Government policies introduced in 2021 will have long-lasting effects on corporate sustainability.
It became clear during the COVID-19 pandemic that businesses that were already leaders in sustainability were more resilient to disruptions. This awareness, alongside a host of new government regulations introduced in keeping with the philosophy of Cop26, accelerated the move towards sustainability.
Net zero commitments
The new Net Zero Strategy was published with a detailed guide to how the UK Government plans to deliver its Net Zero emissions targets for 2050. The key strengths of the strategy are its ambition and its scope: aligning to emissions targets, tackling cross-cutting challenges and implementation across the economy. However, the cooperation of the corporate world is essential for the proposals outlined to be successful.
As a result, there is now more pressure from main contractors on their supply chains, with leading UK businesses like Rolls-Royce, AstraZeneca, Vodafone, BT Group, British Airways, Unilever, Shell and Sainsbury’s committing to reducing emissions, including those of scope. These commitments are naturally becoming part of procurement processes and requests for proposals; purchasers are obliging suppliers to deliver the same goods or services with lower associated emissions and expecting them to live up to their sustainability standards.
With regard to investment, financial institutions are now committed to ensuring that they do not directly or indirectly finance activities that will have a negative impact on the environment. This means that funding that would have previously gone to fossil fuels will now be diverted to renewable energy or products that subsidise environmental sustainability. The methods that businesses can access trade finance and insurance products will change as investors become more discerning.
This means that in practice, a company that improves on sustainable performance will be in a better position to create future investment opportunities and long-term financial benefits. Of investors surveyed by PricewaterhouseCoopers, 79% say the way a company manages ESG risks and opportunities is an important factor in their investment decision making.
At Cop26 this year, countries were encouraged to present ambitious 2030 emissions reductions targets that would align with reaching net zero by the middle of the century. The conference concluded with a pledge to accelerate action on the climate crisis through collaboration between governments, businesses and civil society. The conference was also termed the ‘Business and Finance COP’, referring to the leading role the corporate world has taken this year.
During the summit the UK government also invited the world to participate in the UN initiative Race to Zero, encouraging organisations to commit to achieving net zero emissions by 2050. The coalition of leading net zero initiatives represents 733 cities, 31 regions, 3,067 businesses, 173 of the biggest investors, and 622 Higher Education Institutions. Of the companies involved, over half come from the UK private sector.
Decarbonisation plans are under more and more scrutiny from both investors and from consumers. From 2022, all large companies in the UK must make public climate risk disclosures, and from 2025 all companies will be subject to the mandatory legislation. All listed companies must also present net zero transition plans by 2023.
If the UK can achieve its ambitious zero carbon emission objective before 2050, it will prove to be an international leader in global efforts to tackle climate change.
A large part of the corporate move to sustainability is driven by finance, and in June of this year the UK set up the Green Technical Advisory Group (GTAG) to oversee the delivery of the UK’s “Green Taxonomy,” following a similar framework to that of the EU. The Green Taxonomy will move the UK
toward a sustainable finance market by setting the bar for investments according to these six environmental objectives:
- Climate change mitigation
- Climate change adaptation
- Sustainable use and protection of water and marine resources
- Transition to a circular economy
- Pollution prevention and control
- Protection and restoration of biodiversity and ecosystems
Performance criteria are known as the ‘Technical Screening Criteria,’ which categorise how sustainable an economic activity may be, identifying those companies with a credible environmental strategy. Companies that fall within this framework would be UK registered corporates, certain UK listed issuers, UK asset managers and asset owners such as pension schemes and insurers.
Companies that do not directly fall into scope for mandatory disclosure can use the Taxonomy on a voluntary basis: investment will inevitably drive their sustainability plans no matter where they are in the supply chain.
It is clear that 2021 has set out the future of corporate sustainability and all businesses, large and small, will soon be on the same path.
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