The sustainability leader's guide to climate targets and disclosure

Climate targets and disclosure have come a long, long way over the past few years.

Almost incredibly, from a near-standing start less than three years ago, 90 per cent of the global economy is now covered by net zero targets of some form. And even if the credibility underpinning some of those targets remains sketchy, there is ever more pressure on businesses to deliver robust, near time climate targets and effective climate risk disclosure practices.

That much was underscored in a heartening report last week by the Science Based Targets initiative which revealed that, over the course of 2021, the number of companies worldwide committing to its process to set independently verified climate goals doubled to over 2,250. It means that businesses around the world that by some metrics account for more than a third of the global economy - or roughly $38trn of market capitalisation - have now pledged to set independently-verified, science-based climate targets.

Similarly, the number of companies, banks, investors, and other organisations worldwide committed to assessing and disclosing the threats posed to their businesses by global warming and the burgeoning net zero transition in line with international guidelines also continues to gather pace. More than 2,600 organisations have expressed their support for the Taskforce on Climate-related Financial Disclosures (TCFDs), while in countries such as the UK, disclosure has become a legal requirement for many of the largest corporate entities.

But if momentum is heading in the right direction, it is still not moving fast enough. Seven of the hottest years on record have occurred since 2015, and there is now a 50-50 chance of average temperatures hitting the totemic 1.5C warming mark within the next five years. Meanwhile, global greenhouse gas emissions are still rising year-on-year, with the window for slashing emissions by 2030, as scientists recommend, now closing fast.

Clearly, there is a huge amount of work for businesses to do - and quickly. Yet navigating the emerging new frontier for measuring and disclosing environmental risks, aligning corporate strategies with global climate science, and - crucially - communicating such efforts to stakeholders is a vastly complex, and often time-consuming undertaking. For many executives, and even seasoned sustainability leaders, this new corporate epoch can feel overwhelming, with the untrodden pathway to net zero ahead fraught with the dangers of reputational damage and stranded assets.

Speaking last week as part of a webinar hosted alongside BusinessGreen last week, Micha Schildmann, vice president at Planetly, the carbon management platform operated by US software firm OneTrust, acknowledged that "getting started with these commitments can be really challenging, just because it's really difficult to see in many cases where to start, because it's such a complex space".

"The question of which data to gather, what to publish, is always front of mind," he added. "Plus there's an over-complexity in ESG [environmental, social and governance] as it sits across many parts of an organisation, and it is mostly still managed by manual tools which is often cumbersome and time consuming."

Even so, the pathway to effective climate target setting and risk disclosure is one that is replete with opportunity, according to Schildmann, and in any case all entities have no option but to travel it.

"There isn't really global regulation, and there may not be for some time, so voluntary goal setting is important for sustainability leaders to get support from the executive suite and employees, and to contribute to corporate purpose and profit-sharing," he said. "But the fact that we now have more and more regulations coming up - such as the SEC regulations in the US - shows that it is now moving towards mandatory disclosure and target setting. This will take a bit more time on a regional level, but I believe it will start to become mandatory through regulation or requirements from players in the market, such as suppliers which have their own targets."

During the webinar last week Schildmann - whose background in investment, entrepreneurship and sustainability includes several years as a strategy consultant on climate change at McKinsey - offered a masterclass in climate target-setting and disclosure practices. In just a single hour, his crucial guide managed to cram in the full gamut of sustainability strategising, all the way from measuring, assessing, and disclosing progress against a target through to marketing messages and climate risk governance.

Establish your current emissions baseline

For Schildmann, the best way to get started is by looking at your organisation's carbon footprint or greenhouse gas inventory, for which the Greenhouse Gas Protocol is helpful if your firm is yet to get a handle on its emissions. The aim is to establish an accurate baseline of present emissions performance before an organisation can then set and announce public targets, or sign up to industry-wide initiatives.

"Adopting these standards will position you for an accurate and credible carbon footprint from which to base your climate commitments," he explained. "You can use data about your carbon footprint - and a narrative about your calculation methods - in your sustainability reporting and climate disclosures, such as through CDP or TCFD guidance."

Reporting and disclosure

As the old saying goes 'you can only manage what you measure', and so the same goes for corporate climate strategies. Before setting headline emissions reduction targets, it usually makes sense to have a clear idea of the risks posed to your organisation, right across the value chain, from both physical climate impacts as well as the net zero transition ahead. The most common framework for providing that, of course, is through the guidelines established by the TCFD. The resulting data should then be transparently published by an organisation, and made easily accessible through annual reports.

