Noam Gressel, Ph.D
Co-founder and CEO of ECO-OS
Excuse the (intended) pun, but when it comes to sustainability - 2022 is a perfect storm. The increased impact of extreme weather events are by now clearly visible. The scientific community, the public and governments are demanding immediate life-saving action while investors and customers are demanding a deluge of new disclosures.
Over the course of just these past 2 months we have experienced a range of gail-force changes to the ESG landscape: First, the European Council agreed on a carbon border adjustment mechanism (CBAM) that will likely impact significant trade with the Euro zone and set the standard for a global carbon economy. Then, the United States Securities and Exchange Commission (SEC) published its 500 page proposal to require climate-related financial disclosures - a game changer for public companies, especially given the material liabilities that may result from these new rules. These new rules follow in the footsteps of other exchanges globally and converge with another piece of news from March: the IFRS has proposed the first two standards in their effort to create a comprehensive framework for ESG disclosure, based on SASB standards - a game changer in and of itself, considering the transition from the cumbersome but more popular GRI approach. And if we needed a reminder as to the extent of the storm we’re headed into, April began with a harsh Intergovernmental Panel on Climate Change (IPCC) report on the urgency of mitigating emissions to avoid climatic change at a level that would be devastating to humanity.
Meanwhile, business executives are scrambling to learn the basics of ESG and climate related action, while simultaneously having to set a strategic course as the storm intensity increases. In the world of aviation, the solution to these types of tumultuous conditions is clear: pilots must turn to relying on instruments rather than continue attempting to use visual cues they’re so accustomed to. So what are the Instrument Flight Rules (IFR) for ESG and climate action?
Stormy conditions create plenty of distractions: the thunder of lightning bursts, the pounding of relentless rain, the slamming of unsecured windows and the rattling of loose equipment contribute to growing confusion. Similarly, there is growing chaos in the world of sustainability and a barrage of disclosure requests, frameworks and standards are all too often contributing to fatigue and mirky visibility. For those of you who identify with this feeling, I would like to propose the Instrument Flight Rules for ESG - a short set of useful and reliable elements that have the potential to keep your business on course and help you land securely:
Choose Performance Indicators. Rely on quantitative KPIs and guidelines from what is rapidly becoming the international standard: the SASB Standards for your industry, now being integrated by the IFRS as international standards.
Chart your Course. Disclosing your existing performance is not good enough to secure a safe landing. Develop ambitious, yet achievable roadmaps that lead towards secure end-goals: science-based targets. That is where we’ll land one way or the other.
Assess and Avoid Risk. Flying blindly into harsh conditions can end with disaster. While still evolving, there has been rapid advance in assessing climate and nature related risk. Use the TCFD and follow the development of the TNFD to ensure these become household terms for your finance and risk departments and key components of your organization’s decision making process.
Install and Operate Instrumentation that can Land you Safely. If there are multiple considerations you need to account for during a storm - ensure your instrumentation covers the range of information you need. For ESG that means the digital solution you adopt needs the flexibility to integrate multiple sources of data, internal and external to the organization, ease of use that allows everyone with a relevant contribution to the journey to be informed and get involved; and an action-oriented intelligence that ensures you know what to do with the information you are given, no matter how dire the situation might seem.
We’ve shared these four rules with business leaders using the ECO-OS software solution. They come from a broad range of sectors and activities: some are manufacturers, others provide hospitality and educational services, while others are from government agencies and municipalities. But they are all at the forefront of responding to the global challenges of our era and have all come to recognize the urgency with which they must turn to state-of-the-art ESG accounting standards and digital technologies that will provide them cost-effective access to the actionable intelligence that is most relevant to their organization.
No technology is out of limits if it provides value along the journey, no matter how sophisticated the solution must become. One such successful example we’ve experienced is a partnership with monday.com and Matrix Global Services, both technology heavyweights with resources far beyond the reach of an ESG startup like ours. And yet, together, we were able to provide industrial clients with project and incident management capabilities on steroids: integrating our cloud-based solutions with clients ERPs as a single solution that marries ESG accounting with workflow management and enterprise resources. It allows for companies to build decarbonization roadmaps and assess abatement potential far more rapidly that ever before, accessing a range of internal and external data sources seamlessly. In effect, this is an example of the instrumentation that helps businesses chart their course in the dynamic, yet murky weather we’re all headed into when it comes to sustainability. For those with experience in aviation it may be no surprise that landing an organization and its stakeholders safely, no matter what challenges the journey entails, requires a preliminary change to our mental preferences and the way we conduct our critical work activities: we must swap visual and analog cues, our beliefs and instincts with digital signals.
It’s not easy to change entrenched mental and behavioral preferences, but perhaps it will become easier for business leaders to overcome the “old ways”, if they ponder for a moment on one simple premise: over the course of this decade EVERY company that is currently utilizing financial accounting practices will likely need to integrate them with ESG accounting practices - that’s just about everyone.