By: John McCalla-Leacy, Global Head of ESG at KPMG

Last month COP28 closed in Dubai – achieving a number of landmark agreements and pledges. The summit took place in a nation that’s built its wealth on fossil fuels and amid a backdrop of a challenging geopolitical and economic landscape. As many governments and central banks grapple with inflation, supply chain bottlenecks and conflicts, a constant risk persists that immediate attention is placed on that which ‘seems’ most urgent, to the detriment of the important, and that ESG may slip off the radar. Personally, I left the UAE with a sense of cautious optimism. It wasn’t perfect, but the world seems to be moving in the right direction.

The agreement to ‘transition away from fossil fuels’ may have attracted criticism for the absence of ‘phase down’ language but the importance of the deal and how much it moves the debate forward should not be underestimated. The world is not there yet, but even recognizing on a collective level that there is a need to shift away from fossil fuels is a big deal. Coal, oil and gas account for three quarters of the world’s greenhouse gas emissions. The stark reality is that a failure to deliver a truly just energy transition, that meets the needs of both developing and developed nations – will be a failure to solve the climate crisis. Expect the world’s decision makers increase the number and depth of conversations on what actions are needed when they meet here in Davos and at future COP summits.

The COP28 summit demonstrated that there is growing awareness of renewable’s potential. There was agreement to aim to triple renewable energy capacity and double energy efficiency by 2030 whilst recognizing the need to peak global emissions by next year, 2025.  The shift to renewables is a fundamental enabler to a low carbon economy, but it won’t be easy. KPMG’s report ‘Turning the tide in scaling renewables’ highlighted the challenges ahead. A majority of industry execs surveyed (84 percent) shared that current market barriers were causing delays to roll out or funding of renewable projects.

The research in the KPMG report highlights the scale of what lies ahead. Here in Davos, business and political leaders have an opportunity to act. As the world edges closer to 2030 all the evidence suggests we will struggle to meet the original Paris Agreement targets. Indeed, if all COP28 pledges are met, the world would still fall short of keeping global warming below 1.5 degrees. Despite growing commitment and consensus, there remains key barriers to unlocking new, cleaner sources of energy and more needs to be done to communicate in a simpler, more transparent way on the impact each of us is making – positively and negatively in the world.

This week there’ll be a lot about the potential of technology and innovation, which may be leveraged to accelerate action on climate. Among them – AI. It’s something I’ve spoken about recently and I’m excited about what it can do. Whether it’s analyzing large data sets to support companies’ disclosure requirements or helping to auto-generate company specific decarbonization pathways and build transition plans, AI’s possibilities are huge. But so too is its potential to actually add to the damage being done to the planet. With questions raised about the vast amount of computing power needed to meet the AI demand as well as how the world can ensure that AI is utilized with appropriate governance and controls.

Talk of innovation in potential future technology solutions is encouraging, but innovation is also needed in the way that businesses are managed.  One example of how the business community is stepping up to this challenge, is the recent work of the World Business Council for Sustainable Development (WBCSD). Here 200 CEO-led organizations, including KPMG, are coming together to accelerate the transition to a net-zero world. WBCSD has provided guidance on how businesses may better embed the accountability for climate action into Corporate Performance and Accountability systems (CPAS) and drive the link between financial markets and sustainable business transformation.

As my week in Davos draws to a close – I recall the words of the UN Climate Change Executive Secretary, who at COP28 called “all the governments and businesses…to turn pledges into real economy outcomes, without delay”.

The work ahead, to deliver a just and low carbon economy resonates with the themes of Davos around security and trust, but these are set against the backdrop of more than half the world’s population going to elections 2024 at a time of ongoing geopolitical uncertainty. My view is 2024 will be a critical year. Business leaders should not wait for regulatory change.  If you haven’t already acted, then act now. Embed ESG in everything you do. Put the right people and right tools in place with appropriate levels of funding. Monitor, measure and respond. The climate crisis is not something to worry about in the future. It’s happening now. For leaders – across business and politics – this is our collective moment to do the right thing.

John McCalla-Leacy is Global Head of ESG at KPMG International

By: David Schatsky, Global Leader, GreenSpace Research & Insights Managing Director, Deloitte

The response to climate change often starts with data and dialogue, but can’t come to life without technology. We should focus on designing and implementing technologies—some newer than others— that can help the systems we use to generate energy, produce food, manufacture goods, construct and operate buildings, and move people and materials to reduce greenhouse gas emissions.

