With the turn of a New Year, sustainability, ESG and supply chain software solutions provider Greenstone, reflects on 2020 and pulls out some key reporting trends to watch out for in 2021. Here are the top 5:
1. The rise of the ESG investor request
The link between sustainability-related factors and financial-viability is clearer than ever before. Over the last year or so there has been an exponential increase in investor requests for ESG (Environment, Social & Governance) data. This rise has been driven by frameworks such as TCFD (Task Force on Climate-related Financial Disclosures), SASB (Sustainability Accounting Standards Board) and CDP, as well as legislation such as the EU Taxonomy and the EU Sustainable Finance Disclosure Regulation, which all highlight the importance of reporting on financial impacts alongside climate risks. In addition, it is the investors themselves that use these frameworks to drive the demand for more reliable and comparable data.
The global pandemic has almost certainly played a part in this increase too; with investors looking at climate-related risks and opportunities and their financial impacts more closely. At Greenstone, we have seen an increased uptake of companies reporting the Governance and Strategy aspects of their businesses, which is a relatively new metric for many companies.
This trend in responsible investment and ESG reporting is presenting investors with many challenges when it comes to gathering, maintaining and analysing ESG data. Gaining access to accurate, credible and consistent ESG data and supporting information is difficult. ESG software is the obvious way to streamline the ESG data collection, questionnaire distribution and management process. Investors are now looking for purpose-built ESG software platforms to collect, track and analyse data and material ESG KPIs from their portfolios on an ongoing basis.
2. Scope 3 emissions and the importance of the supply chain
One of the main areas Greenstone’s clients are asking about currently is their Scope 3 emissions, with more and more organisations looking to report across all of the GHG Protocol Scope 3 categories. Scope 3 has long been understood as a huge impact area for organisations in relation to their carbon emissions, often accounting for far more than their own operations. With the increasing need for organisations to set longer term and meaningful emission reduction targets, there is a greater need than ever to be able to calculate and track supply chain emissions more accurately.
Without accurate supply chain emissions data, organisations will struggle to set Scope 3 targets that are required by the Science Based Target initiative (SBTi). They will also reduce their capacity to influence and track emission reductions in their efforts to meet both these targets and to achieve their net zero ambitions.
3. Alphabet soup to comprehensive corporate reporting system
In 2020, there were some significant changes in the non-financial disclosure field that will certainly shift the path for corporate reporting in 2021 and beyond. There has been an increase in awareness of the requirement for initiatives that simplify corporate reporting, while increasing its relevance, reliability and comparability.
Five international framework- and standard-setting institutions; CDP, the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB), co-published a shared vision paper in September 2020 recognising the need for more comprehensive corporate reporting and a joint statement of intent to work together towards this goal. In December 2020, the group also issued a progress report with a prototype climate-related financial disclosure standard.
In addition, SASB and IIRC recently announced their intent to merge with the aim of offering investors and companies a comprehensive corporate reporting framework to drive global sustainability performance.
4. Science based targets & race to zero
2020 saw a huge increase in corporate targets and commitments being set. And 2021 will be no different. With over 1,100 companies already working with the Science Based Targets initiative (SBTi) to reduce their emissions in line with climate science, companies are continuing to take action with ambitious reduction targets.
The same can be said for net-zero commitments with the number of organisations demonstrating climate leadership and committing to net zero on the increase. This global action, and the race to zero movement, will continue to be a trend as companies are becoming more and more committed to long-term planning. With COP26 postponed to November 2021 due to COVID, and less than a decade to meet the Global Goals, 2021 will be critical for businesses leading the way to accelerate climate action.
5. Review of boundaries and targets
At Greenstone, we have seen clients increasingly assessing the boundaries of what they are reporting their sustainability data against. In 2021, in line with the setting of Science-Based and Net Zero Targets, companies will be investing more in long-term planning which will, in turn, put greater emphasis on the Scope 3 elements of their reporting.
As a result of the COVID-19 pandemic, organisations are being forced to review their reduction targets and baseline years. When the post-COVID world arrives, it is clear that we will not just switch straight back to what it was like in 2019; there are going to be huge differences in the way we operate as a business community which means previous climate goals may not be as relevant.