The importance of the “S” aspects of ESG has been divulged in our previous blog post but it should be noted that while the potential of social issues is often undermined, the environmental components are gaining the greatest traction, especially in the global context, for very valid reasons. One of the main ones being the increased global recognition of the urgency of related issues, attributable to the scarcity of natural resources and the worsened state of the climate and environment. Such forces incite the sense of a deadline and whether people like it or not, it often takes a deadline to map out a timeline to make necessary changes, something that most social/societal issues currently lack.
The onus of mitigating climate change and protecting the natural environment doesn’t solely rely on corporate conscience but transfers top down starting from increased government regulations. The magnitude to which these regulations adjust can then be traced back to intergovernmental efforts. In recent years, the most prominent case of this has been the Conference of the Parties (COP) whereby the 197 signatory Parties of the UNFCCC and representatives from society and news media outlets come together to educate, discuss, and negotiate about climate related matters.
At COP26, participating countries agreed on securing global net zero by mid-century and limit temperature rise to 1.5 degrees, adapting to protect communities and natural habitats, mobilising finance, and working together to deliver. It encouraged a good number of nations to sign on deals such as quitting coal, ending deforestation, and slashing methane emissions, many of which has since put out emissions pricing schemes or refined carbon pricing models and made emission tracking and disclosure compulsory. As a response, SGX has announced mandatory sustainability reporting for all issuers on a ‘comply or explain’ basis from 2022 onwards and will gradually tighten enforcement on acute industries, and many companies have declared commitments to net zero.
However, COP26 was far from the be all and end all for tackling the climate crisis. At the end of the day, the agreements initiated by UN conventions are non-binding legally and voluntary in nature, which means that compliance is non-guaranteed. Indeed, COP27 has revealed that we are not fully on track to meet climate obligations despite improvements, but this should not be viewed as a deterrent for businesses to stop aligning with goals set by COP26. Instead of adjusting goals and pulling out from commitments, the international community seemed more resolute than ever on the necessity of 1.5 degrees to avoid catastrophic outcomes evident through the establishment of a loss and damage fund, which guarantees money towards remedying developing nations facing climate-related disasters – closing gaps between previous promises and actions.
For businesses, COP27 has reiterated that the direction towards sustainable development is irreversible, so it is imperative for companies to continue integrating climate change action into their commercial strategies. Not doing so would result in unnecessary exposure to climate risks, which will inevitably translate to future financial costs since climate goals set by COP do not seem to be budging and over time, national policies will reflect that. The fundamental role of supply chain management in reducing emission came up repeatedly in the agenda as members of the civil society urged businesses to examine scope 3 (supply chain) carbon emissions. Genuine collaboration, evaluating practical options, and agreeing on joint actions are essential to setting and achieving science-based targets but this cannot happen if symmetrical information is absent. Businesses need to bring together stakeholders along their supply chain to work with common evidence, benchmarks, and data to set the groundwork so as to build trust quickly and signal the public sector to provide more support where necessary.
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