Per this CNN article, the Great Salt Lake is 19 feet below its natural level and has lost 73% of its water due to a climate-fueled drought.

If it does not receive an additional 326 trillion gallons of water per year, it will disappear within five years.

This may not directly impact your business or your family.  But events like this, all over the world, will.

Join our effort.  Choose to be part of the solution.

As we have reported, the new regulations that are being implemented around the world will ultimately impact all companies.  Some companies will be impacted immediately and others over time.

This article in CFO Magazine suggests you take these three steps to prepare

• Appoint a Chief Sustainability Executive
• Create an ESG policy budget
• Assess Partner’s sustainability practices

We appreciate the suggestions, but recommend against this direction.

First, take a breath.

Second, decide if you even want to jump right in to an ESG program.  We recommend you not going straight to an ESG program.  Our recommendation is to start with becoming certified sustainable, then add carbon neutrality certification, then ESG, and finally Net Zero.  This is typically both the easiest and the most profitable progression path. 

Third, if you agree with starting with sustainability, then read this PPP on the kind of program you might want to consider.

Fourth, if you follow the outline in the PPP, you will be forming a Green Team and your advisor will be assisting you with not only becoming certified but executing your go-forward plan.  That advisor and your Green Team will help you define your initial strategy; and with it, whatever budget you may initially need.  Further, out of that strategy will come a better understanding of if you need to hire a sustainability officer or if it would be better to delay that hire until you get a better idea of what you need in that position.  Like all hiring decisions, if you are not clear on the duties, the odds of the person succeeding will be low.  A year or two under a sustainability certification with your Green Team supported by your 3^rd party consultant will help you determine what you need in that role. 

As to addressing the sustainability practices of your partners (ie, vendors), you need to be certified sustainable before asking your vendors to do things you have not yet done.  Get certified sustainable before you pick up the phone and call your vendors. 

As to carbon footprint reduction, same as above.  Once you are certified sustainable and are comfortable with the progress of your program, move to carbon neutrality.  You will define your own carbon footprint, and determine the steps you need, per your sustainability plan, to become certified carbon neutral.  After that, you can call your vendors and discuss their carbon program, as you have already spoken with them about their sustainability program and their progression should mirror your progression. 

This is not hard.  This is not expensive.  But it can be, if you don’t follow the correct sequence.   

As reported by Edenark Group for some time, and as stated in this article, on November 28, 2022 the European Council gave final approval for a new Corporate Sustainability Reporting Directive (CSRD).  This will now be transposed into the laws of the EU member states.

The CSRD is meant to reduce Greenwashing and lay the groundwork for sustainability reporting standards at a global level.

Like most new laws, this one will take time to find its footing and impact.  However, it, and other similar policies around the world, will impact how every company operates.

To highlight a few selected aspects:

• The CSRD will widen both scope and depth of sustainability reporting by prescribing a double materiality standard under which companies have to explain both how their business models are affected by sustainability matters and how it affects such matters itself.

• While previous policy efforts concentrated predominantly on large companies with stock market listings, the EU’s focus has been widened to also account for sustainability related effects of large companies without stock market listings, as well as listed small and medium sized companies.

• Non-EU companies will also be affected. Their EU subsidiaries will have to comply with the new sustainability reporting obligations as early as 2025 if they have large company status and a stock listing on an EU-regulated market, and from 2026 if they have large company status and no such stock listing. Moreover, certain non-EU companies’ own sustainability efforts can become subject to reporting obligations as of 2029.

The United States is up next and should go live in January 2023.

Then, Japan’s new law will start March 31, 2023.

Per this IMD article, here are 13 sustainability trends driving business in 2023. In the article you will find detailed discussions that can be of value to you and your business.

The 2 main points we want to make as a summary of the below

• There is tremendous opportunity for your business to grow dramatically if you incorporate sustainable programs and practices. For instance, just the transition to Net Zero is estimated to provide business opportunities of US$12t.

• Your company will grow faster in 2023 if it is certified sustainable versus if it is not.

