In today’s evolving business landscape, the expectation for companies to take ownership and responsibility for their negative impacts and demonstrate their commitment to decarbonise and achieve net zero, has become not just a trend but a fundamental requirement to enter the marketplace. As stakeholders (including investors and regulators) increasingly prioritise ethical and sustainable practices, and business resilience is tested more frequently and severely, companies are compelled to integrate these values into their core operations. This shift signifies a broader recognition that addressing and managing sustainability impacts is no longer optional for companies, but a basic entry point into key markets.
Improved Business Resilience and Competitive Advantage
It is becoming more apparent to businesses that understanding and reducing their negative impacts is no longer about 'feeling or doing good', but instead is a practical reality of operating in today's volatile world. Businesses today need to understand the context of the world they are operating in, in order to succeed. For example using resources as normal affects nature and climate, which in turn affect the environment for businesses to operate in, as well as the quality and availability of those resources needed for businesses to operate successfully. By taking these links into account and understanding the context of the world we're operating in, businesses have the opportunity to stand out from their competitors and ultimately become more resilient to changes in the system.
Companies with robust decarbonisation plans are often more resilient in the face of economic, environmental, and social disruptions. They are better equipped to navigate challenges such as supply chain disruptions, regulatory changes, and shifts in consumer preferences. This resilience translates into a competitive advantage that can drive long-term success.
In fact, impact management is now seen as a pathway to unlocking long-term value and investors recognise that companies with robust decarbonisation plans are better positioned to manage risks and seize opportunities. Companies that are decarbonising now are likely to see margins of 2-12% higher than those who follow later.
In addition, in a competitive marketplace, strong action on taking responsibility for negative impacts can be seen as a key differentiator between competitors. Companies that lead in reducing their negative impacts are better positioned to attract and retain customers, employees, and investors.
Regulatory Landscape and Compliance
Regulatory pressures are another critical factor compelling companies to take responsibility for their negative environmental impacts seriously. Governments and regulatory bodies worldwide are implementing stringent regulations and reporting requirements on businesses. For example, the European Union’s Green Deal and Sustainable Finance Disclosure Regulation (SFDR) impose rigorous standards on companies and financial institutions to ensure transparency and accountability in their environmental and social practices.
Non-compliance with these regulations can result in significant penalties, legal liabilities, and reputational damage. In early 2024, France introduced the potential of jail time for any corporate director who fails to comply with the country’s Corporate Sustainability Reporting Directive (CSRD). Specifically, the penalty includes a fine of up to $81,400 and jail time of up to five years. Therefore, companies must proactively align with regulatory expectations and ensure comprehensive reporting and compliance. This regulatory landscape reinforces the notion that taking responsibility for negative impacts is not just a voluntary initiative but a legal and operational necessity.
Integrating Impact Management into a Corporate Strategy
To truly take ownership of managing negative impacts, companies must move beyond superficial commitments and integrate decarbonisation plans into their core business strategy. Below is an example of how this can be comprehensively integrated into a corporate strategy:
- Setting Ambitious Goals: Establish clear, measurable, and ambitious targets that align with global sustainability frameworks such as the Science Based Target Initiative and the Future Fitness Business Benchmark framework.
- Transparency and Reporting: Implement robust environmental reporting mechanisms to ensure transparency and accountability. This includes regular reporting on environmental and social performance, progress toward goals, and the impact of business operations on the environment and society.
- Stakeholder Engagement: Engage with stakeholders, including customers, employees, investors, and communities, to understand their expectations and incorporate their feedback into the company’s strategy.
- Innovation and Investment: Invest in new technologies, practices, and innovations that reduce environmental impact, enhance social well-being, and improve governance practices.
- Collaboration and Advocacy: Collaborate with industry peers, NGOs, and governmental bodies to drive systemic change and advocate for policies that support sustainable development.
To sum up, the expectation for companies to take ownership and responsibility for their negative impacts and decarbonisation journey is a defining characteristic of the modern business environment. For companies, embracing decarbonisation and impact management is not merely about compliance or public relations, it is about remaining relevant and ensuring long-term business resilience in an increasingly volatile world.
Additional Sources:
https://www3.weforum.org/docs/WEF_IBC_Measuring_Stakeholder_Capitalism_Report_2020.pdf
Winning the Race to Net Zero: The CEO Guide to Climate Advantage”, World Economic Forum
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