa.eu/en/press/press-releases/2022/06/21/new-rules-on-sustainability-disclosure-provisional-agreement-between-council-and-european-parliament/

Of course there are many more insightful articles, so share your thoughts and recommendations in the comments below.

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