This imperative, and the commercial opportunity it represents, has contributed to a recent surge of investment in technologies for tackling climate change, also known as climate tech. According to new research from Deloitte, from 2000 to 2022, approximately 2,400 climate tech companies were founded, 9,000 funding deals were made, and US$148 billion was invested, with activity picking up markedly after 2013. (See the full report for a description of the research methodology.) And while watchers of venture capital have observed overall investment activity declining over the last 12 months, the change in climate tech investment has been less pronounced, suggesting that while this more nascent market is in flux, it is strong.[1]

The research found that the geography of climate tech entrepreneurship and investment is shifting as well. The United States has been the center of the climate tech entrepreneurship for decades, but recently that geography has begun to diversify. From 2000 to 2004, the US, Canada, and China accounted for two-thirds of climate tech company formations.[2] Then, from 2020 to 2023, six countries accounted for a similar share – the US, Canada, China, the UK, Australia, and India.[3]

Today, eight countries – the US, Canada, China, UK, Australia, Germany, France, and India – are home to around three-quarters of global climate tech firms.[4] The US still leads, as home to more than one-third of them, but its share in the amount of venture funding has declined from 2000-2004 through 2020-2023 while activity in the rest of the world has increased.[5] This trend matches the “rise of the rest” seen in overall startup activity and may also reflect the unique need for climate tech that matches the needs of smaller ecosystems and communities.[6]

In the US, five states – California, Colorado, Massachusetts, New York, and Texas – are home to more than half of US-based climate tech companies.[7] California leads by far, though its share is falling as new policies, regulations and talent pools are emerging in places like Massachusetts and Colorado.[8]

The geographic diversification of climate tech entrepreneurship should be a good thing. While companies can foster knowledge exchange and accelerated innovation if they cluster near one another, geographic diversity can offer new options for investors with varying risk/reward appetites. Entrepreneurs can also take advantage of diverse markets for talent and for customers. Geographic diversity can encourage the development of climate tech solutions that are tailored to local conditions. Finally, the rise of climate tech entrepreneurship in less-developed countries could help attract capital those countries sorely in need.

Enterprises, entrepreneurs, investors, and others with an interest in climate tech should familiarize themselves with the shifting geographic patterns of climate tech entrepreneurship and investment. Enterprises that wish to source a particular decarbonization technology, for instance, may wish to consider geographies that have fostered entrepreneurship and investment in that technology. Information exchange and competition may enrich their options. And climate tech entrepreneurs and investors may want to consider where clusters of similar or complementary technologies are located as they make founding or investment decisions. The challenge of climate change is global, and the knowledge to tackle it is spread far and wide. It makes sense for technology that makes a difference to take on a global profile too.

This article contains general information only and Deloitte is not, by means of this article, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this article.

About Deloitte 

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms. 

Copyright © 2023 Deloitte Development LLC. All rights reserved.

[1] Crunchbase, “Alarming Decline In Startup Creation Presents Challenges And Opportunities For Entrepreneurs,” July 24, 2023. Dealroom, “Guide: Global – The State of Global VC,” accessed October 3, 2023. Harri Weber, “Making sense of the latest climate tech funding trend stories,” TechCrunch, July 13, 2023. Dealroom, “Guide: Climate tech,” accessed October 3, 2023. According to Deloitte’s analysis of PitchBook global data, 46% fewer companies were founded and 28% less venture capital (VC) was invested in 2022 than in 2021. In comparison, climate tech company founding fell by 63% and funding decreased by 19% from 2021 to 2022.

[2] Pitchbook, GreenSpace Navigator/Deloitte analysis

[3] Pitchbook, GreenSpace Navigator/Deloitte analysis

[4] Pitchbook, GreenSpace Navigator/Deloitte analysis

[5] Pitchbook, GreenSpace Navigator/Deloitte analysis

[6] Richard Florida, “America Is Losing Its Edge for Startups,” Bloomberg, October 9, 2018.

[7] Pitchbook, GreenSpace Navigator/Deloitte analysis

[8] Boston Business Journal, “Viewpoint: Mass. climate-tech ecosystem is here to stay,” February 21, 2023. United States Office of Energy Efficiency and Renewable Energy, “Incubators and Accelerators,” accessed October 3, 2023. Stephanie Copeland, “How Colorado became a global tech hub,” World Finance, accessed October 3, 2023. Gary Polakovic, “Colorado’s emergence as a tech hub has CSU hosting major federal research conference Aug. 30-31,” Colorado State University, August 15, 2022. Christopher Wood, “Study: ‘Colorado Clean Range’ ranks No. 5 nationwide,” BizWest, August 28, 2022.

By: Clare Adelgren, EY Global Head of Blockchain Sales and Operations

As companies globally accelerate their decarbonization journeys, scope 3 emissions—which include all indirect emissions originating from organizations’ upstream and downstream activities such as supply chain—present a significant challenge. Although scope 3 is often the largest portion of an organization’s carbon footprint, accounting for, it is also the most difficult to measure and reduce due to a shortage of reliable data and lack of operational control over value chain activities.

