2021 into 2022 … much more to do but real progress too

It has been a strange year for global warming – both pessimism and optimism could follow in 2022. With important progress made, but net-zero still a long way off, SMEs are being asked to help close the low-carbon gap … while actively boosting their own businesses.

The year of 2021 opened with the prospect of a ground-breaking Environment Bill that was finally delivered in November – the month the UN’s COP26 global summit which also promised so much ended in delay, confusion and widespread disappointment.

Will 2022 be much the same, or can we expect something better?

Should auld acquaintance be much improved?

For many firms actively minimising their carbon footprints and/or taking new low-carbon products and services to market, a key challenge will be coming the grips with accurate ESG (environmental; social; governance) reporting.

As 2021 closes, a number of authority figures have also looked closely at what went wrong – and right – in the past 12 months, and what future New Years might bring.

Meanwhile, wildfires, winds and floods have underlined global warming’s growing power as utility companies battle to increase the resilience of vital infrastructure against ferocious storms like Arwen and Barra.

SME white knights

However, 2021 is not the end of the story. If governments cannot limit climate change, the actions of millions of ordinary companies probably can, while also improving their balance-sheets.

New Year 2022 will almost certainly put new roles and responsibilities onto the shoulders of SMEs as members of the sustainable value chains of larger businesses.

This could be seen early in January in the form of new conditions attached by banks and other financial bodies to ‘green’ finance. Onerous to deal with at first perhaps, but also a commercial opportunity.

It may mean businesses having to commit more of time to factors like the circular economy, plus ESG reporting to show and share their sustainability risks.

Adding value

The good news is these changes will put a clear value on improvements developed through the Chamber Low Carbon (CLC) programme (https://www.chamberlowcarbon.co.uk/).

In October, our Circular Economy Club hosted a hybrid event – “The Good, The Bad and the Ambiguous” – in partnership with the Senator Group. The online version can be seen again at https://www.youtube.com/watch?v=JZkyKqPKTGw.

Omonor Gladys (o.gladys@chamberelancs.co.uk) is the Club’s main contact and will be happy to provide more information for 2022. We are also developing the strategy for a new Technology and Innovation forum – please talk to Darren Thomas (d.thomas@chamberelancs.co.uk) about details.

Although many reference sources can be found online, ESG reporting may be a less familiar subject for many companies and we take a closer look at what is involved below.

COP is dead; long-live something completely different

With COP26 over, there are calls for a new climate process similar to the 1987 Montreal protocol that ended the release of ozone depleting chemicals. The difference, proponents say, is that the protocol includes enforcement mechanisms the voluntary COP process followed over 20 years lacks.

Meanwhile, actively delivering net-zero is now a pressing issue, according to COP26 President Alok Sharma, who says the UK like all nations must deliver its ‘nationally determined contribution’ (NDC).

The CBI, TUC, UK Corporate Leaders Group, WWF UK, and Green Alliance are urging the Prime Minister and Chancellor to enact the Glasgow Climate Pact urgently across all Government departments.

Difficult progress was made

However, it is important not throwing out the plus points with 2021’s green bath water.

COP veteran Christina Figures argues that the world is trying to complete a massive low-carbon makeover in one go. Her view is that moving from 6oC temperature rises before the 2015 COP21 Paris agreement to 2.4oC in Glasgow, and an achievable 1.5oC, is progress. More on that later too.

Meanwhile, celebrated scientist James Lovelock, whose Gaia (“life”) concept explains that living organisms interact with their inorganic surroundings in complex self-regulating systems which help to maintain conditions for life on Earth, believes the way we look at environmental science is wrong.

Too little but hopefully not too late

However, more down to earth, the Climate Change Committee (CCC – https://www.theccc.org.uk/) insists the Government – as an international leader – must do more to meet its net-zero emission targets, warning that the UK is still contributing to a 2.7oC temperature rise by 2100.

The CCC believes this can be cut to 2oC, which is still far above the 1.5oC level UN scientists feel is sustainable, albeit with a high degree of adaption and infrastructure resilience.

But all nations must upgrade their decarbonisation policies before November 2022’s COP27 at Egypt’s Sharm al-Sheikh (https://sdg.iisd.org/events/2021-un-climate-change-conference-unfccc-cop-27/).

Better delivery not tougher targets

But the CCC says setting tougher targets is less effective than meeting existing goals with “policies” to reform industry, nudge people into sustainable lifestyles, overhaul farming and cut “embedded emissions” from cement and steel-making. Imported goods and materials are another target.

Greenpeace is one of many organisations worrying that a 1.1oC rise the CCC could live with is still fundamentally unsafe.

ESG and the future

ESG analysis and reporting (or disclosures) is essentially a dashboard of company performance in vital non-financial areas that is becoming increasingly important.

The relevance, accuracy and consistency of data is crucial, as is communicating information clearly in annual reports to help stakeholders make well-informed decisions where risks and rewards are high.

