John Devaney of CPA Ireland says businesses should not avoid the issue of sustainability because of Covid-19.
Many businesses have been focusing on keeping the lights on rather than what energy is used to power them.
Irish companies are at risk of losing ground on competitors by failing to address sustainability issues. In many cases, this is a direct result of Covid-19. In a recent study carried out by economist Jim Power, over a third of CPA Ireland members (37%) said that COVID-19 has been directly responsible for delaying the implementation of environmental sustainability strategies for their clients.
This is understandable as many businesses have been focusing on keeping the lights on rather than what energy is used to power them. However, in 2021 as we hope to return to some form of normality, it is essential that businesses refocus on the sustainability agenda.
In the early part of 2020, the European Commission unveiled the European Green Deal which was described by President Ursula Von Der Leyen as Europe’s “man on the moon moment”. The trillion-euro programme aims to transform the EU into a low carbon economy within a decade and into the world’s first carbon-neutral economic and trading bloc by 2050.
Last month the Irish government published its own ambitious Climate Action Bill which aims to see Ireland reach net-zero emissions by 2050. Increased carbon taxes and tighter regulations are inevitable and the best way to minimise their impact is for businesses to chart their own course towards carbon neutrality, ideally long before 2050.
But there is a much deeper business dynamic at work as well. A growing trend in recent years has seen global corporations like Microsoft sign up for ambitious climate change targets including carbon neutrality by 2030 – well ahead of the 2050 deadline being set by governments. In some cases, they are even aiming at carbon negativity in a form of payback for the emissions they generated earlier in their existence.
And those policies are being passed along the supply chain. Suppliers to the world’s top companies will increasingly have to espouse the same environmental targets and demonstrate real progress towards their achievement if they are to continue doing business with them.
In the future, companies bidding for lucrative supply contracts will not only be judged on price and quality and capacity to deliver but on their sustainability performance as well. Failure to measure up on the climate agenda will be a deal-breaker.
It is little wonder in these circumstances that investors have also become highly engaged with the issue. There is an increasing clamour from fund and asset managers for companies to up their game when it comes to sustainability reporting.
Investors are increasingly viewing climate risk as a financial risk. They want to know the extent to which companies may be exposed to the various impacts of climate change. And that exposure ranges from the costs of the energy they use through to the location of their assets in flood or typhoon prone regions as well as the potential for increased taxes on their greenhouse gas emitting activities. The bottom-line impacts are clear.
Companies which fail to demonstrate that they are taking action to deal with climate risk will find themselves falling out of favour with investors very quickly. Further pressure is coming from consumers and employees. Consumer choice is tilting in favour of ethically produced sustainable products. We have already seen some major fashion labels taking urgent remedial action following revelations of dubious practice within their supply chains.
And in the global war for talent, employees are voting with their consciences when choosing organisations to work for. Companies that do not meet the high expectations of Gens Y and Z will find themselves at the back of the queue in the recruitment markets.
There is a moral imperative as well. Companies should be addressing climate change because it is the right thing to do for society and the planet. But this is also the right thing to do for their business. Companies which do not respond now to the commercial, financial, and legal imperatives presented by climate change may not be in business for very long.
There is an opportunity for the accountancy profession to show leadership by including sustainability reporting as a core service and not wait for legislation. To help the profession adapt to this new role, sustainability reporting has been included as a core element of CPA Ireland’s new education syllabus, Ready to Face the Future of Accounting.
This is just the beginning, however. Reporting does not equate to real progress. The findings of our study reveal a potentially serious problem for Irish business. This requires nothing less than a concerted national effort to make up for lost ground and ensure that Irish companies can compete in the new climate-conscious world that lies ahead.
That will involve cooperation between government agencies, industry bodies, the accountancy profession, and other stakeholders as we seek to make the recovery as green as it can possibly be.
You may also be interested in: https://decisionireland.com/2020/09/18/preparing-for-the-climate-crunch/