Obstacles aside, the pressure for organizations to accurately measure and track their carbon footprint—particularly scope 3 emissions—has never been greater, largely due to recent regulatory developments (e.g., Corporate Sustainability Reporting Directive “CSRD”) and the demand to set and validate ambitious, science-based emissions reduction targets. To address this impact, companies need to work together with their suppliers to set goals for measuring and reducing emissions. In this case, the ability to track and trace emissions consistently along a company’s value chain is critical. The tokenization of carbon emissions—using public blockchain technology—stands out as a powerful tool for companies to unleash the full potential of voluntary carbon markets and accelerate their own decarbonization efforts.

Addressing the trust problem in carbon markets

Increased net-zero commitments by individuals, businesses and governments have been accompanied by rapid growth in carbon market trading. The demand is likely to be met if a large-scale, voluntary carbon market takes shape. However, the scale up will need to be significant—according to estimates from the Taskforce on Scaling Voluntary Carbon Markets (TSVCM), the voluntary carbon markets will need to grow more than 15-fold by 2030 and 100-fold by 2050 from 2020 levels, to support the investment required to deliver the 1.5 degree pathway.

To dramatically scale open markets for high-quality carbon products, supply for carbon credits will need to grow rapidly without sacrificing integrity. This issue of ensuring a quality supply of carbon credits at scale is tightly coupled with the need for standards and regulation in this space.

At the same time, trust and transparency will become even more vital as consumer expectations for businesses to demonstrate their commitment to sustainability grow. The 13th edition of the EY Future Consumer Index (FCI), which surveyed more than 22,000 consumers across 28 countries, found that 73% of respondents feel companies should drive positive environmental and social outcomes, and 72% feel businesses must ensure suppliers comply with high sustainable standards of practice. These findings show that consumers are increasingly holding companies accountable for their activities and role in delivering a sustainable, low-carbon future. As a result, companies will need to think critically about how they update consumers on the progress of decarbonization efforts to build confidence and trust.

Trust, but verify: blockchain’s role in unleashing the potential of carbon markets

Blockchain technology could have been designed for this exact use case—to help companies implement their decarbonization goals and make tangible progress.

Public blockchain technology is distinct in the benefits that it delivers—its inherent immutability is key and establishes the essential foundation of trust. In the case of carbon markets, companies need trust on both sides of the equation: in their measure of reduced negative impact (i.e., emissions reduction) and in their measure of positive impact (credits).

When data is shared on a public distributed ledger, a company is also able to create much-needed transparency. In addition, blockchain technology enables greater traceability of carbon credits through the supply chain, reducing the risk of double counting, as well as the reduction of the risk of human error or fraud through use of smart contracts.

Looking Ahead

There is tremendous promise in blockchain technology’s ability to bring greater trust and transparency to a space clouded by a lack of clear standards and systems for defining quality credits. The challenge now is to gain consensus on those standards and systems to strengthen the integrity of the entire chain. This is especially important as carbon credits expand into new and diverse formats, such as how they are created, what they represent, how they gain value, and other differentiated attributes.

Blockchain analytics is another bright spot. Its use is somewhat limited right now given there isn’t enough usable data to analyze. But as the carbon market matures—and regulation comes to fruition as early as this summer—companies have a significant opportunity to leverage blockchain analytics to provide a full picture and more comprehensive analysis and reporting of the carbon market value chain.

About EY OpsChain ESG

Our EY OpsChain ESG solution, launched earlier this year, is focused specifically on helping enable emissions and carbon credit transparency. Built to the data standards of the InterWork Alliance for Carbon Emissions tracking, the solution allows companies to track and report their scope 1, 2 or 3 emissions data at a product level. Similarly, an organization can also tokenize their carbon offsets data providing transparency. Immutable reporting on an enterprise’s current emissions levels that are independently verifiable through the integration of key emissions validators allows organizations to track their emissions through the supply-chain and make informed decisions that will accelerate their plans to net zero. 

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.

By: Emma Cutler, Senior Analyst, Verdantix

News of climate change- and El Nino-driven drought slowing traffic in the Panama Canal hit headlines last week. Where the news will likely never appear, however, is firms’ own reporting, even for those that experience significant losses, at least not as a climate-related loss. Though the World Meteorological Organization cites economic damage from droughts as up more than 60% on its 20-year average, companies are today blind to the risk ahead from climate change and failing to account for the climate impacts behind them. For many, it’s simply because they don’t understand it.

Companies face a growing array of climate risks more immediate and severe than previously believed, from extreme weather events disrupting supply chains to rising climate litigation and regulations against carbon-intensive industries. Despite growing corporate concern about climate change, firms do not have access to the information and skills needed to understand and act on climate risk.

