Oct. 19, 2021
This week, Congress is debating a major economic package estimated to cost anywhere from $1 to $6 Trillion, with climate change as a central point of contention. President Biden and progressives like Bernie Sanders argue the bill should include substantial money for the environment. Meanwhile, Democrat Senator Joe Manchin from West Virginia insists that the package should be drastically lower cost and should not include a clean power provision.
Regardless of the outcome of the proposed legislation, the environment is perhaps the most watched investor issue facing global businesses. There are significant steps companies can take now that will have a material impact on their long-term financial prospects. These impacts go well beyond improving public perception.
Global Concerns
Environmental activists and global governments are worried it might already be too late to stop the worst effects of global greenhouse gas (ghg). In November of 2021, at the 26th U.N. Climate Change Conference, ongoing fears likely will be echoed that limiting global temperature rise to 1.5 degrees C above preindustrial levels will not be possible. Climate experts predict this will have disastrous consequences.
Limiting temperature rise long has been a goal of activists and was a central piece of the Paris Agreement as well as the United Nations Framework Convention on Climate Change. Despite those efforts, many experts worry that our global ability to do so is waning or has passed.
The environment is the most watched investor issue facing global businesses. There are significant steps companies can take now that will have a material impact on their long-term financial prospects.
Evidence shows, this is a valid fear for businesses since the global average surface temperature has increased at an average rate of 0.17°F per decade since 1901, according to data from the Environmental Protection Agency (EPA). In addition, 2011–2020 was the warmest decade on record since thermometer-based observations began. Records show, 2016 was the warmest year ever, and 2020 was the second warmest. Those topline numbers do not fully describe impacts on supply chains, infrastructure, and other areas of core operations.
Corporate Action Pays Off
Some corporations recognize the climate affects everyone and everything. These firms are taking necessary steps to address global climate change through their ESG strategy. Investors have reacted positively and rewarded these efforts through strong performances in their stock price.
Companies that do ESG the best look at both direct and indirect effects on the environment. They look not just at their own emissions, but also from their value chain. And, they look at the use of their products and services. This is known as Scopes 1, 2 and 3 effects. Sustainability and corporate social responsibility are no longer simply about buying carbon offsets. ESG efforts put a hard focus on the bottom line.
Companies must understand climate change needs to be a priority. What happens with the climate will affect how investors, consumers and other stakeholders view them for the long term.
To respond effectively to the climate crisis, corporations must develop a comprehensive ESG strategy for the future.
Five ESG Factors
To get to this point, five key factors companies should consider when developing their ESG strategies include:
- Assess and prioritize ESG scope because there are a lot of factors, and all are important, but not all are a priority right now (though they could be in the future).
- Develop Goals and Objectives that will help guide the company’s efforts as it embraces ESG.
- Identify Weak Points or Gaps within the corporations ESG’s plan and determine a long-term strategy to bridge those gaps over time.
- Set Measurable Targets that clearly highlight achievements and success.
- Create Transparent Reports that are easy for investors, stakeholders, and consumers to understand the corporation’s scope, objectives, and measurable successes.
Acting on these factors will play a significant role for companies and their success in the future. And the time to act is now.
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Xenophon Strategies offers companies several services in ESG reporting, which includes taking a deep dive to assess how effectively organizations report on their efforts to achieve ESG goals now and well into the future.