Published: 27 Oct 2021 · Last updated: 10 Oct 2023
by Rich Fishlock
In the run up to the summit, we’ve been considering what some of the key discussion points might be and the possible implications for businesses, brands and consumers.
To dive further into the topic, we spoke to our friends at Catch a Fire and shared our view on COP26 and the changing business landscape.
We think the worry for a lot of businesses is not knowing what regulations related to COP26 initiatives might come online in the coming years. This uncertainty makes it difficult for businesses to plan ahead and prepare. Figuring out what the new rules will be, what data needs to be gathered and disclosed, and to whom, will take up a lot of resources. The more transparency governments can provide ahead of time, the quicker businesses can adapt and drive positive impact.
Some businesses might have to invest heavily to comply with new climate regulations. But, in some industries (shipping for instance), it is not evident what the winning “clean technologies” will be in 10 years. Companies need to know that if they make big capital investments today, these will not be obsolete 5 years down the line when government changes regulations again. Governments will need to work closely with businesses to make the energy transition happen by providing clarity, setting realistic targets and stimulating certain areas of investment.
Sectors that are known to contribute significantly to emissions will be first in the line of fire. To some extent, this is understandable but, at the same time, we are reliant on many of these sectors for economic growth (think shipping, oil & gas, metals & mining, industrials). We think the solutions towards carbon abatement in relation to the “hard to abate” industries are the least straight forward and will require most innovation, investment and dialogue. Hopefully there will be constructive debates around governments, and businesses can drive positive impact in the years ahead. Agriculture, FMCG, construction, and the fast fashion industry might also be in the spotlight given their impact on pollution and emissions.
We would expect the average consumer to become more aware of the impact their buying decisions have on the environment, given the mass media coverage of COP26. Changing consumer habits, however, is hard, as most consumers are not aware of the impact of their consumption decisions. Even when consumers make decisions that are widely believed to be good for the environment (such as driving an electric vehicle), the actual environmental benefit is often not as positive as thought (charging your electric car with electricity from coal is an example).
This is confusing for consumers – those that want to reduce their environmental footprint might find it hard to pinpoint how best to do this. We think there is an important role for the government and businesses to work together here to ensure that products and services actually become greener in terms of their real impact.
In the Western world, we would expect consumers to become more sensitive to labels on packaging and brand promises around ESG. Companies that don’t provide any information on their environmental strategy or impact might lose customers, particularly those that are less price sensitive. Nevertheless, we’ve seen some companies come back from pretty bad ESG reputational damage over the past year. It suggests consumers are still happy to sacrifice ESG standards for a good deal. Just think of yourself – do you calculate the environmental impact of your monthly spending?
Clear targets and roadmaps to realising COP26 pledges as well as closer collaboration between businesses and government would be top of our list. We need better data from businesses and governments to be able to measure and improve progress towards targets. Businesses and government should collaborate on creating uniform standards that allow for easy measurement and comparison. Thankfully, such initiatives are in progress. We are still a far cry away from most companies measuring and reporting on their emissions. Mandating the disclosure of such information more widely would go a long way to pushing individuals and businesses towards action, as we believe what gets measured gets managed.
We believe each business should have a clear ESG strategy and policy to frame how they will manage their impact on communities and natural habitats. This will be a starting point from which ESG key performance indicators (KPIs) and targets can be set that will facilitate measuring progress. Making this ESG strategy integral to the overall corporate strategy, rather than an afterthought or a side project, is paramount. When it becomes a habit for companies to evaluate the community and environmental impact of each major decision, it will become part of the company ethos and halt the development of projects with a high community and environmental cost. Measuring progress against targets on a regular basis helps companies learn what measures work, which don’t, and whether they need to adjust their ESG strategies to meet their targets.
1. Talk with your company’s major stakeholders (shareholders, board members, lenders, regulators and employees) about ESG. What do they expect from the company and where do they see ESG risks and opportunities?
2. Develop ESG policies and strategies based on the above.
3. Measure your current ESG performance. This does not need to be 100% comprehensive from day one. For most companies, it’s probably best to start measuring a handful of core ESG metrics on Environment, Social and Governance issues and make sure you start doing that consistently and set targets. Then, over time, businesses can add more data and metrics and refine their ESG targets. Keeping it simple at first is key to getting started.
4. Report and communicate your ESG performance with stakeholders. Being open and transparent will force your business to stay true to its ESG strategy and will help foster debate about where to invest, what ESG initiatives to prioritise, and how to minimize ESG risks.