By Dave Johnson, Phylmar newsletter editor
Four out of five leading companies worldwide now report on sustainability in regard to revenue, according to KPMG’s 2020 Survey of Sustainability Reporting. Sustainability reporting has been trending up for decades yet in 1993, KPMG’s first study found a paltry 12 percent of companies published sustainability reports. Now 98 percent of top revenue firms in in the United States issue reports (and KPMG’s most recent survey covers the top 100 companies in 52 countries).
A more recent development is reporting on financial risks of climate change/climate risk. Approximately 40 percent of polled companies reported on climate risk in 2020, factoring Environmental, Social and Governance information (ESG) into their assessment of corporate performance and risk. Social includes worker health and safety performance measures. Third-party assurance of sustainability data in corporate reporting is now gaining traction to avoid claims of “greenwashing” and is now a majority business practice worldwide. According to the KPMG study, large global companies are typically leaders in sustainability reporting and their reporting activity often predicts trends that are subsequently adopted more widely.
Risk is the new lens through which investors and corporate managers consider sustainability and ESG issues. The change in attitudes toward the financial risks of climate change was triggered in 2015 when the Task Force on Climate-related Financial Disclosures (TCFD) revealed that the financial risks inherent in climate change were being under-reported or not reported at all.
Sustainability and ESG non-financial reporting have accelerated at a rate outpacing harmonized standards for this type of corporate accountability, frustrating both investors in ESG funds and business management. The lack of consensus in reporting requirements has been drawing global attention, but here are some ways it is improving:
- The European Union is updating the EU Non-financial Reporting Directive and is considering developing non-financial reporting standards.
- The World Economic Forum released its paper on common metrics and consistent reporting for sustainable value creation, defining 21 core metrics.
- The five major non-financial reporting organizations — Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), International integrated Reporting Council (IIRC), Climate Disclosure Standards Board (CDSB) and Carbon Disclosure Project (CDP) — published a Statement of Intent, committing to work together toward comprehensive corporate reporting.
Environmental health and safety professionals are contributing to assessing their employer’s climate risks and potential health effects. Most obvious are physical risks such as the operational impacts of extreme weather events or supply shortages caused by water scarcity. Transition risks arise from society’s changing response to climate threats and include changes in technologies, markets and regulation that can increase business costs, undermine the viability of existing products or services, or affect asset values. Another climate risk for companies is the potential liability for emitting greenhouse gases (GHG). An increasing number of legal cases have been filed directly against fossil fuel companies and utilities, holding them accountable for the damaging effects of climate change.
An example of a direct operational impact of one physical climate risk- wildfires- was demonstrated in 2020 when Pacific Gas & Electric emerged from Chapter 11 bankruptcy after its long-neglected electrical grid ignited a series of blazes in California that killed more than 100 people. The nation’s largest utility paid $5.4 billion in initial funds and relinquished 22.19 percent of its stock into a trust for victims of wildfires caused by its outdated equipment.
In California alone, wildfires have already destroyed an area almost the size of the state of Connecticut (3.2 million acres). Dry conditions fueling fires (and aided by gusty winds) are expected to continue across eastern Oregon, California, Nevada, and western Montana. In the western U.S., wildfire season has lengthened by about three days per year since the 1970s due to rising temperatures.
“Protect Yourself: Wildfire Smoke Employee Training” developed by the Phylmar Academy is a 45-minute online course available 24/7/365. It covers: the health effects from exposure to wildfire smoke; recognizing symptoms of exposure; ways to protect yourself and co-workers if symptoms arise; supervisory requirements to protect employees when the air quality is hazardous to health; and how to access, read and interpret the air quality index.
If you don’t have a formal sustainability program, chances are good that your company has already harvested some of the “low hanging fruit” long ago. For example, energy and reduction projects with a significant ROI have often already been implemented to both save money and demonstrate environmental improvements. Just as the focus on ESG is ramping up globally, many companies find themselves having to dig deeper to identify ways to reduce their GHG emissions. This challenge requires a broader approach requiring creativity across multiple functional groups within a company, as well as looking outside their own fence lines to identify opportunities for reductions. Here are some examples of the ways to find opportunities once the low hanging fruit is gone:
- Know your baseline (in detail). To find opportunities for improvement, you must have reliable data characterizing your baseline. It is not enough to know how big your footprint is. Do you know where your emissions, waste, and water usage are coming from? Which site, process, or part of your value chain offers the most opportunity for improvement?
- Consider a lifecycle approach. Take a “cradle-to-grave” look at the raw materials, manufacturing, and even use of your products. Understand where changes can be made from deep into your supply chain through consumer usage and disposal.
- Educate and engage your employees. Improvements can be identified by nearly every function of a company – procurement can find better supply chain options, product managers can evaluate better packaging options, and logistics can find less resource-intensive ways to transport raw materials and products. Invest in training and internal stakeholder engagement to find the synergies across functional groups.
Utilities, mining, tourism, consumer goods, automotive and energy companies are at the forefront of cutting their carbon footprint. This is a challenging, complex, and decades-long endeavor. Reporting of actual carbon emissions is a start, and a Deloitte 2019 survey showed that almost 7,000 companies shared their emissions to the Carbon Disclosure Project, twice as many as in 2011. Setting emission targets is a next step that few companies have taken, according to a Deloitte survey of European CFOs. Twenty-seven percent of companies surveyed set autonomous carbon emission reduction targets. One in two companies have not set any target at all. Pressure from stakeholders is increasing the proportion of companies with various emission targets in place, but it remains well below 50 percent.
The “E” in Environmental gets most of the attention in sustainability programs and ESG reporting. Safety and health professionals are natural proponents to promote the “S” in Social, which includes safety and health performance metrics. In the past, these reported metrics have been mostly lagging indicators, focusing on number of injury incidents and lost workdays. The U.S.-based Center for Safety and Health Sustainability, launched in 2011, developed leading indicator metrics for sustainability and ESG reporting. Leading indicators include work locations that have implemented an occupational safety and health management system; locations that have had their systems audited; and activity-based programs such as training, hazards identified and corrected, behavioral observations, and facility audits.
The COVID-19 pandemic has put a spotlight on the “S” in terms of employee health, well-being and safety, and the potential exists for worker health and safety performance measures to be a bigger part of sustainability and ESG reporting.
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