As COP27 rolls into its second week, it’s worth keeping an eye on its thematic days and the discussions around them. Adaptation and agriculture; gender; water; ace and civil society; energy; biodiversity; and solutions are some of the subject matters being scrutinized in Egypt over the coming days. 

The vision for this year’s conference was to be “the turning point where the world came together and demonstrated the requisite political will to take on the climate challenge through concerted, collaborative and impactful action”. While the attendees wrestle with that challenge, the world watches anxiously. 

Whatever the outcomes at Sharm el-Sheikh, this is definitely not a time for inaction.  The environmental, social and governance (ESG) risks and opportunities around us will not melt away like the Arctic sea ice. Because climate change has profound implications for business, the timing could never be better to take our ESG and Climate education programs. 

1. Climate countdown. The European Central Bank (ECB) has revised their deadlines for banks to deal with climate change and environmental risks. They now have until the end of 2024, under the terms laid out by the ECB’s guide that was published in 2020. The ECB set the new deadlines as a result of its thematic review, which found that even though 85% of banks now have basic measures in place, they are all a long way from effective implementation. Almost all (96%), have major blind spots in seeing climate change and environmental risks. The ECB covered 186 European banks, large and small, in its thematic review.

2. Clearing the air. The European Union has agreed to create a new law that means its 27 member states have to set targets to reduce carbon emissions by 2030. Agriculture, domestic maritime transport, heating of buildings, road transport, small industrial installations and waste management are the prime sectors targeted by the new legislation. These sectors currently generate 60% of greenhouse gas emissions in Europe. The Effort Sharing Regulation (ESR) aims to spread the cost of these cuts in a fair way. Richer countries, such as Denmark, Germany, Luxembourg and Sweden must make 50% reductions, while for countries like Bulgaria the target is 10%.

3. Leaders with attitude. A new survey conducted by University of Oxford and Protiviti has highlighted huge differences in business approaches to ESG around the world. While only one in four (25%) of North American respondents said that ESG strategy would be extremely important by 2032, 58% in Europe and 71% in the Asia-Pacific region said that would be true. 

Although just under two-thirds (64%) of all respondents expected that corporate spending on managing environmental risks would rise in 10 years’ time, the majority of North American business leaders (61%) expected that their company’s environmental spending would stay about the same or even decrease. Disclosures drew more unanimity: 78% of the executives believed that ESG reporting would be mandatory in 10 years’ time. Executive Outlook on the Future of ESG, 2032 and Beyond surveyed 250 board directors, C-suite executives and business leaders across North America, Europe and the Asia-Pacific region. 

4. Asset managers united. More than 290 asset managers around the world have now committed to changing their portfolios to meet net-zero greenhouse-gas emissions targets. The group, which collectively represents more than US$66 trillion in assets under management, has signed up for the Net Zero Asset Managers (NZAM) initiative. So far, 86 of those 290 have disclosed these revised targets, which means that already $US21 trillion in funds have a firm commitment to be net zero by 2050, or earlier. The NZAM initiative is part of the Glasgow Financial Alliance for Net Zero (GFANZ). It was originally created by the Asia Investor Group on Climate Change (AIGCC), CDP, Ceres, Investor Group on Climate Change (IGCC), Institutional Investors Group on Climate Change (IIGCC) and Principles for Responsible Investment (PRI).

5. Pay to play. More and more S&P 500 American companies are linking executive compensation to ESG performance, rising from 66% in 2020 to 73% last year. That is one of the primary findings from the latest Conference Board Report, Linking Executive Compensation to ESG Performance. The report also found that diversity, equity and inclusion (DEI) goal-setting was increasingly important for these companies, with more than half (51%) making it a priority, up from 35% in 2020. Companies are using different ways to factor ESG measures into compensation plans. Some companies have also moved on from simply including those measures in individual, qualitative performance metrics. Now they want ESG performance as a more quantitative part of their company’s overall financial performance, data which fits much better with investors’ preferences and expectations. The Conference Board produced the report in partnership with Semler Brossy and ESG data analytics firm ESGAUGE.

Mathew Loup is Competent Boards’ Director, Marketing & Communications. Follow Competent Boards on LinkedIn.

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