TCFD risk reporting is already becoming mandatory in the UK, and looks to be heading in the same direction in the US - yet disclosure is still only the beginning of the process for an organisation, Schildmann stressed.

"TCFD is in many areas quite soft, as it is mostly about transparency, which is the first step in the journey - you need to create transparency in order to actually work towards an emissions reduction strategy," he explained. "This already represents a big move for companies, so it makes sense to focus regulation on this for a certain period of time, but this will not drive the economy towards net zero. What is interesting with the TCFD is the risk modelling requirements, which leads in the right direction because in the end ESG needs to be part of the risk management operation of a business. But just to have risk management in place doesn't mean that you act upon it."

Governance

Another crucial ingredient to have ready before embarking on target setting is securing support and buy-in from the executive team - not least because investors, customers, suppliers, and other stakeholders will want to know that an organisation has assigned oversight of climate-related risk and targets to board directors and C-suite leaders.

"Before you embark on your public climate goals or become a signatory to a climate pledge, develop a clear understanding of which executives in your organisation must approve the decision to sign onto a carbon pledge, as well as who might influence that decision," said Schildmann.

And, as it happens, the process of voluntarily setting robust climate targets is an excellent way to galvanise support from both the executive suite and the wider employee base of an organisation. But it is important to have an open, honest dialogue with stakeholders within a business about climate targets, including the many benefits and the potential short-term trade-offs. Delivering net zero will mean changes to any organisation, and pretending that the transition can be achieved without any challenges in the short or long-term risks undermining support for climate targets, Schildmann argued.

"Your role as leader in your company's sustainability or ESG leadership is to pull these parts together into a cohesive and trustworthy story," he said. "You'll need reliable data, strong coordination across multiple parts of the business, and good governance in place to ensure that you're making a meaningful, positive impact."

Set targets that are achievable and realistic

Once the risks are clear, the executive team are on board, and climate data assessment and reporting processes are being put in place, then it makes sense for a company to think about target setting.

Here, it is important for sustainability leaders to develop an understanding of how the climate pledge commitments can align with other top-priority objectives across the business, such as cost reduction through operational efficiency or top-line growth through market penetration, explained Schildmann.

Clear, time-bound and measurable goals can bolster a climate vision within an organisation that staff can rally around, helping to boost pride and purpose, while establishing clear targets can also be instrumental in helping to drum up support and investment for net zero efforts.

As is increasingly understood in the corporate world, working with a third-party certification body such as the Science-Based Targets Initiative offers greater credibility and recognition for an organisation's climate goals - but any target-setting process can be time consuming, and is not without risk.

"Any public announcement of sustainable products or operations - including climate pledges - invites scrutiny of business practices and increases the likelihood of greenwashing accusations," Schildmann warned. "Companies should consider this possibility and appropriately prepare when planning any sustainability or climate commitment announcements."

Create a credible climate action story

Once targets have been set and strategies are in place, the role of marketing - both internally and externally - in promoting an organisation's efforts should not be underestimated. Indeed, it should be front and centre of thinking for sustainability leaders, according to Schildmann.

"Marketing is super important to really showcase what a company is doing, engage employees, and give a sense of how important a transformation this is, which can help to create urgency and awareness at every level of an organisation of what each employee can also do to support that change," he said.

It also helps to create a 'lighthouse characteristic' for climate-ambitious companies that can help to build momentum across the wider economy towards meeting climate goals, Schildmann explained. "There's a saying in German, with many variations, based around the idea of both doing good and talking about it - this is important as it can help to build momentum in the market," he said. "But obviously you should only talk about it if you really mean it. It's important to manage the risk of being perceived as greenwashing, which could backfire heavily."

Get started as soon as possible

There is no doubt that establishing a robust climate strategy complete with climate risk management, comprehensive disclosure, and clear emissions reduction targets that have the support of all key stakeholders is a hugely complex undertaking for any organisation. But for Schildmann, that only provides even more reason for businesses to get started on the journey as soon as possible.

"In many jurisdictions, regulations and mandatory requirements are not in place yet - there's still a road towards implementation that can take one or two years or so," he said. "But that means you should not wait until then. You should start today just to get the process running, because it the transformation could take months or years. My recommendation would be to start as soon as possible."

Last week's webinar - 'The sustainability leader's guide to climate commitments and disclosure' - was hosted in association with Planetly.