Firms underestimate climate risks

Climate change impacts are already noticeable throughout the global economy. Storms, heatwaves, wildfires, floods and droughts disrupt supply chains, affect labour and resource availability, damage infrastructure and increase operating costs. These acute hazards combined with chronic changes such as sea level rise are making some assets in high risk locations uninsurable. Research from Morningstar Sustainalytics found that with 2°C of warming, the average ratio of losses attributable to physical climate risk to operating cash flow could be nearly 4% for some industries.

Despite these material financial risks, Verdantix research found that 40% of corporate risk managers expect minimal or no risk to physical operations from climate change before 2030. The reasons for this disconnect come, at least partially, from a lack of information and skills. Climate expertise is concentrated in academic settings, rather than industry, and existing climate research, models and scenarios do not adequately capture risks to businesses. In a summer 2023 survey of corporate leaders, Verdantix found that lack of data availability is a significant obstacle to climate risk analysis and management for 36% of respondents, while approximately one quarter struggle to integrate insights into decision-making processes.

Many firms do not disclose financial impacts of climate change

Fewer than 30% of firms publicly disclose climate impacts on revenues, expenditures, assets, liabilities, capital and financing. Similarly, the Verdantix Climate Benchmark reveals that across 12 of the largest software companies in the world, disclosures regarding the impact of climate-related risks and opportunities, on average, address only 40% of TCFD recommendations. In the insurance industry, average disclosures of climate impacts meet only 30% of TCFD recommendations.

However, some firms do not have the luxury of ignoring credible climate risks, and – tellingly – these risks are moving much faster making it increasingly more challenging to understand, prepare for, and invest to manage them. Industries with direct exposure to climate change – such as utilities, energy and materials – are more likely to disclose financial impacts. Insurers and big banks, whose liability is distributed and societal, are more likely to be subject to regulation and may face even stricter requirements in the future.

Under-estimating climate risks creates new threats to business

Failing to disclose climate impacts exposes firms to litigation risks. Even in the absence of climate-specific regulation, corporates who do not disclose material impacts of climate change face allegations of securities fraud. These lawsuits have direct financial impacts and can harm reputation, creating a cascade of climate risks.

Mispricing presents an additional threat of under-estimating risk. When financial impacts of climate change are not accounted for, assets may be overvalued creating price bubbles. As climate impacts progress and extreme events become more frequent and intense, overpriced assets will be devalued with potentially devastating financial outcomes for public and private sector actors.

New approaches for corporate climate risk assessment are needed

Translating academic knowledge, data and climate scenarios to support industry-relevant research is critical. The IPCC emphasizes an optimistic future in which warming is limited to 1.5°C. However, businesses also need information about the economic impacts and adaptation options of worst-case outcomes including a 4°C scenario, which the French government included in its own analysis. To improve access to and the ability to use relevant climate data, companies should grow their in-house climate skills, while also engaging with climate change consultants, advisory services and digital solutions. Understanding the financial impacts of climate change is critical for corporate climate risk management and the future of health of businesses.

By: John McCalla-Leacy, Head of Global ESG at KPMG

The world is in flux. The climate crisis is now daily news and we’re witnesses to the damage inaction can cause to our planet. For business leaders, there is a growing in-tray – of risks and daily challenges. Geopolitical and economic uncertainties are impacting the ability of businesses to function and focus on growth and companies response to the climate crisis has become a political hot-potato. With that in mind, it’s understandable that environmental, social and governance topics are at risk of slipping down the priority list in board rooms.

As KPMG’s Head of Global ESG, it’ll come as no surprise to you to hear me talk of the urgency of ESG. The reality – backed by a substantial body of evidence – is that it does matter and can’t be ignored. Political leaders will make bold commitments, and corporate spokespeople will match the rhetoric with stretching targets and figures that aim to go some way toward ‘dealing’ with ESG, but we all must accelerate the current pace of change, if we are to minimise the impact on the environment.

KPMG’s CEO Outlook is an annual snapshot of business sentiment. We spoke to more than 1,300 CEOs at some of the world’s biggest companies and across a multitude of sectors and countries. Among the topics – ESG. If we compare our 2023 findings with last year, there is some evidence that leaders are ‘softening’ their approach to ESG, but it’s heartening that, in an economically challenging and politically polarized environment, across most areas of environment, social and governance, CEOs remain steadfast in their commitment to drive positive change.

I’m based in the UK, where the Prime Minister has announced plans for a number of delays on environmental targets, including the planned phase out of diesel and unleaded cars, to ‘ease the burden’ on the public. Despite the potential shift in gear, leaders have continued to emphasize that the country will remain focused on meeting its global climate targets. This example shines a light on similar challenges facing business leaders – attempting to respond appropriately to different viewpoints while remaining true to the vision of genuinely tackling the climate crisis.

