Thanks to COP26, the climate conversation has taken center stage. During this crucial climate summit, several announcements have been made each day. From pledges to cut the emission of extra-potent greenhouse gas methane by 30% by 2030, to preventing deforestation, the nations of the world are promising to reach net-zero. While the current spotlight is on the public sector, the private sector is leading the way in climate action.
Concern over empty promises at COP26
During COP26 the UK government announced that all UK firms will be expected to announce their net-zero emissions strategies by 2023. This is undeniably a positive step, but without legally binding commitments it will do little to combat greenwashing. It will also allow companies to capitalize on the market mechanisms of environmental, social, and governance (ESG) reporting;
GlobalData’s climate action feedback loop shows that publicizing climate plans wins stakeholder approval, providing a market advantage and boosting reputation. Recognizing this advantage will encourage firms to do more in the name of climate action, but it is meaningless unless companies prove that they are meeting these commitments.
Currently, any climate plans made by UK companies will not be enforced. Until these commitments are mandatory, the dangers of exploitation and empty promises remain.
The ISSB is a step in the right direction
ESG reporting has been a minefield for companies due to the existence of multiple frameworks. Not only have companies had to deduce which framework suits them best but there is no global standard for auditing ESG performance.
Luckily, the new International Sustainability Standards Board (ISSB) confirmed during COP26 should aid in this. It will build on existing standards to make the transition to this new framework easy. If the ISSB successfully manages to create a global ESG reporting framework, comparing ESG efforts will become more effective. This will foster greater accountability and transparency with climate commitments. Yet, to hold companies truly accountable, they should also have to prove that they are progressing on their ESG commitments.
Committing to improvement
If companies want to prove that they are committed to climate action, ESG reporting must include progress between each reporting period. In their new framework, the ISSB should ensure that companies demonstrate that they are continually progressing towards their ESG commitments. The ISSB should pair its ESG auditing with suggestions for improvement to assist companies in achieving their goals. Though the question remains, how do you then ensure that companies have not regressed?
Companies should demonstrate that quantifiable commitments are made as this will help to benchmark their progress toward climate action. Importantly, it would then allow stakeholders to both compare plans and verify if companies achieve their plans or not. Failures will be more obvious to stakeholders as measurable pledges are more digestible. Through this, empty promises will be reprimanded through stakeholder disapproval and companies will think twice before attempting to greenwash.
COP26: For effective action on climate change, other countries must follow suit
The climate emergency is a global problem. During COP26, we have seen a flood of plans and commitments by both the private and public sectors. But, if the Paris Agreement has taught the world anything, without legal obligations, withdrawal from commitments is possible.
Hopefully, an improved and standardized ESG framework will help to hold companies accountable for ESG failures, but currently this is just through market mechanisms. If the public sector mandates that companies are held accountable for their climate commitments, only then can the private and public sectors work together to achieve transparent and effective climate action.