Dear CEO Letter

When the FCA wants companies to notice important trends or impending changes in regulations, they send out what is called a dear CEO letter; we are witnessing the biggest shakeup in financial reporting and how companies run their business. This not only represents more accountability, reporting and risk, but tremendous business opportunities.

Leading accounting firm BDO put out a position paper titled: “Action Required: Sustainability and ESG‑Related Regulations Are on the Rise Globally – Climate change is the catalyst for many ESG-related actions undertaken by regulators, policymakers and international standards developers around the globe. These important actions are driven by the economic impacts of climate change, demand for more transparency, increased expectations for corporate accountability and climate-related risk management, and the ambitious targets set by countries to reduce emissions and fight climate change."

This blog looks at some of the impending legislation in the EU. Similar trends are increasing worldwide – the US, India, Canada, Singapore, South Africa, New Zealand, and numerous others.

Supply Chains

The immediate impact is on the supply chain – The environment, and social goals. material sourcing, fair labour practices and disposal of waste. One of the factors influencing this is the EU Taxonomy policy and the imposition of The EU’s Carbon Border Adjustment Mechanism (CBAM), a tax on imports into Europe.

Carbon Border Adjustment Mechanism

The CBAM will initially apply to imports of certain goods and selected precursors whose production is carbon intensive and at the most significant risk of carbon leakage: cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. With this enlarged scope, CBAM will eventually – when fully phased in – capture more than 50% of the emissions in ETS-covered sectors. Under the political agreement, the CBAM will enter into force in its transitional phase as of 1 October 2023.

Product ESG

The output of CBAM will lead to every product having an ESG / Carbon score. This will be further led by consumer awareness of the harmful practices of pesticides and chemicals in food, unfair (slave) Labour in the production of clothing, and wastage in the food ( fresh produce, meat, and fish) industries.

Localised Production

Another byproduct will be focusing on more locally sourced, environmentally friendly products. This could be in food – rrban farming, vertical farming, improving supply chain reliability and avoiding long-distance transportation.

Reporting

This will be driven by the EU Corporate Sustainability Reporting Directive (CSRD) On 10 November 2022, the European Parliament voted overwhelmingly to pass the Corporate Sustainability Reporting Directive (CSRD)—a major ESG regulation that brings together financial data, ESG information and assurance for the first time. The full proposal text can be read here. That path is now unavoidable for organisations based in the EU or with subsidiaries within the region.

With the CSRD confirmed, companies are facing up to some unavoidable facts:

• ESG is entering the annual reporting process.

• Sustainability information will sit alongside financial information.

• The amount of data that needs to be collected will greatly increase.

• The number of people involved in the integrated reporting process.

• Sustainability information will be audited.

The EU Waste & Water Recycling Policy

This is a set of policies and regulations aimed at promoting sustainable waste management and water resource management practices throughout the European Union. The policy seeks to reduce the environmental impact of waste and ensure that resources are used efficiently.

Transport

Transport is a key focus area for EU proposals, with measures targeting road, aviation and marine. The proposals would require average emissions of new cars to come down by 55% from 2030, only allow sales of zero-emission cars from 2035, expand EV charging networks, obligate fuel suppliers to increase levels of sustainable aviation fuels (SAF) for aircraft, and promote the use of sustainable maritime fuel and zero emissions technologies for ships.

Buildings & Energy

The European Council requires all new buildings to 2030 to be zero-emission and to achieve a decarbonised building stock by 2050. “Buildings are Europe's single largest energy consumer, using 40% of our energy and creating 36% of our greenhouse gas emissions. That is because most buildings in the EU are not energy efficient and are still mostly powered by fossil fuels. We need to do something about this urgently, as over 85% of today’s buildings will still stand in 2050 when Europe must be climate neutral. Improving our homes is also an effective response to high energy prices – the worst-performing buildings in the EU consume many times more energy as new or properly renovated ones. And it’s often the most vulnerable who live in the least efficient houses and therefore struggle to pay the bills. Renovation reduces both the energy footprint of buildings and the energy costs for households, while also boosting economic activity and job creation.” This represents a tremendous challenge and opportunity for businesses.

Stock Exchanges

It is worthwhile to look at Euronext, which launched the BEL® ESG index Designed to meet sustainable investment needs, the new BEL® ESG index tracks the Brussels-listed companies demonstrating the best Environmental, Social and Governance (ESG) practices Relying on Sustainalytics data, the index is fully compliant with the ‘Towards Sustainability’ label by the Belgian Central Labelling Agency (CLA).

We can learn quite a bit of information by looking at the criteria of ‘Towards Sustainability’ label by the Belgian Central Labelling Agency (CLA) The "Towards Sustainability" label by the Belgian Central Labelling Agency (CLA) is a certification program that aims to promote sustainable business practices in Belgium. To be eligible for the label, companies and organisations must meet certain environmental criteria established by the CLA.

The criteria cover a range of environmental issues and are as follows:

Waste reduction: The company must have a waste reduction program, which includes measures such as waste sorting, recycling, and composting.

Energy efficiency: The company must have an energy efficiency program in place, which includes measures such as energy audits, the use of energy-efficient equipment, and the implementation of energy-saving practices.

Water conservation: The company must have a water conservation program in place, which includes measures such as the implementation of water-saving technologies, the monitoring of water usage, and the reduction of water waste.

Sustainable transportation: The company must have a sustainable transportation program in place, which includes measures such as the use of public transportation, carpooling, cycling, and the promotion of telecommuting.

Responsible sourcing: The company must have a responsible sourcing program in place, which includes measures such as the use of sustainable and fair trade products, the reduction of waste in the supply chain, and the implementation of ethical business practices.

The certification process involves an independent auditor's assessment of the company's environmental performance. The auditor evaluates the company's policies and practices in relation to the environmental criteria established by the CLA and makes recommendations for improvement where necessary.

Once a company has been certified, they are authorised to use the "Towards Sustainability" label on their products, marketing materials, and other communications. The label provides consumers with a visible indication that the company is committed to sustainability and environmental protection.

So, where can you start in your ESG or sustainability journey?

There is a minefield of information and a lot to digest. The leading accounting firms bring out some resources; You can use Chat GPT!! You can follow the Upgrading ESG group on LinkedIn, with many interesting articles.

While this may sound simple, The ESG journey starts with an assessment of “Double materiality,” which assesses the risks a company's activities pose to the environment and society. From this base, applying ESG principles has the potential to transform your business to achieve higher profit and impact. And that is what Upgrading ESG, together with its leading provider network, brings to the table.

Outsourced ESG and Sustainability Services

• Materiality assessment – Strategy, risk & opportunities

• Supply Chain assessments and verification

• Carbon Accounting

• Audited ESG Rating for your company

• ESG Report

• Bringing concrete ideas to upgrade ESG into Impact

This is an opportunity for your company to win new customers and business and bring efficiencies and cost savings. I invite you to contact me at jeffrey@upgrading.com or Whats App - +972 54 666 8182 and learn more about Sustainability and ESG by browsing www.upgradingesg.com.