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Sustainability and The Just Transition
Businesses dedicated to advancing a Just Transition aim to harmonise ecological goals with social equity, prioritising the welfare of their people, local communities and wider stakeholders while adopting sustainable best practice.
Integrating these values into their sustainability blueprints, companies play a pivotal role in fostering a comprehensive approach to addressing climate change, all the while safeguarding the interests of every affected party. This not only resonates with moral imperatives but also strengthens business durability and resilience in the long term.
Q. How would you rank your organisation's current level of ambition when it comes to delivering sustainability and climate action - with 1 being not at all ambitious and 10 being extremely ambitious?
Sustainability ambition – perceived or real – is high
Thankfully, as in the previous set of survey responses, more and more companies believe their ambition for delivering sustainability performance is high. When asked to rank their organisation’s current level of ambition between 1 (‘not ambitious at all’) and 10 (‘extremely ambitious’), the average score across all companies is 7.4. Around 26% of companies even ranked their ambition as being ‘9’ or ‘10’, which is slightly higher than the 23% that did so last time. And almost half (43%) of those perceived as highly ambitious are larger companies, turning over more than £100m.
The fact that more chief executives and corporate board members are more highly engaged on sustainability issues [As shown in the Investment and buy-in section of this report] could be helping to drive ambition – perceived or real – among UK companies. Many will see conversations at more senior levels within a business as evidence of ambition, despite the fact that investment is still not flowing into ESG as abundantly as sustainability teams would like.
Reporting frameworks largely seen as compliance exercise
Reporting is a crucial component in the drive to meet net zero goals and achieve the Just Transition. Adhering to a transparent framework can enhance accountability, transparency and effectively track progress. UK companies must prepare for the incoming EU Corporate Sustainability Reporting Directive (CSRD) which requires companies that operate or sell into the EU to report on how sustainability issues, such as climate change, impact their business and how their operations in turn affect people and planet. The CSRD replaces the existing Non-Financial Reporting Directive (NFRD) and Accounting Directive and came into effect across the EU in January 2024. Around 50,000 firms will need to comply.
In our last survey, the responses suggested UK companies were not ready to comply with the CSRD. Less than a third (27%) of the CSRD-qualifying businesses that responded hadn’t even started their compliance work yet. And just 5% of them were compliant already.
This time around, the numbers are slightly more encouraging. While an alarming number still don’t know if they must comply with the CSRD (19%), fewer of the 21% of respondents that qualify for the regulation reported not having started compliance yet (3%) and 16% of them were well under way.
The first CSRD reporting is due in January 2025, so there is now limited time to ramp up action on compliance. But clearly, more and more companies are getting their heads around what is required and taking action to stay ahead of the law. Unsurprisingly, of the companies that have completed their CSRD compliance work, 100% of them have developed a 1.5oC-aligned climate transition plan. The same is true of 83% of those companies that have at least started their compliance work.
Of course, mandatory reporting frameworks like the CSRD don’t apply to every business. This is reflected by the more than 51% of respondents claiming CSRD compliance to be ‘no’ or ‘low’ priority right now.
Q. How much of a priority is your organisation currently placing on the following areas of sustainability and CSR?
But even fewer companies think following non-mandatory non-financial disclosure frameworks and recommendations is important. For example, 77% of respondents said aligning to the requirements set out by the Taskforce on Nature-related Financial Disclosures (TNFD) was anything higher than ‘medium’ priority. The TNFD has created a set of disclosure recommendations and guidance to help firms assess, report and act on their nature-related dependencies, impacts and risks.
The apparent lack of prioritisation over non-mandatory frameworks suggests reporting on climate-risk issues is very much a compliance exercise, as opposed to a useful tool to de-risk business operations, build resilience and improve sustainability performance.
Improving diversity and inclusion is ‘business critical’ for more firms
It is important to note that respondents to the survey are being asked to self-define the term ‘sustainability’ and performance progress and levels of ambition being shown across the range of ESG subjects – from human rights and employee wellbeing to energy management and biodiversity – will differ widely.
One area that appears to be getting plenty of focus is workplace diversity, equality and inclusion (DEI). Many companies are struggling to deliver against DEI goals in the absence of suitable measurement and tracking frameworks. But such developments are certainly helping to focus the minds of executives. Almost half of the respondents (45%) said they are placing a high priority on tackling DEI issues right now. Ten percent even claim DEI to be ‘business critical’. This is unsurprising given incoming rules which cover FTSE 250 companies requiring them to report their progress on key diversity benchmarks in their annual reports. Companies must comply or explain their progress against targets, publishing data about the sex/gender and ethnic diversity of their boards and executive management.
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