The COVID-19 pandemic was an alarm signal for governments, companies and investors, but also an opportunity to stay with some lessons learned that we can apply in several situations, including for sustainability, reports Innova Project Consulting. As we live in an increasingly interconnected and complex world, one of these lessons is clearly the need for governments and companies to step up action to mitigate other major risks – such as climate change , other pandemics or social turmoil, including wars.
When it comes to climate change, today’s macroeconomic models may not be able to accurately predict its economic and financial impact, but climate science is now calling for action to mitigate and adapt to climate change. The report published this year by the Intergovernmental Panel on Climate Change (IPCC) on the impact of the climate crisis on the planet shows that the situation has worsened since the last assessment in 2014, recording the hottest years in history between 2013 and 2021.
That is why the agility shown by most companies during the pandemic through the speed with which most of them adapted their operational models, must be repeated as a similar speed must now also be used for climate actions.
To support this process, several important normative acts have been prepared at the European level, which will lead to a transformation of the way businesses will be managed and which will give a significant role to companies, but also to the financial sector in the fight against climatic changes.
The new CSRD Directive (regarding corporate sustainability reporting) which will apply soon, brings several new elements regarding sustainability information. In addition to the mandatory use for the first time in the reporting process of single European standards, companies will have to communicate about the plans they have to ensure that their business model and strategy are compatible with the transition to a sustainable economy and with the objectives of limiting global warming to 1.5 °C according to the Paris Agreement and achieving climate neutrality by 2050 according to the European Green Deal.
However, in order to comply with this obligation, companies will have to identify their impact on the environment and on people, understand what sustainability risks are and how they can affect their performance and development, including climate risks, and set their objectives and science-based greenhouse gas emission reduction targets, and take into account multiple temperature scenarios in the development strategyMihaela Croitoru, Founder & Managing Partner la INNOVA Project Consulting
Therefore, it will be extremely important the due diligence process that a company will carry out, according to the provisions of the CSRD Directive, at the level of the entire value chain in order to be able to identify, track, prevent, mitigate, remedy and, where possible, stop the main actual and potential negative effects related to their activities.
Recently, EFRAG, the body mandated by the European Commission to implement the European sustainability reporting standards, published for consultation the first version of these standards.
I recommend to all companies to analyze these proposed standards, especially the one for the governance part, as it will be much clearer what obligations they will have to comply with in terms of sustainability both at the level of the boards of directors and at the level of execution. The need for the establishment of committees with attributions in the area of sustainability, the need for expertise and specific skills at the level of boards of directors, specialized management structures to ensure the implementation of sustainability strategies and reporting processes and, why not, including the position of Chief Sustainability Officer or Director of SustainabilityMihaela Croitoru, Founder & Managing Partner la INNOVA Project Consulting
ESG information is also on the minds of investors as they recognize that environmental and social issues represent some of the most difficult challenges of the decade, particularly climate risk. The potential loss of infrastructure and property due to climate change is already affecting the long-term financial sustainability of organizations. For this reason, and here in the country, investors will request from the companies in which they invest information about how they prepare, as well as about the companies’ ability to forecast and respond to a variety of climate threats.
Also, the information to be disclosed by companies in accordance with Article 8 of Regulation (EU) 2020/852 on environmental taxonomy (another recent sustainability legislation), on the amount of Capex or Opex associated with activities aligned to the taxonomy will help directing capital flows to those responsible companies and could support the transition plans of companies that require investment in the transition process.
Article taken from Financial Intelligence