In our CEO Outlook survey, just over a third of senior executives revealed that the language they use internally and externally to refer to ESG has changed. While it’s down slightly from last year, it reveals the pressures leaders are facing to tackle a growing politicization of the topic. More positively, CEOs are recognizing that shifting political landscapes leave a gap that companies should be filling. 64 percent of leaders told us they understand CEOs have a role to play filling the void of societal changes that can be created during times of political unease – broadly in-line with last year’s findings.

I’ve spoken extensively about the unbreakable links between the E, S and G. Put simply, you can’t tackle issues like governance and societal inequalities without acknowledging challenges like the climate crisis and sustainability.

For CEOs, E, S, and G matters. We’re witnessing a wave of new regulation – across all countries and wider regions. Politicians, the public and investors are taking an increasingly critical view of the positive and negative impact companies can have on the world and they expect us to demonstrate transparency and genuine commitment to be the change makers.

Almost three quarters of CEOs in this year’s survey acknowledged that their current ESG progress isn’t strong enough to withstand the potential scrutiny of stakeholders or shareholders. Again, that figure is broadly in-line with 2022’s findings. To some, it might seem like a disappointing statistic. For me, it’s reassuring. CEOs know that they can do more and are prepared to state that their companies can and must act now. Business leaders should be challenging their own, investment decisions, business model and operations while listening to their customers and employees. Only then can they ensure that their organisation is fit to take advantage of the opportunities this net zero transition creates while remaining resilient to its challenges. I remain optimistic, that regardless of rhetoric, business leaders recognise their role in ensuring they deliver sustainable economic growth that benefits everyone and respects and nurtures our delicate planet. The time is now for us all to act.

John McCalla-Leacy is Head of Global ESG at KPMG International

By: Christina Shim, Global Head of Product Management & Strategy, IBM Sustainability Software

Next month, scientists, political leaders, and business people from around the world will gather in Dubai for the 28th United Nations Climate Change Conference. The annual event, billed COP28, will come after the hottest summer in recorded history and some of the most extreme and destructive flood in Europe and North Africa.

The stakes are real. Estimates show that more than 90 percent of businesses have at least one asset financially exposed to climate risks. Climate risks are prompting credit downgrades and raising borrowing costs for cities, countries, and companies. This year, in fact, the U.S. has already set an unfortunate record with 23 separate billion-dollar weather disasters—with months still left to go. It’s clear: the world needs to seize every opportunity it can to move toward sustainability.

The good news is that business appears on board. IBM research shows that 95 percent of organizations have developed operational ESG propositions. CEOs and their executive teams increasingly have compensation tied to sustainability goals. And four out of five CEOs expect sustainability and ESG investments to actually improve business results in the next five years. CEOs know the time to act is now.  

New technologies, often software and IT, are also giving organizations unprecedented capabilities. AI is helping consolidate and analyze massive amounts of data, giving business leaders insights on how to reduce energy costs, minimize waste, and lower emissions. Sensors and software are helping enable predictive maintenance that can significantly extend the life of infrastructure. Technologies are also optimizing how organizations use the Cloud and helping fuel smarter and more sustainable supply chains.

Turning ambition into action

The bad news is that there may be a gap between perception and action. New survey data—collected this August by Morning Consult for IBM’s 2023 Sustainable Business Snapshot—shows that an impressive 93 percent of sustainability and IT decisionmakers think their company is somewhat or very mature in using data to track sustainability progress. Yet only 42 percent of that same group say they are ready to report on Scope 1 emissions—the greenhouse gas emissions directly controlled by an organization.

The report, which polled 3,250 global business leaders from companies with 1,000 or more employees, found that surveyed executives broadly understand that IT investments impact their organization’s sustainability. Nearly two-thirds of organizations have dedicated budgets to apply IT toward sustainability, and 38 percent plan to significantly increase their spend in the next year.

Yet, while the respondents feel mature in tracking sustainability, the metrics that they describe collecting suggest another story. About half track energy consumption. A little less than that track Scope 1 and Scope 2 emissions. Only a third measure supplier metrics. Moreover, 60 percent say that reporting and compliance is challenging. Eighteen percent say additional investment in IT for sustainability is hindered by lack of data or insights on a path forward. Another 18 percent said they have no strategy at all.

Innovating toward a low-carbon future

This week precedes another weekslong event starting in November: the UN Climate Change Conference, or COP28. Since 1995, these meetings have sought to foster collaborative action on climate change, resulting in the famous 1997 Kyoto Protocol and 2015 Paris Agreement.

For businesses that need a strategy on IT and sustainability, those that need more data and insights, and even those who just want to accelerate progress toward their sustainability goals, now is the time to take action—and COP28 will be an opportunity to both find solutions and demonstrate commitment to a more sustainable future.

