From April next year, large companies in the UK could be required to report their environmental impacts in line with recommendations by the task force on climate-related financial disclosures (TCFD).
This depends on the outcome of a recent consultation by the Department for Business, Energy & Industrial Strategy, which sets out plans to make these disclosures mandatory for publicly-quoted companies, large private companies and LLPs.
It’s a step in the right direction, as 70% of company directors agreed in a survey by the Institute of Directors, and a key part of progress towards the Government’s target of cutting carbon emissions by 78% by 2035, and eventually reaching net zero by 2050.
But that shouldn’t be the end of the story for business leaders. To achieve meaningful sustainability and social change, businesses of all sizes need to take tangible steps beyond meeting reporting requirements.
What are you required to report?
Currently, most small and medium-sized companies in the private sector are not required to report on climate-related or other environmental, social and governance (ESG) issues, although other rules apply to large and quoted companies.
Since 1 October 2013, all UK quoted companies have been required to report on their greenhouse gas emissions as part of their annual directors’ Report, and as of 1 April 2019, they must also report on their global energy use.
Large businesses are also required to disclose their UK annual energy use and greenhouse gas emissions in line with streamlined carbon and energy reporting requirements (SECR).
For other businesses, reporting is voluntary, although it is encouraged by the Government.
You can find guidance on both mandatory and voluntary SECR reporting here, or read a guide for small businesses here.
Disclosures and the greenwashing problem
As the focus on ESG grows, so does the potential to exploit it.
This takes the form of ‘greenwashing’, where companies seek to brand and present themselves as having a positive impact on the environment, even if their actions don’t reflect that.
You might have seen it in supermarkets, where products are quite literally packaged up in green to convince customers they’re good for the environment.
Some energy companies have also come under scrutiny for pushing sustainability messages in their marketing while continuing to dedicate most of their expenditure to non-renewables.
This can make it hard for customers and investors to reliably tell the good from the bad, and to identify companies that are making a genuinely positive impact.
A shift to a more standardised ratings system should help with this, making each company’s climate credentials more transparent and comparable.
But the risk is that if done in isolation, ESG disclosures could end up being treated as little more than a box-ticking exercise, and another method of greenwashing businesses that are otherwise uninterested in sustainability.
Putting ESG at the heart of your business
To make a real and lasting impact, ESG should be central to your business – not just tacked on for the purposes of PR or regulatory requirements.
Your core operations should be your starting point. Looking at the way your business functions now, how can you make sure you’re demonstrating ESG values through actions, not just words?
Methods like triple bottom line accounting can help to build these issues into the way your business works, as can looking at the way you handle processes like supplier applications and recruitment.
Setting ambitious goals for ESG as part of your overall business strategy can help to drive your efforts, but make sure you’re being realistic about what you can achieve, and what challenges stand in your way.
Finally, don’t forget to consider all parts of ESG, not just climate factors alone. Your impact on the environment, on people and communities, and the way your organisation is managed are all interconnected, and to effectively implement one you need to consider all three.