Becoming sustainably literate - why a director should care | Irish Times

Professor Simon Haslam CDir, member of the Faculty at the Institute of Directors (IoD) Ireland.

Embracing the ESG agenda is no longer an option for Irish companies and their boards. The growing tide of sustainability reporting regulations coupled with legally mandated emissions reductions and other obligations will require many companies to radically transform their business models if they are to remain viable in the future.

In these circumstances, board members have a duty of care and a responsibility to ensure that their companies are fit for purpose for a dramatically changed future, according to Professor Simon Haslam CDir, member of the Faculty  at the Institute of Directors (IoD) Ireland. “It is part of their role as custodians of the organisation.”

It is not just about regulatory compliance, Haslam continues. “Waves of change are coming. It is very easy for someone to stand in the shallows and see the wave and not do anything different and in some ways their organisation may be absolutely fine. But when we see the changes in legislation, how social media and other communications technology are making things more transparent and immediate and affecting the decision making of younger people when it comes to what they consume and where they work, and how investors and companies are making decisions on who they do business with, we can see the power of the wave. Organisations may be able to ignore the wave in the short term, but not in the longer term.”

This shouldn’t be viewed through a negative lens, however. “Organisations who say they can’t control the wave but can control their response are those that can also see the opportunities it brings.”

The issue for many companies and their boards is developing the capabilities required to embrace the ESG agenda, meet new reporting requirements, and exploit the opportunities that will be created by this new wave of change.

To assist board members in this regard, the Institute of Directors Ireland (IoD) is offering an updated online interactive programme on ESG Fundamentals for Directors. The programme covers the essentials of sustainability and helps directors and boards to futureproof their organisations as well as to understand their duties and identify opportunities for solutions.

Presented by Professor Simon Haslam and Professor John Henry Looney, the programme provides the updates and guidance on ESG regulation with the newly published ISO ESG implementation principles (IWA48:2024) at its core.

Launched during COP29, IWA48:2024 can best be described as a high-level framework and set of principles designed to guide organisations in implementing and embedding ESG practices within their culture. It supports the management of ESG performance and facilitates measurement and reporting under existing frameworks, enabling consistency, comparability, and reliability of reporting and practices globally.

Professor John Henry Looney, a Visiting Professor in Sustainable Energy Systems and Techniques at the University of Lincoln.

Prof Looney is a Visiting Professor in Sustainable Energy Systems and Techniques at the University of Lincoln and had a minor input in the development of the IWA48:2024 principles. He explains that when ISO develops new standards and guidance it invites experts from around the world to contribute their ideas and thoughts. “I made some comments to improve the practicality of the guidance,” he says.

“It’s an internationally agreed framework for the implementation of ESG principles,” he continues. “A lot of companies are trying to understand and address the issue and lots of financial institutions are trying to measure it. This offers a framework for a standardised way of approaching it. It looks at the environmental and social aspects of ESG and aligns with the UN Sustainable Development Goals (SDGs). It brings an element of objectivity to ESG assessments.”

Very importantly, it offers companies a structured means of meeting the sustainability reporting requirements. The most pressing of these for larger organisations in the EU is the Corporate Sustainability Reporting Directive (CSRD). Central to the CSRD is the concept of double materiality under which both impact materiality and financial materiality must be assessed. Impact materiality refers to an organisation's actual or potential impact on people or the environment, either positive or negative. Financial materiality refers to material risks or opportunities that sustainability matters may trigger for an organisation. Double materiality assessment must cover short, medium, and long-term horizons as well as the entire value chain.

The intention is to ensure that investors and other stakeholders have access to the information they need to assess the environmental and social impacts of companies as well as the financial risks and opportunities they face arising from climate change and other sustainability issues.

Tellingly, CSRD disclosures will be subject to limited assurance and eventually to moderate assurance. This will place a new responsibility on board audit committees to ensure the integrity of sustainability reporting.

Another piece of legislation coming down the track is the Corporate Sustainability Due Diligence Directive (CSDDD). It will require companies in scope to identify and address adverse human rights and environmental impacts of their actions inside and outside Europe. Companies will need to reach into their entire value chains to identify these impacts, wherever they occur. Furthermore, it will require large companies to adopt and put into effect, through best efforts, a transition plan for climate change mitigation aligned with both Paris Agreement objectives and EU climate targets.

“This goes much further than the supply chain,” Haslam notes. “It covers the complete value chain from the point where coffee is grown and picked right the through to what happens to the cup it has been consumed in, for example. Some organisations think because they are not in scope of these directives that they don’t apply to them. However, if they don’t apply those principles to their own business, they are not going to be asked to tender for new business with customers who are in scope.”

The new ISO ESG implementation principles assists companies in their compliance efforts with these and other regulations by setting out appropriate KPIs based on the SDGs and Global Reporting Initiative (GRI) standards for organisations to use. “One of the things that happened in the past is that organisations set their own KPIs which were suited to their business models,” John Henry notes. “If all organisations work to the same KPIs there is real comparability.”

The IoD ESG Fundamentals for Directors programme covers the three key elements of governance of the carbon impact, governance in relation to the non-carbon environment and the circularity agenda, and governance in relation to the social agenda.

“The first area of governance around the carbon footprint is a key part of the E part of ESG,” Haslam explains. “Boards have a duty to understand where the organisation is at the moment, have a view of where it should be getting to and be able to create a plan to get there. “It’s also about having an organisation that is adaptable and resilient to the impact of climate change,” he says. That’s the carbon part of the agenda.”

The second element covers the broader environmental agenda and everything that is not carbon related. “That means understanding the consumption of resources including water, the use of materials, the organisation’s impact on biodiversity, and embracing circularity in the business model.”

The ideal with circularity is to arrive at a point where there is no such thing as waste. “That means designing products with an incredibly long life and no planned obsolescence and built-in ability to repurpose the materials used in their production,” Haslam explains. “Some organisations may see that as not incentivising consumption, but they have to look at the opportunities for new value creation as well as the risks.”

Fiona Charnley, Professor of Circular Innovation and Co-Director of the Exeter Centre for the Circular Economy is a guest speaker on this part of the programme. “There are very few full professors in this relatively new field. They are pretty rare individuals, and we are very lucky to have her.”

The social agenda is strongly connected to social justice. “This issue tends not to arise close to home for companies in Ireland where the social agenda is well advanced. It arises when the organisation is part of complex supply chains, and they need to look at parts of the chain far from home.”

Board members will be able to apply learnings from the programme to the Governance of their organisation as they prepare to meet the challenges presented by new ESG obligations as well as to take advantage of the opportunities that will arise, according to John Henry.

He points out that the pressure to become more sustainable will continue to grow. “We already have Environmental Product Declarations which offer a standardised way of providing data about the environmental impacts of a product throughout its lifecycle. They will be used more and more by people and companies making choices on what they buy. We will soon have Social Product Declarations (SPD) as well which will give information on the social sustainability performance of a product or service. The new ISO ESG Implementation principles will help board members to improve their organisations’ ESG performance as well as their overall business performance.”