key esg insights

COP26 and its Implications for Businesses, Brands and Consumers

Climate change is undoubtedly one of the biggest topics of our time and will be a particular focus of news and debate over the next few weeks, with the upcoming COP26 summit. In the run up to the summit, we’ve been considering what some of the key discussion points might be and the possible implications for businesses, brands and consumers. 

To dive further into the topic, we spoke to our friends at Key ESG, who kindly shared with us their informed view on COP26 and the changing business landscape.

Are there any major crunch points for businesses that you think will spark debate at COP26?

We think the worry for a lot of businesses is not knowing what regulation related to COP26 initiatives might come online in the coming years. That uncertainty makes it difficult for businesses to plan ahead and prepare. Figuring out what the new rules will be, what data needs to be gathered and disclosed and to whom, will take up a lot of resources. The more transparency governments can provide ahead of time, the quicker businesses can adapt and drive positive impact. 

Some businesses might have to invest heavily to comply with new climate regulations. But in some industries (shipping for instance) it is not evident what the winning “clean technologies” will be in 10 years. Companies need to know that if they make big capital investments today, these will not be obsolete 5 years down the line when government changes regulations again. Governments will need to work closely with business to make the energy transition happen by providing clarity, setting realistic targets and stimulating certain areas of investment.

Which sectors do you think will be most under the spotlight?

Sectors that are known to contribute significantly to emissions will be first in the line of fire. To some extent this is understandable but at the same time we are reliant on many of these sectors for economic growth (think shipping, oil & gas, metals & mining, industrials). We think the solutions towards carbon abatement in relation to the “hard to abate” industries are the least straight forward and will require most innovation, investment and dialogue. Hopefully there will be constructive debates around governments and business can drive positive impact in the years ahead. Agriculture, FMCG, construction, the fast fashion industry might also be in the spotlight given their impact on pollution and emissions. 

What do you see filtering down to a consumer level… and will we start seeing consumers shifting their buying behaviours?

We would expect the average consumer to become more aware of the impact their buying decisions have on the environment given the mass media coverage of COP26. Changing consumer habits however is hard as most consumers are not aware of the impact of their consumption decisions. Even when consumers take decisions that are widely believed to be good for the environment (such as driving an electric vehicle) the actual environmental benefit is often not as positive as thought (charging your electric car with electricity from coal is an example). 

This is confusing for consumers – those that want to reduce their environmental footprint might find it hard to pinpoint how best to do this. We think there is an important role for government and business to work together here to ensure that products and services actually become greener in terms of their real impact.

In the Western world we would expect consumers to become more sensitive to labels on packaging and brand promise around ESG. Companies that don’t provide any information on their environmental strategy or impact might lose customers, particularly those that are less price sensitive. Nevertheless, we’ve seen some companies come back from pretty bad ESG reputational damage over the past year. It suggests consumers are still happy to sacrifice ESG standards for a good deal. Just think of yourself – do you calculate the environmental impact of your monthly spending?

What would you like to see coming out of COP26 as tangible outputs for businesses?

Clear targets and roadmaps to realising COP26 pledges as well as closer collaboration between business and government would be top of our list. We need better data from businesses and governments to be able to measure and improve progress towards targets. Business and government should collaborate on creating uniform standards that allow for easy measurement and comparison. Thankfully such initiatives are in progress. We are still a far cry away from most companies measuring and reporting their emissions. Mandating the disclosure of such information more widely would go a long way to pushing individuals and businesses towards action, as we believe what gets measured gets managed. 

How can businesses in specific sectors do more to protect communities and natural habitats? (E.g. FMCG, food and drink?)

We believe each business should have a clear ESG strategy and policy to frame how they will manage their impact on communities and natural habitats. That will be a starting point from which ESG key performance indicators (KPI’s) and targets can be set that will facilitate measuring progress. Making this ESG strategy integral to the overall corporate strategy, rather than an afterthought or a side project is paramount. When it becomes a habit for companies to evaluate the community and environmental impact of each major decision, it will become part of company ethos and halt the development of projects with a high community and environmental cost. Measuring progress against targets on a regular basis helps companies learn what measures work, which don’t and whether they need to adjust their ESG strategies to meet their targets. 

What are some simple steps for businesses to start assessing their current ESG performance?

  1. Talk with your company’s major stakeholders (shareholders, board members, lenders, regulators and employees) about ESG. What do they expect from the company and where do they see ESG risks and opportunities?
  2. Develop ESG policy and strategy informed on 1. 
  3. Measure your current ESG performance. This does not need to be 100% comprehensive from day one. For most companies it is probably best to start measuring a handful of core ESG metrics on Environment, Social and Governance issues and make sure you start doing that consistently and set targets. Then over time, businesses can add more data and metrics and refine their ESG targets. Keeping it simple at first though is key to getting started. 
  4. Report and communicate your ESG performance with stakeholders. Being open and transparent will force your business to stay true to its ESG strategy and will help foster debate about where to invest, what ESG initiatives to prioritise and minimize ESG risks.