While some businesses may be overconfident, it’s hugely promising that the vast majority are motivated.  A clear-eyed, data-driven assessment will let them better see where they are, where they want to go, and how to get there. Then, organizations can align business and sustainability objectives, and build data-driven feedback loops that operationalize sustainability end-to-end.

Fortunately, technology that can help is improving every day. Survey data suggests organizations are leaning in; despite the complexities surrounding AI, 91 percent of respondents to IBM’s Sustainable Business Snapshot felt AI will play a positive role in helping them achieve their sustainability objectives. Forty percent reported already using AI in these efforts, with another 40 percent planning to adopt it soon.

As so many recent events make clear, building a more sustainable world has perhaps never been more important—or necessary. Confidence is high, and technology is available, but action needs to be commensurate. As COP28 approaches, let’s make sure we use every tool at our disposal for this important work.

By: Dr. Jan-Hendrik Gnändiger, Global ESG Reporting Lead, KPMG

The world is in flux. Business leaders are facing a myriad of crises and challenges – from rising interest rates and inflation to supply chain blockages, driven by the war in Ukraine.

You might argue that now is not the time to be adding to the growing to-do list for CEOs and other corporate decision makers, but the reality is that there’s no going back on sustainability.

In recent months, political leaders and organizations have ramped up their response to sustainability. Years of dialogue are finally shifting toward action – in a matter of months, the first tranche of mandatory ESG reporting regulations will come into force in the EU and will even impact many companies not headquartered there. For boardrooms, that means greater clarity on what’s expected and should be a wake-up call for any leaders who doubt change is on the horizon.

The big shift toward greater global regulation began with the publication of the first of the International Sustainability Standards Board (ISSB) Standards. The ISSB was founded with a clear goal of creating a global baseline of sustainability disclosures – to address the fragmentation of frameworks globally and to drive greater consistency and comparability. On the regulatory side, IOSCO – the international body of securities’ regulators – has endorsed the ISSB Standards and countries are considering how to incorporate them into their regulatory frameworks.

In parallel, the European Commission has also made substantial progress – developing the Corporate Sustainability Reporting Directive (CSRD) and most recently adopting the European Sustainability Reporting Standards (ESRS) for any companies falling within the CSRD’s scope beginning from 2024 onwards and including a clear assurance obligation. Hot on the heels of their European and international counterparts, the Securities and Exchange Commission in the US is finalizing its climate rule.

Time is running out to get ready for the new ESG reporting requirements. But this goes beyond compliance. The world’s northern hemisphere has just witnessed a summer of wildfires and storms – reflecting the growing battle we’re facing against a climate crisis. For businesses, it’s more important than ever to play a key role in delivering a more sustainable, equitable future – one that works for us all, and respects the planet that provides us with the resources that enable us to flourish.

For CEOs, a raft of regulatory change can be daunting, but it’s important to reflect on why this is happening. Although there will inevitably be some divergence and bureaucratic challenges ahead, the goal is to create a more streamlined, consistent approach to how companies report on ESG. In KPMG’s 2022 CEO Outlook survey, nearly 70 percent of leaders told us they were facing rising public, investor and stakeholder pressure for increased ESG reporting and transparency. Meanwhile, changing regulations and global economic uncertainty were viewed as the greatest barriers to tackling ESG.

The data clearly reflects a growing commitment to ESG, but one that’s matched with a fear that reporting could become increasingly complex and contradict the ultimate goal of consistency in reporting. That’s why, with multiple incoming frameworks, standard setters and other stakeholders are keen to maximize the overlap in the requirements and hence their interoperability.

If you’re a business leader and you’re wondering what steps to take, my advice is clear. Companies need to take action now to ensure they’re ready for the changes ahead. The first steps should be assessing which new requirements impact your operations and determining what is material. These should be followed by a relentless focus on data collection – ensuring you’re monitoring all material aspects of your business and turning that data into insights which can assist with reporting.

Companies can then use this data to develop a strategic roadmap, plotting a more sustainable, transparent route ahead that factors in any potential risks or opportunities for growth. In addition, it is not just a matter of setting up a new ESG reporting process, but also about preparing for assurance on ESG reporting under the new requirements.  

Sustainability reporting is complex and, for an already overwhelmed boardroom, there is a danger it could slip down the growing list of urgent priorities. For leaders, seek advice from experts, convene and plan. The crises driving the need for changes to sustainability reporting show no sign of abating any time soon, so further mandatory regulation is inevitable. It’s an opportunity for the business community to take a leading role in driving positive change.

.Dr. Jan-Hendrik Gnändiger is KPMG’s Global ESG Reporting Lead

By John Shegerian, Chairman and CEO of ERI

One of the lesser-known strategy for companies to attain their ESG and decarbonization targets is the responsible recycling of electronic waste.

