ESG CO2 & REGULATIONS
The EU CRSD and the UK SRD The Corporate Sustainability Reporting Directive (CSRD) and the UK equivalent, the SRD, are sets of regulations which expand the scope of non-financial reporting. They require organisations to explicitly disclose their net zero strategies and introduce new mandatory reporting standards. Who will this affect? The CSRD will affect all companies – even ones based outside of the EU – if they meet two of the following three conditions: 1. €40 million in net turnover 2. €20 million in assets 3. 250 or more employees In addition, non-EU-based companies with subsidiaries in the EU must comply with CSRD, as well as companies that are not established in the EU but have securities on EU-regulated markets (except listed micro-enterprises). The UK SRD will mimic the CSRD, although proposed provisions suggest the UK will have stricter performance criteria. In both territories, these standards will be scaled to fit the capabilities of SMEs so they can participate and better report information to banks, clients, and investors – helping SMEs play their role in the transition to a sustainable economy. When will these regulations come into effect? The EU CSRD will come into force in 2023. The UK SRD is anticipated to come into force in 2024. What is the purpose? “By integrating sustainability disclosures with financial data, we would create a ‘one-stop shop’ for all critical information about a company, including its green credentials, which would be immensely useful for investors.” – Christine Lagarde, President of the ECB What must be reported? • A description of the undertaking’s business model and strategy, including plans to ensure compliance with net zero targets, the effect of sustainability risks and opportunities, and how the strategy/plans reflect broader stakeholder interests. • Sustainability targets and progress against them. • Due diligence processes implemented for sustainability matters. • Principal and potential adverse impacts throughout the value/supply chain. • The role of management in sustainability matters. • Principal risks of the undertaking related to sustainability matters. SME? Why Care? Carbon is more than an environmental burden – it’s a business liability. 71% of consumers consider sustainability info when making purchasing decisions, and 64% of millennials want to work for companies that care about climate change. More than 70% of your emissions are in found in a business’s supply chain (also known as scope 3). Carbon accounting must account for all your emissions – including scopes 1, 2, and 3 – based on the Greenhouse Gas Protocol. SMEs are already feeling the pressure of ESG and its sub-component, Carbon Footprint Reporting. For example, in construction, many tenders are stipulating a 20% weighting on ESG reporting. Other organisations are being bombarded by requests for their carbon emissions, both from their customers (Scope 3) and from their suppliers (Scope 1). A balanced approach ESG reporting is about creating formalised statements of fact concerning an organisation’s performance on Environment, Social, and Governance metrics. It is not pass/fail, but it is a rigid system which aims to create an evidential record. Think of ESG as an antidote to Greenwashing. It’s easy to undertake if you have the right guidance, and staggering complex if you try to conduct alone. The process to complete one’s initial benchmark can take as little as 90 days, but it’s most commonly 180 days. Thereafter, the process is developed with the client organisation to enhance their results. Carbon Footprint Reporting is a component of the Environmental element. While there are various software suites available, it becomes apparent to many that it can involve some significant number crunching and data collection. A meaningful carbon footprint can only be based on a full year of data, so the emphasis is on commencing data collection early. Your ESG report will summarise your performance, encapsulate your carbon emissions, and document you own roadmap to improvement in all areas. With auditing, it will also provide you with an internationally transferable and recognised ESG Grade and ESG Score.