From compliance to value creation: preparing for ESG disclosure rules

Michelle Bachir, managing director, sustainability advisory North America, at Arcadis, will be participating in a panel discussion at Environment Analyst's Global Business Summit, 27-28 June in Chicago, where she will discuss progress towards transparent and actionable climate and ESG reporting. Here, Michelle offers her thoughts on how consultants and their clients can prepare for upcoming ESG disclosure rules.

BY MICHELLE BACHIR

US and global regulators are now calling for greater transparency in how companies report on their ESG topics. In the US, this is primarily seen in Securities and Exchange Commission’s proposed climate disclosure rules. Elsewhere, the new expectations can be seen in the upcoming EU Corporate Sustainability Reporting Directive (CSRD), for example. 

Regulators are looking to prevent greenwashing and ensure companies can provide credible disclosures in their financial filings or management reports covering their sustainability impacts and risks, governance, risk management, performance metrics, targets and implementation plans. 

This regulatory pressure is elevating sustainability reporting to come in line with financial reporting quality and timelines. Companies should take this as an opportunity to strengthen their sustainability programs and capture the value created from managing their sustainability impacts and risks. Here are three areas to consider for moving beyond sustainability reporting mandates to business resilience and value creation.

1. Evaluate sustainability impacts, risks and opportunities at enterprise and value chain levels

It is becoming essential that businesses identify, assess and manage their sustainability impacts, risks and opportunities not only at the asset or operational levels, but at the enterprise level and across their value chain. This includes the suppliers and infrastructure they depend on, the employees and communities they operate in, and the customers, investors and markets they are targeting. 

There are, without a doubt, complex challenges here. For example, it is important to consider how supply chain disruptions due to physical risks could impact business continuity and lead to financial and reputational risks. Or, consider how customer and investor expectations of decarbonization could affect scope 3 greenhouse gas (ghg) emissions from suppliers. How might this impact business access to capital, competitive advantage and potential revenue generation? 

Companies can start by assessing the exposure and vulnerabilities of their value chain sustainability risks and opportunities, focusing on the following steps:

• Understand the risks that sustainability issues pose to the business by leveraging the appropriate data sets, methodologies and tools for assessing climate, biodiversity or other sustainability risks
• Assess the dependencies between different risks, such as the cascading impacts of different climate physical risks, or linkage between climate, biodiversity and water risks 
• Quantify the current and potential financial impacts from sustainability risks and opportunities, and assess materiality of these risks to the business and integrate them into business strategy and overall risk management programs
  
  

2. Develop strategies and credible implementation plans to mitigate risks and strengthen business resilience

Upcoming climate and sustainability disclosure rules, supported by market and investor expectations, are intensifying the need for companies to move beyond sustainability target setting. Increasingly, companies need to establish robust plans to mitigate risks and enhance business resilience, especially in reporting on credible decarbonization or transition plans. 

Here are steps companies can take to support these efforts: 

• Develop long term science-aligned targets, such as ghg emissions or nature-based targets that are supported by achievable near-term targets
• Enhance sustainability data quality by defining and measuring the appropriate metrics, methodologies, digital solutions and processes to monitor, report and align sustainability-related disclosures with financial disclosures and timelines 
• Develop credible strategies and implementation plans, backed by the right technology and nature-based decarbonization solutions, budgets and resource allocation to deliver on targets
• Define nature-positive strategies and identify nature-based solutions to mitigate climate and biodiversity impacts 
• Enhance supplier engagement strategies to enable supplier transformation and alignment with business values and expectations 
• Transition from enterprise level strategies and reporting to asset and business unit level transformation, including asset level resilience planning and decarbonization feasibility analysis, and site specific nature-based solutions
  
  

3. Strengthen sustainability governance across the organization

It goes without saying that governance is essential for a successful sustainability program and strategy. Governance is also another disclosure requirement in the upcoming sustainability disclosure rules. Companies can strengthen their sustainability governance with the following steps:

• Prioritize establishing and refining sustainability governance and embedding it throughout the organization, from board and executive levels to management and functional levels
• Appoint a sustainability director or chief sustainability officer with direct reporting to executive leadership and build a robust sustainability team that supports and enables successful implementation of the sustainability strategy co-equally with other major teams
• In all activities and communications, elevate the importance of sustainability and its linkage to business strategy 
• Lean on the right resources, both external and internal, that can bring specialized expertise and insights to meeting sustainability requirements, now and in the future

These considerations may seem demanding, but they are critical to delivering on the efforts companies need to make to turn the mandates for sustainability reporting into business transformation opportunities. 

-----

Michelle Bachir, Managing Director - Sustainability Advisory North America, Arcadis

Michelle Bachir leads sustainability advisory for Arcadis in the US and Canada. She guides Arcadis' existing North America sustainability advisory team as it responds to clients’ organization-level sustainability needs, focused on strategy, performance management, and reporting.

Prior to that, Michelle was a senior manager at Deloitte, supporting the growth of sustainability advisory services for the company’s US business, with a particular focus on climate risk and sustainability reporting services. Before working at Deloitte, Michelle held positions at EcoSecurities International and Ecodit.

-----