E-waste is the fastest growing solid waste stream on the planet — by a margin of 2 to 4 times the speed of the second fastest growing stream. Spurred by increasing consumer demand for the newest technologies and the shortening life spans of many devices, e-waste is piling up in landfills both domestically and abroad. Despite the steady increase in the amount of e-waste being generated each year, a mere 17% is being responsibly recycled.

The straightforward solution: enterprises and all types should explore the responsible recycling of their e-waste. By realizing the potential of responsible ITAD and e-waste recycling disposal, businesses can make significant strides towards fulfilling their ESG goals and circular economy ambitions.

A Circular Economy

Through the recycling of e-waste, businesses can substantially mitigate their ecological impact and align with the “E” in ESG. E-waste frequently contains hazardous materials and valuable resources, underscoring the importance of appropriate disposal and resource reclamation.

Embracing responsible e-waste recycling can be a significant step towards realizing circular economy goals. Rather than perpetuating the linear “take, make, dispose” model, a circular economy minimizes waste, conserve resources, and promote sustainable product lifecycles. By ensuring that discarded electronic devices are recycled and reintegrated into the production cycle, businesses contribute to a more sustainable and efficient economic model.

Electronic devices are a perfect entry point into the circular economy. To make a tablet or cellphone, you have a metal or plastic case, computer components, wires, etc. Metals such as copper, iron, silver, lead, tin, and aluminum are typically mined from the earth and then used in manufacturing to create components required for new devices.

By working with an e-waste recycling or ITAD company that is transparent and able to track all materials from each device processed, an opportunity is created for businesses to not only do the right thing for the planet, but also demonstrate their impactful efforts via ESG or sustainability reports. 

A Distinct Advantage for Businesses

E-waste recycling also offers tangible business advantages. It enhances brand reputation and constituent trust. Consumers today value businesses that demonstrate a commitment to sustainability. By responsibly managing e-waste, businesses position themselves as responsible corporate citizens and environmental stewards.

Extracting valuable materials from recycled electronics also reduces the need for purchasing virgin resources, resulting in potential cost efficiencies.

In short, responsible e-waste recycling is a direct stride toward achieving ESG objectives and fostering a circular economy. By harnessing the environmental, social, and business advantages of appropriate e-waste disposal, a company of any size can make significant progress in the effort to reduce its environmental footprint, conserve resources, and enhance its reputation.

Incorporating responsible e-waste recycling into an ESG strategy is an easy win that literally is in the palms of all of our hands. 

About the author:

John Shegerian is Chairman and CEO of ERI, the largest fully integrated IT and electronics asset disposition provider and cybersecurity-focused hardware destruction company in the United States. ERI is the first and only company in its industry to achieve carbon neutrality at all its facilities nationwide, and the first to achieve SOC 2 Type I and II certifications for security and data protection. ERI has the capacity to process more than a billion pounds of electronic waste annually at its nine certified locations, serving every zip code in the United States. ERI’s mission is to protect people, the planet and privacy. For more information about e-waste recycling and ERI, call 1-800-ERI-DIRECT or visit https://eridirect.com.

By: Reinhilde Weidacher, Managing Director, Head of EMEA Solutions, ISS Corporate Solutions

The European Sustainability Reporting Standards (ESRS), adopted at the end of July, require companies to comprehensively report on their due diligence processes under the four pillars of governance; strategy; impact, risk and opportunities; metrics and targets. This covers how companies embed due diligence in governance, strategy and business models, engage with affected stakeholders, identify and assess negative impacts on people and the environment, take action to address those impacts and track the effectiveness of these effort. At the same time, the ESRS don’t impose specific sustainability due diligence obligations.

Why Do Due Diligence Procedures Assume Such a Central Role?

• 3% of monitored companies[1] have faced grievances during the past 12 months over alleged negative human rights and environmental impacts at their operations or along their supply chains. A company’s ability to prevent such issues and, where that fails, respond to these grievances in a timely and relevant manner is paramount for sustainable economic development and is critical for the success of a business.

• Investors are paying close attention. Under the Sustainable Finance Disclosure Regulation (SFDR) they have to disclose a Statement on principal adverse impacts (PAIs) of investment decisions on sustainability factors. Mandatory indicators include the share of investments in companies that have been involved in violations of the UNGC principles or OECD Guidelines for Multinational Enterprises, as well as the share of investments in companies without policies to monitor compliance with those standards and/or mechanisms to handle grievances or complaints regarding possible violations.

