Circular Supply Chain Advisory’s Brendan O’Keeffe talks ESG, reporting, and what it all looks like in practice.
A lot of the conversation around sustainability has been taking place at a high level – with big picture targets and admirable goals – but not as much is said about how we actually get there. With regulations on emissions reporting tightening up this year, the time to know is now – lest you be left behind. MHD asked Brendan O’Keeffe of Circular Supply Chain Advisory to get to the bottom of some frequently asked questions.
Reporting frameworks
One question MHD had for Brendan is what kind of reporting mechanism is most common.
“There are a number of ESG reporting frameworks that have been developed, the two most prominent of which are the Sustainability Accounting Standards Board (SASB) standards and the Global Reporting Initiative (GRI) standards,” Brendan says. “There are so many acronyms in this industry, and it can be a minefield, but the two most common are GRI and SASB – the former more common globally, the latter most adopted in the US.”
Differing taxonomies can present difficulties for users, but happily Brendan reports that there is a convergence towards a more uniform code governing reporting. “There is an alignment taking place towards a more globalised standard with a more common language,” he says.
The compliance landscape
2024 is the year in which reporting regulations will really start to pack a punch, Brendan says. The federal government is in the process of finalising proposed amendments to the Corporations Act 2001 that will concretise emissions reporting requirements for companies based on size and industry. If passed, climate-related financial disclosure legislation will likely go into effect mid-2024.
“The legislation mandating reporting requirements will be phased in, firstly making Scope One and Two reporting compulsory, before scaling up to Scope Three later,” Brendan says. “This will be a big change as not every organisation is fully compliant with Scope One and Two reporting as of now. Right now, only 30 per cent or so of companies are reporting Scope One and Two; and for Scope Three, only 10 per cent of those who will be mandated to report are currently reporting.”
Clearly, there’s a lot of ground to be made up in relatively little time. Those that act now will fare better under the new regime.
“There are organisations that take the initiative to adopt compliance frameworks to work towards better practice, and those that wait for compliance to drive them,” Brendan says. “Waiting till regulations come in puts you in a tough position. The biggest challenge is that the data required for complete scope reporting is complex. Even if you’re not a large organisation, if you’re partnered with a large organisation you’ll indirectly feel the pressure to lower emissions. That is to say, the regulatory compliance will have a waterfall effect, where larger organisations will be mandated to report but will require cooperation from all their external partners – typically small or mid-tier companies – to do so. For example, think of the thousands of small suppliers to big retail organisations like Coles or Woolworths.”
Implementing systems
Achieving big things often means big changes to how you do things. New challenges create new opportunities, and Brendan says systems, people, and processes will have to change the way they operate.
What will these changes look like?
“From a systems perspective, there are already ESG or sustainability reporting systems being developed,” he says. “In parts of the world like Europe and North America, corporates are already using ESG software platforms, which help with data capture and integrate with major business software tools, like SAP. These systems are like an add-on but help with real-time reporting.”
Brendan expects that more software will be developed to fit different company size and cost requirements.
On the people front, a big challenge – and opportunity – will come from skill transfer: “There are many people who currently have a data analyst skill set, for example, who might be moved from a supply chain, logistics or procurement analyst to a sustainability analyst – that is, using the same skillset but looking at ESG and ‘value chain’ related data through a new and different lens.”
Both the people and the tech will have to be tied together with new systems and protocols.
“Businesses will need to create true alignment in their processes – starting at the top,” Brendan says. “The leadership alignment or commitment is probably the first thing that’s important. Often, in the small-to-medium space, sustainability is seen as an arm or a leg, not the core body of the business. At the moment it’s still often an individual function or an outsourced activity, whereas it needs to be made central to the business. That way, you bring a cross-functional collaboration to sustainability in the business – rather than treating it as something considered solely for regulatory compliance. Companies need to activate sustainability actions because they realise the value for their business – as a competitive advantage.”
Data integrity
The point of new regulations around ESG is to create a market that has meaningful incentives that will change corporate behaviour. To that end, there will be strict monitoring of performance as well as independent verification of outcomes.
“Under ASX requirements any sustainability report needs to be verified and audited before its officially submitted,” Brendan notes. “That is a safeguard mechanism to try and ensure that the data published has been assessed, checked, and is meaningful to the business. In most cases this would be done by a consulting enterprise that doesn’t have a vested interest in the result.”
Additionally, the Australian Competition and Consumer Commission is keeping watch to ensure companies don’t engage in ‘greenwashing’ – a misleading form of marketing whereby companies seek to pass themselves off as more environmentally friendly than they actually are.
“Organisations can now be fined up to 30 per cent of the company’s revenue during a relevant period for overstating their sustainability claims,” Brendan says. “That’s a pretty large stick for organisations, in combination with third-party auditing. That means it’s not worth it for companies to be overextending their claims.”
Those looking to escape the stick – and get the sustainability carrot – need to get moving to keep up with the times and the new obligations and responsibilities that go with it.
For more information on the Circular Supply Chain Advisory, click here.