Local communities, staff, managers, special interest groups, and non-governmental organisations are all stakeholders. However, investors are particularly wary of funding projects with sustainable risks for financial, reputation and potential liability reasons.

Capital is not in short supply. But in a more complex world, a sound framework for good decision-making is essential. Buyers also need to know that rogue supplier claims can’t harm their own green credentials.

Sustainability’s three pillars

ESG – sometimes used interchangeably with sustainability – stands on three pillars.

Environmental considers how company energy use affects the environment, climate change, carbon emissions, biodiversity, air and water quality, deforestation, and waste management.

Social looks at corporate relationships with people and cultures via factors like inclusivity, gender, diversity, employee engagement, customer experience, data protection and human rights.

Governance, takes into account internal company controls, practices and procedures, communications with regulators, plus shareholder rights, bribery, corruption, lobbying, political contributions and whistle-blower issues.

On the increase

While still largely voluntary, ESG reporting has soared in recent years; research shows that firms who understand its importance, and actively include it their business strategies, do far better.

Businesses that communicate ESG information in their annual reports tend to see higher investment returns and reduced risks; they also build strong resilience to spring back from crises.

The flip side is that in the present febrile environment, investors increasingly avoid organisations that opt out of reporting escalating ESK risks.

Pen to paper

Writing a good report with the right balance of issues is a complex task often best achieved with ESG professionals. Reports must focus on their goals, key stakeholders, plus material issues in a specific company context, and show a realistic roadmap to these goals in a recognised reporting framework.

Reporting should also be responsive, objective, above all transparent, and set within a bigger picture that doesn’t shirk challenges but demonstrates reasonable ambitions.

Why was Glasgow so difficult?

Christina Figueres became Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC) in 2010 after the unsuccessful COP25 in Copenhagen. For six years she rebuilt the climate change negotiating process and is credited for the 2015 Paris Agreement success.

She says “we need systems change, not climate change” and face a double predicament.

The first is that the systemic nature of change is slowing the pace of progress – for now. All global economy sectors must decarbonise together, she adds, a complex metamorphosis.

The second challenge is that while the transition is picking up speed at an exponential pace, the window for change is continuously shrinking. But at least three essential resets were achieved.

The first is that rather than being “kept alive”, 1.5oC will be the “front and centre of our efforts”, she explains. Paris lowered the 6oC rise trajectory by 2100 to 3.7oC; Glasgow takes it down to a still dangerous 2.4oC, but 1.5oC is nevertheless achievable.

The second is the annual ratchet which should now see a third set of emission cuts in Egypt by the end of 2022, not 2026. Her third point is that nature has been recognised for its solution potential.

 The Earth protecting itself against mankind

Her third point is recognised by James Lovelock (http://www.jameslovelock.org/).

While searching for evidence of life on distant planets 60 years ago, he realised that worlds with stable climates almost certainly support life. The prevailing view was that life adapts to the environment, and not the other way around.

He now sees the Covid-19 pandemic as an attempt by the Earth’s complex biological system to protect itself from interfering mankind. Its next attempt might be even more dramatic, he says.

What has the world done for us?

In his view, a climate catastrophe cannot be avoided if global warming and the destruction of nature are treated as separate problems rather than one single integrated – albeit unconscious – system.

For billions of years, the Earth’s surface temperature was set mainly by radiant heat from the sun which grew over time because all stars increase their heat output as they age. However, forests, oceans and other natural elements have kept surface temperatures near optimal for life.

Humans are now committing two genocidal acts, he argues – suffocation by greenhouse gases and rainforests clearances. Together, these are causing changes on a scale not seen in millions of years.

But because subjects like astronomy, geology, and meteorology are taught separately, few people are truly aware of how natural forces affect the Earth’s surface temperature, he believes.

Early – or belated – Christmas present

After nearly two years, the UK’s Environment Bill finally passed into law with Royal Assent on 9th November. Green groups see this as a “milestone” but are expected to press for stronger provisions in 2022.

The Government introduced the Bill to achieve its overarching ambition of leaving nature in a better state for future generations; it also confirms the UK’s post-Brexit approach to environmental governance.

Key provisions include a new post-Brexit watchdog – the Office for Environmental Protection (OEP). There is also a “comply or explain” deforestation mandate forcing UK firms to import forest-risk-free commodities, plus bans on some single-use plastic items like cutlery and polystyrene cups.

Campaigning environmental law charity, ClientEarth, welcomes the Bill’s arrival but says it “falls short of the world-leading ambition that the Government set out to ensure. Provisions for forest protection, clean air and environmental governance have been especially disappointing.”

It adds, “But now the work really begins. As a framework law, the Bill is only a foundation – and much relies on further targets, policies and detailed rules that are yet to be developed (https://www.clientearth.org/latest/press-office/press/media-reaction-uk-environment-bill-falls-short-of-world-leading-ambition/).”