Last week, Het Financieel Dagblad wrote about the need for independent, objective measurement of sustainability efforts. The urgency for this has been growing very strongly over the past few months. Among others due to the Shell-ruling, enforcement of the Dutch Authority Consumer & Market (ACM) of unsubstantiated sustainability claims, Brussel legislation making rules for corporate sustainability reporting more stringent and - to be expected - even more rules on reporting after the COP26 Climate Summit this November. Below, the most important drivers of this call for increased transparency.
Considering the environment when making purchases, has long been the domain of the tofu-type and the goat milk guy. Not anymore. Green is mainstream. And the consumer is getting more informed. Empty messages such as 50% less emissionsin 2030 and climate neutral in 2025 don’t do the trick anymore. Claims like these have become so abundant, that they have lost their value and distinctiveness.
What is distinctive, however, are companies who have their impact measured independently, and are transparent about the damage they impose on the environment and the progress they’re making towards minimizing it. Those who lag behind, may loose customers to their more transparent competitors. What’s more, companies who are not able to substantiate their sustainability claims, can expect a fine on their doormat from the ACM.
Organisations are to an increasing degree held accountable for the impact throughout their supply chain. Focus on ‘upstream’ and ‘downstream’ impact is increasing, and also consumers are increasingly aware of these phenomena. Company's can't get away anymore with we don’t know what the impact of our suppliers is and it’s not our fault if our customers don’t recycle our products properly. This shift in awareness became visible, for example, in the bold 2019 Coca-Cola campaign Don’t buy Coca-Cola if you don’t help us recycle.
This is another argument for speeding up in terms of measuring impact. The more companies join in the effort, the easier it becomes to track impact throughout the chain. But also as a single link in the chain, a solid estimation of the upstream and downstream impact can be made.
NRC journalist corporate policy and economics Menno Tamminga sees a thorough change in behaviour of investors the past few months. Much more climate aware. He mentions a few reasons: the continuity of many an unsustainable company is jeopardized by the competition of greener newcomers; Investors are feeling the pressure of the ECB and the Dutch Central Bank to make more climate conscious decisions; Customers of large investors, such as insurance and pension holders, find climate and sustainability increasingly important; Investors themselves find sustainability increasingly intrinsically important.
This resulted, for example, in the Norwegian state fund hurling out the entire palm oil industry from their portfolio. An extreme example, but it is illustrative for the switch to green we see on the capital market.
Impact tracking helps companies inform investors honestly and reliably on the degree of sustainability and on progress to meet sustainability goals in the future.
We all know that global emissions have to decrease. The court even ruled, in the famous Urgenda-case in 2019, that the Dutch government is obliged to meet the agreement of the Kyoto protocol: 25% less CO2 emissions in 2020 compared to 1990. Didn’t happen. But the message is clear: the government has a duty to meet the goal stated in the agreement and violating this is unlawful.
The government needs the private sector in order to meet its goals. Otherwise it’s just not going to work. In order to help the cause, sustainability reporting regulations are becoming stricter, according to Het Financieel Dagblad. The European Commission, for example, initiated the Corporate Sustainability Reporting Directive, which should spur transparency in the private sector’s climate impact. This way, capital can more easily find its way to sustainable initiatives, which in turn helps governments in meeting their reduction goals.
It can also be expected that as a result of this year’s UN Climate Summit – COP26 – sustainability accounting rules for companies will become stricter. Within a year, the international reporting standard, on which the IASB (the organisation responsible forinternational standards for financial reporting) is working, should be ready.
Fortunately, the need for objective and independent impact measurements in the private sector, is not only driven by external pressure. Companies themselves are increasingly intrinsically motivated to track their impact, and with that, enable decision-making focussed on impact reduction. Evidence of this is the growing group of companies not (yet) under regulation (such as obliged reporting or ETS) still setting ambitious sustainability targets and tracking progress. Of course, one can argue that companies only do this to decrease the risk of losing customers to more transparent competitors. But it is also true that every company employs people like you and me. And people like you and me simply value the environment, our climate and a healthy future on earth.
Salacia can help you measure your impact and become more transparent about it.