The Importance of Governance and Accurate Reporting of Sustainability Targets

The 17 Sustainable Development Goals (SDGs) were developed in 2015 by the United Nations (UN) to provide a framework for a more sustainable future for the planet. The UN met again this month for the High-Level Political Forum on Sustainable Development to discuss the impact of COVID-19 and other geopolitical events, and the implications of not reaching these goals within the necessary time frame. The group reaffirmed the importance of attaining these targets and acknowledged the impact of the consequences if they’re not met.

According to Lord Ahmad of Wimbledon on July 12, 2022 at the United Nations High Level Political Forum, “The Sustainable Development Goals remain the most important to-do list in the history of humankind… The window to keep 1.5 degrees alive is closing fast.”

These goals not only span environmental actions, but also equality, food security, and tackling poverty. Many of the climate goals have been adopted by businesses, as they set targets that align with these practices in their Environmental, Social, and Governance (ESG) reports. Many companies are declaring optimistic targets to improve their business practices, to reach carbon neutrality, or net-zero carbon emissions across the value chain. Yet many more are still not complying with the most basic concepts of ESG reporting. Some companies are even reporting false information in their annual reports.

Consistent ESG reporting and setting climate and social targets that align with SDGs shows commitment to better, more sustainable business practices. Many of the global stock exchanges are now requiring companies to accurately report their ESG data and, as of June 2021, it was declared mandatory to disclose climate information in line with the Task Force on Climate-related Financial Disclosures (TCFD) at the G7 summit for the nations of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. Brazil, The European Union (EU), Hong Kong, Japan, New Zealand, Singapore, and Switzerland also require ESG reports to be published in line with the TCFD.

This inspires healthy (green) competition among the corporate landscape, with the sustainability leaders setting the standards, which, in turn, encourages other companies in the same sector to do better.

Recently, a few large companies, including Tesla and Johnson & Johnson, have been excluded from the S&P Dow Jones Indices (DJI) ESG 500 due to their scores dropping, because of a lack of clarity on their ESG reporting.

Long-term investors are more likely to show interest in companies that consistently and coherently disclose ESG data complete with targets and initiatives toward improving sustainability practices. Companies that show a passion for sustainability will attract like-minded investors, collaborators, and customers. For example, studies have shown that over a third of consumers, particularly younger generations, are willing to pay more for more sustainable products and services globally.

Robust and Transparent ESG Reporting: Be transparent and comprehensive in ESG reporting; post findings publicly and allow data to be easily accessible. Publish the information on company websites and annual reports, hold sustainability events (webinars, panels), and announce targets and commitments to the press. Promote the importance of improving sustainability within the company, and to suppliers and customers; reward greener thinking from employees and suppliers, listen to suggested changes or improvements and stay current on news about new, greener technologies that could be implemented to improve sustainability. Look at what competitors are implementing, or even companies from other sectors and ask, “how could competitors’ greener principles be incorporated into company practices.”

Align with Science-Based Targets: Align climate goals with the company’s core business strategy; this will attract like-minded investors, collaborators, and customers. Consider all aspects of the business, and scopes carefully. Develop targets/commitments following science-based facts and advice, and align with the SDGs where possible. Follow guidance from reputable organizations and use services to assist in tracking and reporting. Visit https://sciencebasedtargets.org/ for more information on this topic.

Invest in Sustainability for the Long Term: Strive to do the best in reducing emissions, improving efficiency, and implementing greener technologies as early as possible. Be optimistic, but reasonable; targets must be within scope and achievable. Review these targets, as things change, sometimes for the better, sometimes worse; report accurately, and review the attainability of targets, and what went right and wrong previously. Be proud of the achievements, and honest about the shortfalls. Don’t move the goalposts, instead consider how to change the approach if necessary. Identify the “easy wins,” such as switching to or increasing renewable energy source usage and outline how and when this will be incorporated. Set incremental targets and celebrate when they have been reached. Reporting of long- and short-term goals will help keep efforts on track and will give indications on how well businesses are doing so far. Make long-term commitments and long-term contracts—sustainability is for the long haul.

Set Milestones: Understand the limitations of business practices and act accordingly. Carbon Dioxide (CO2) emissions can’t be expected to be net zero right away; they will reach a peak before they can be reduced. Implementing approved carbon sequestration technology/methods is important to offset carbon emissions, but don’t solely rely on carbon credits. They are a shorter-term solution. Think of them as a treatment, not the cure.

Supply Chain and Supplier Engagement: Encourage suppliers to perform and customers to expect better. Hold members of the supply chain to higher standards and provide incentives for them to meet their sustainability goals. This will create a more sustainable supply chain and product or service for customers, which contributes to reducing Scope 3 emissions.

Circularity: Improve business practices moving toward creating a more circular economy. See how waste can be reduced, reused, or recycled. Consider how products’ lifecycles can be made greener, lease or sell old equipment to companies that would benefit from legacy tech, make the move to more renewable materials in manufacturing new products, reuse parts of older equipment in newer systems and products, and acquire equipment second hand. Take a modular approach to designing new products and systems; allow them to be easily implemented, repaired, refurbished, and even resold. Customers will be grateful.

Finally, don’t settle for the most basic ESG reporting. Strive to provide the most complete data possible and set targets that are measurable and achievable. Communication of the business’ goals and achievements is the key to setting the standard across the board. Holding suppliers and competitors accountable for their sustainability actions and striving to do better will encourage others to follow suit. It’s all about moving the conversation surrounding sustainability to the mainstream.