• The concept of sustainability due diligence sets out procedures aimed at preventing and mitigating adverse impacts of business activities. It has been developed and refined through extensive stakeholder consultations since the early 2000s. The United Nations Guiding Principles on Business and Human Rights are a set of 31 principles organized under a 3-pillar framework: protect, respect and remedy. They were adopted by the UN Human Rights Council in 2011 and have since been widely endorsed by governments, NGOs and business. The OECD Guidelines for Multinational Enterprises are recommendations for responsible business conduct adhered to by 51 governments.

What is the Status of Endorsement of these Frameworks?

Endorsement of these frameworks varies widely between regions and industries, with Europe showing the highest level of support for the UN Guiding Principles on Business and Human Rights (UN GPs) and the OECD Guidelines for Multinational Enterprises (OECD GLs).

[1] ISS Corporate Solutions, ESG News Data, covering 17,250 companies globally, August 14, 2023.

By: Jake Kuyer, Associate Director, and Sarah Nelson, Senior Economist at Oxford Economics

Imagine buying a second-hand car. What information would you like to know? Perhaps its model year, odometer mileage, and fuel efficiency would help you assess how much it will cost to run and how polluting it might be. Maybe you’d like to have a mechanic check under the hood, to assess the risk that your new purchase will sputter out as you drive it off the lot.

Now imagine that the car dealer refused to tell you the mileage and won’t let a mechanic take a look at the car. Would you buy it? Probably not. This example, based on George Akerlof’s classic “market for lemons” theory, shows how market failures arise from a mismatch between what the seller knows and what the buyer knows or — as economists would put it — from an information asymmetry.

Information asymmetries abound in financial markets. Investors can’t know all the ins-and-outs of a company, but they must make their investment decisions anyway. Financial regulators like the US Security and Exchange Commission (SEC) can help, by requiring companies to disclose any risks and dependencies that are financially material.

If the SEC could assist in our ill-fated car sale, it would require the dealer to hand over the relevant information. It would also set out how that information should be presented, so that you can easily compare it to information provided by other dealers. They would help you make the best decision on your car purchase and help the market run efficiently.  

Compulsory impact disclosure

The SEC has recently announced two major proposals to help investors understand their impacts and risks. Most of the time, the SEC’s announcements are met with a collective yawn by the public and politicians alike. Its latest proposals, however, have been making waves.

In March last year, the Commission published a proposal that would require listed companies to disclose climate-related impacts and risks to their business. The rules follow the recommendations of the Taskforce for Climate-Related Financial Disclosures (TCFD), recently brought under the umbrella of the International Sustainability Standards Board, itself aligned with the International Financial Reporting Standards to which most companies in the world align their financial reporting. The TCFD recommendations have already been adopted in some form by the European Union, the UK, Canada, and other major US trading partners.

The SEC followed this announcement in May 2022 with proposed amendments to how funds and advisors incorporate environmental, social, and governance (ESG) factors in their investments. Funds would have to provide more information for ESG-labelled assets, including disclosing the impacts of any assets with specific goals and reporting progress with reliable metrics.

While investors have been mostly supportive of the proposals, the reception from some politicians has been frosty, to say the least. Opponents have claimed everything from agency overreach to violations of free speech and partisan activism. To the contrary, the proposed regulations do not interfere with capital market valuation. The SEC is not in the business of directing investment or making value judgements — that’s for investors to do.

Arguably, that is literally investors’ jobs: to put a price on a company by buying or selling stocks.  The SEC’s proposals are about ensuring relevant information is available, not what is done with it. If an investor decides they aren’t concerned about climate-related risks and other factors, then they don’t have to act on them.  

Trust in the claims

Climate change is only one factor that could materially affect investments’ value and returns. Regulation in Europe has taken a broad approach to risk disclosures that highlights other considerations. Nature-related dependencies include the threat that biodiversity loss will cause disruptions to its upstream supply chain, often in countries far beyond the company’s direct sphere of influence. Social and geopolitical factors come into play as well.

The SEC’s proposed disclosures take a relatively limited stance to risk disclosures by focusing only on climate risks, but it is a key first step in providing investors with material information to support their decision-making process. Meanwhile the proposed amendments to ESG claims will help avoid mislabelling and thereby mis-selling financial products. It makes sense that consumers of financial products should be able to trust the claims being made about what they are considering investing in.

Deciding the value of a company in the face of a changing climate and economy is significantly more complex than purchasing a used car. But the same principles apply. Being able to compare products and understand the risks is essential to your willingness to complete a trade. Climate disclosures and ESG claims do not tell you whether you should buy a share or not — just as a car mechanic doesn’t make the final decision on your purchase. But the information they both provide will give you an indication of the risks and rewards involved, allowing you to make a more informed decision.

What car buyer wouldn’t want to make their purchase based on the best information available? American investors, operating in one of the most mature, innovative, and successful capital markets in the world, deserve the same benefit.