We have proven that, when compelled, it is possible to accelerate change. Disruption from this pandemic has caused our local business leaders to rethink their operating models. Realigning to adapt, at unprecedented speeds, to radical changes in customer and employee behaviours, forcing businesses to digitise their operations.
Now is the time to reimagine and implement the next generation of operating models. These will seek to capture the many sustainability related gains, including those relating to climate change, that have been forced upon society during this pandemic.
Momentum is building! The emergence of stakeholder capitalism has led businesses to reconsider ESG factors and to behave in a sustainable and inclusive way. In our experience, stakeholders are asking challenging questions and unanimously demanding ESG is high on the Board’s agenda.
Guernsey’s response to the pandemic and ongoing vaccination programme is testament that a government can act when urgency is required. With COP26 being held in Glasgow later this year and the welcome return of the US to global climate talks at Biden’s Earth Day Summit in April, governments are under pressure to make meaningful commitments around climate change and to be seen leading on ESG.
Our Government has recently approved stage 1 of the ‘Government Work Plan’. In this plan the Government sets out several ‘recovery actions’ which are linked to the UN SDG13 Climate Action. We look forward to seeing stage 2 of this plan where further details are to be provided.
Regardless of the speed that our Government moves on its climate strategy, there are pockets of the private sector already making plans for speedier responses. Since announcing KPMG’s 2030 net zero carbon target worldwide, it is clear we are not alone in having ambitious targets with many of our clients talking to us about their plans for net zero and how they are looking to achieve this at both global and localised levels.
Pressure to act is coming from the regulators too! Our multi-jurisdictional clients must understand the various regulations (rapidly emerging) across their operating jurisdictions, the implications for corporate reporting and impact on best practice.
With its European Green Deal, EU taxonomy and the new Sustainable Finance Disclosure Regulations (SFDR), the EU is leading this charge. SFDR for example, imposes mandatory ESG disclosures on EU asset managers and other EU financial markets participants, level 1 is already effective, 10 March. At the time of writing, there is uncertainty as to whether SFDR is applicable to Guernsey Non-EU AIFMs; the general view held in industry (ESA has written to the European Commission seeking clarification) is that if you are marketing your AIFs into the EU then you are likely to be in scope for SFDR.
Our regulator, the GFSC, released its consultation paper which will look to make changes to the Guernsey Code to take specific account of climate change considerations.
In the UK, the FCA has made TCFD (Task Force on Climate related Financial Disclosures) reporting mandatory for premium listed companies (closed-ended funds are currently exempt). In March, the UK government released a consultation looking to widen this scope; further consultations are expected.
This is a huge step towards meeting the UK Chancellor’s target of making TCFD reporting mandatory across the UK economy by 2025. The implications of this are far reaching as any portfolio company managed by a UK regulated firm will need to provide sufficient information to enable TCFD reporting by that firm.
Other articles will detail the TCFD requirements but suffice to say they are onerous. Right now, businesses should recognise that TCFD is coming and start identifying the risks and opportunities that climate change and the transition to net zero present for their business. Only then, can a strategy for minimising the risks and maximising the opportunities be developed and appropriate metrics designed to report on.
We and others expect that as non-financial reporting matures, annual reports and accounts will no longer be just about the financial results of the company but also its broader impact on society.
As companies begin to focus on either complying with the various regulations or fulfilling their public pledges on net zero, we are frequently being asked how businesses should measure, quantify, value and report on climate related risks.
Under our KPMG Impact initiative, we have pooled our global expertise to help business and government grapple with the strategic, implementation and reporting challenges brought about by ESG. Whatever the speed of change in your organisation, we are here to help.
Listen to our ‘Insights into ESG’ podcasts here.