In order to create a Paris Agreement aligned decarbonization strategy with measurable KPIs, a company must know the status quo - the current pollution levels of its operations. Although requirements for environmental reporting are still pretty broad, some companies already go beyond compliance and follow the sustainability expectations of their stakeholders - investors, clients, employees. VIRIDIS Sustainability conducted a research, where public sustainability reports of 56 NASDAQ’s companies across the Baltic States were evaluated. In this article we are reviewing where those companies stand with their CO2 reporting and what others should do to start preparing.
CO2 assessment in the Baltic companies
It’s obvious that Sustainability is becoming a hot topic. More than half of the companies mark it as one of the core values - the foreword rarely goes without the “S” keyword, nearly every CEO is talking about the importance of the green transition. However, only 37 out of 56 companies published sustainability reports (either separately or incorporating in the annual reports).
Data-based CO2 reporting is even more rare - only 18 or 32% of all listed companies are calculating and disclosing their direct CO2 emissions. Majority of those are focusing on scopes 1 and 2, leaving the indirect emissions aside. Scope 3, the area hardest to track and influence, was measured by 9% of the companies. It’s worth noting that Scope 3, or so-called indirect emissions, is the broadest of scopes. It involves everything aside from the direct production of the goods and services, from water consumed in the company’s HQs, employees commuting to work, or the emissions created by the value chain and use of services by the consumers. From this perspective, only a few companies started looking beyond operational indirect emissions (footprint created in the offices) and evaluated at least the bits of their value chain or users of its products.
Only 18 or 32% of all listed companies are calculating and disclosing their direct CO2 emissions.
Environmental targets aren’t scoring high
Although more than two thirds of companies report on sustainability, (66% in total), the environmental focus in the reports and ambition for decarbonisation is lower. Only 15 companies have targets aligned with the Paris Agreement and even fewer claim a dedicated strategy to achieve those goals. Many others narrow it down to social value, fair business practices and SDGs.
On the other hand, many companies who are not tracking CO2 assessment just yet are claiming the plans to start the assessment in 2022 and include it in the next year’s reporting.
Quality of CO2 emission information
If financial reporting has already reached maturity, sustainability reporting is still at its infancy. In general, for most of the listed companies 2020 was the first year when sustainability became a topic.
External evaluation of environmental reports is even less common - in 2020, only a few companies used external verifiers for decarbonisation goals validation or carbon footprint data examination. Also, in 2021, only a few sustainability reports were audited by external auditors. On the other hand, improvements can be expected - every fifth company already has an in-house ESG manager or started working with sustainability consultancy firms. Most of them were hired last year and the interest is only growing.
In 2021, only a few sustainability reports were audited by external auditors.
NFRD vs. CSRD - what’s coming?
Environmental reporting is the topic that receives increasing political, financial and regulatory attention. The reason is simple - 2050 is the ambitious deadline, but so far the green transition is only springing up. Environmental requirements under the NFRD, the regulation which defines the regulation of sustainability reporting today, are pretty broad. First of all, currently not all the listed companies fall under the NFDR regulation. For those who are NFRD-compliant, disclosure of CO2 information is recommended and guided, but non-binding. Therefore low rates of environmental assessments can’t be criticised just yet.
The CSRD will tighten the requirements from both ends - first of all, it will extend the scope of companies that are required to report on ESG. From 2024, the sustainability reporting will be mandatory to all listed companies operating in the EU (except micro entities) and bigger private companies. The result - a lot of companies who’ve seen sustainability as not my problem will be required to add it to their agendas. Secondly, it will add more requirements to environmental reporting and the quality of it.
Key milestones of CSRD will be covered in a separate article.
Although there is still a lot of room for improvements, NASDAQ-listed companies in the Baltics show some good examples and long-term ambition for the environment. Instead of being critical about the “not-good-enoughs”, other companies should learn from those experiences and be bolder about starting their own sustainability commitments. “You can’t manage what you don’t measure” should be the rule of thumb for everyone - it’s crucial to start calculating the footprint, be transparent about it and look for a decarbonisation solution along the journey.
The authors of the Article
Indre Blauzdžiūnaitė, Linkedin
Saulius Bakas, Linkedin
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