Sustainability Reporting: Closing the ESG guidance gap
The London Stock Exchange Group recently published guidance for companies on how to report environmental, social and governance (ESG) information to meet investor demand for better data. The aim of the guidance is “to close the ESG guidance gap”.
As the provision of non-financial information rises ever higher on the agenda for key stakeholders, there is a rising demand for current reporting frameworks to adapt to these changes and to act as instruments for businesses to understand their sustainability impacts and communicate their performance.
Let’s look at some of the main trends in sustainability reporting focused specifically on the environmental aspects of ESG.
1. Science based targets consider the bigger picture
We are currently headed for a 4°C temperature increase above pre-industrial levels which climate science tells us is likely to be devastating for the planet. To limit this increase to below 2°C in line with the Paris Agreement, the Science Based Targets initiative has called upon businesses to set emissions reductions targets that are in line with climate science and the 2°C target.
Voluntary reporting initiatives such as CDP have responded by boosting scoring for businesses that align their reduction targets to the global 2°C goal which can help them achieve the next level of performance in emissions reductions.
Even though ambitious in nature, setting science based targets can work in favour of business performance. The targets are by their nature ambitious and finding a route to achieve reductions facilitates innovation in low-carbon technology, driving cost-cutting efficiencies throughout the business.
2.‘Dual Reporting’ recognises the green from the grey when it comes to electricity
The GHG Protocol Scope 2 reporting guidance now requires companies to account for the quality of renewable electricity they purchase. Companies that operate in markets which provide product or supplier-specific information in the form of contractual instruments are now required to produce a ‘dual report’ to account for their emissions from electricity. Companies must disclose both a market-based and location-based figure.
This allows businesses to assess how current energy purchasing decisions will contribute to meeting Scope 2 reduction targets and to better identify future opportunities to reduce their overall impact. It also incentivises greenhouse gas emissions reductions by providing a way for companies to be recognised for the low-carbon energy choices they make. Of the 89 world-leading companies who have committed to the RE100 initiative, renewable energy attribute certificates were the most popular route to achieving 100% renewable electricity in the US and Europe in 2015.
An increased demand for low-carbon energy generation drives the implementation of renewables and boosts the market for low carbon electricity, accelerating the move towards a low-carbon economy.
3. Supply Chain engagement
2016 saw 66 companies in the FTSE 100 reporting Scope 3 emissions compared to 56 companies that reported in 2015. Value chain emissions often account for on 70% or more of an organisation’s overall emissions. Its therefore natural that businesses that engage with their suppliers see a significant improvement in operational efficiency and considerable emissions reductions. Assessing Scope 3 emissions often seems like a daunting task, but there are several effective strategies for managing and reducing value chain emissions that minimise future risks and inform sustainable decisions about company’s activities and products.
Furthermore, to achieve full management points in the CDP 2017 climate change questionnaire, companies must engage with more than 40% of their suppliers.
 A contract between two parties for the sale and purchase of energy bundled with attributes about the energy generation, or for unbundled attribute claims ie. RECs, GOs, REGOs etc.