Headings of the 13 Sustainability Trend Discussions:

From net zero to climate-positive supply chains

Organizational readiness for sustainable transformation

The next generation in family business will power data-driven sustainability 

War and energy shortages accelerate adoption of energy efficiency and renewable energy

Accounting for nature and biodiversity in climate targets

Sharing emotions for healthy, sustainable high performance

Luxury developing sustainable supply chains

Board composition and responsibilities adapt to ESG purpose

Innovation, investment, and business transformation fuel climate hopes

New regulations drive sustainability strategy 

Harnessing collaboration to enable the circular economy

AI: a friend and a foe for sustainability?

Mind the ESG reporting trap! An opportunity lens on sustainability

This Greenbiz article does a good job of summarizing the evolution, to date, of responsible business practices

• We started with the philanthropic movement – This goes back to the origin of business and occurs when an entity with more gives to those with less.
• We then advanced to Corporate Social Responsibility (CSR) – This is where companies expanded their efforts to community wellbeing, not just targeted gifting.
• We have now advanced to Environmental, Social & Governance (ESG) – This not only focuses outward to the community, but internally to the operation of the company; and it brings financial analysis and operational adjustment to the table.

Is the process becoming more formalized?  Yes.

Is it being accelerated by consumers, climate concerns, regulations and what we see every day?  Yes.

Will we continue to adjust and advance?  Yes.

Will it be harder for those that start late to catch up.  Yes.

Would you choose to fly on the maiden flight of a pilot who has never flown a plane?  Maybe s/he has read the books and passed a written test on lift and thrust; but s/he has never lifted off, landed, flown at night, dealt with turbulence, or executed any of the duties of an experienced pilot.

Most of us would prefer to pay for actual flight-hour experience in the cockpit.

Turning to your business, as we have been reporting for some time, the ‘trickle down’ effect of sustainability / carbon neutrality / ESG on small to mid-sized enterprises (SMEs), and those that serve them, like their accounting firms, is upon us.

This article talks about the opportunity for accounting firms to pick up some business from you due to this.

As governments create new sustainability governance programs, such as the SEC rules discussed in the article, large companies will be forced to report their Scope 1, 2 and 3 emissions.  There will be a trickle down to SMEs that serve these larger public companies as those larger companies, who need to report their Scope 3 emissions, will require their SME vendors, to report their Scope 1 and 2 emissions.

This will present risk for SMEs who are served by accounting firms that do not have experience with sustainability or carbon neutrality.  Further, it also limits the opportunity for these SMEs to maximize the use of this as a differentiation tool as their advisors have never walked the talk.

Will most accounting firms read up on this topic?  Probably.

But will that give them hands-on experience with the process of becoming certified sustainable or having a baseline carbon footprint analysis done?  No.

Will it give them the real world experience to counsel and guide you on how to turn this into an opportunity?  No.

Do yourself a favor.   When the time comes, select a certified sustainable accounting firm, like this one.  They can speak to the process of becoming and renewing their sustainability certification, and have done the work associated with creating a baseline carbon footprint analysis.  They have walked the talk.

As a follow up to yesterday’s post on the social cost of carbon, this article discusses the impact of climate change on financial assets 77 years from now, in 2100.

Granted, most of us will not be here in 77 years.  However, some of our children and grandchildren may be alive.

• Option A – Do nothing, resulting in a 50 – 60% reduction of existing financial assets.
• Option B – Take action now to keep temperature rise below 2°C, resulting in a loss of 15% of assets.

The cost to your business?

• Option A – Nothing. We let our kids worry about it.
• Option B – Assume approx. 7% of your annual GDP if the world went all-in (which will not happen).
• Option C – Assume some regulations and a cost of 2 – 3% of your annual GDP.

Is there a win here?

• Until governments mandate, you get to choose. You can lead, follow, or wait to be forced.
• Consumers (both B2C and B2B) are showing their support for certified sustainable companies by moving their business to them – 25% have already moved their business and another 25 – 35% is currently in play.
• Today, less than 1% of SMEs are certified sustainable. This allows those that are to stand out.
• And they are being rewarded – Certified sustainable companies are growing up to 20x faster than their non-certified peers and enjoying a 7x ROI on their sustainability projects.
• So, until the regulations come, is there a win here for your company?

At Edenark Group, we prefer a different title – “Profit now or pay later”