Climate change and ESG

A few decades ago, if you wanted to do your bit in the fight against climate change, you would have really struggled to find a way. Where could you recycle your used coffee cup or empty drinks bottle when out and about in a UK town or city center?

Today however, due in a large part to shifts in public attitudes a myriad different public recycling bins are appearing in greater numbers across the UK.

And now, at the other end of the scale governments and companies are also taking note. Well, they have no choice. Investors and activist groups, as well as the general public, are exerting pressure by demanding them to take a tangible stand against climate change.

Indeed, last year’s COP26 (the 26th UN Climate Change Conference of the Parties) saw stakeholders including governments and private sector companies, share a renewed commitment to focus on the global climate crisis. This is great news, but even if all the COP26 commitments are achieved, the global temperature is still set to rise a staggering 2.4 degrees from pre-industrial levels. Therefore, the concern towards global climate change remains very real.

At the same conference the UK’s chancellor, Rishi Sunak, also declared that Taskforce on Climate-related Disclosures (TCFD) reporting for UK listed companies will become mandatory from 2022 onwards. These regulations state that as of 6 April 2022, over 1,300 of the largest UK-registered companies will be required to disclose climate-related financial information.

This need and desire to tackle climate-change is now rightly coming from all angles. But these pledges, although laudable, are not enough. We all, individuals, governments and companies have a regulator as well as a moral obligation to change the way we behave and take the climate crisis seriously.

It is gratifying then that other governing bodies also seem to be taking note and going even further. The UK’s Financial Reporting Council (FRC) revised its Stewardship Code in 2021, laying down a far more stringent criteria for asset managers and asset owners, with respect to incorporating ESG aspects into their investment decisions. This has had a significant impact on the visibility of sustainability practices of listed companies.

Given this backdrop, there is a huge focus on sustainability for companies – whether listed, newly listed or just entering the process. And it is now an inescapable truth that a company’s attitude towards ESG requirements, as well as the regulatory disclosures they are having to make, will have a huge bearing on how the public and therefore investors see them.

ESG rules, like any other regulations and requirements, have a tendency to change. And these rules often alter with the shifting political landscape. Consequently, the ongoing internal and external education around ESG strategy and implementation should be at the top of any listed company’s agenda.

If your news feeds are anything like mine, not a day goes by without a climate crisis headline, mention or meme. It’s not a topic that is going away any time soon. ESG requirements also come with a myriad new definitions and terms – as well as an alphabet soup of acronyms – so keeping on top of these new terms remains of paramount importance.