Climate risk reporting and ISO 14001
UK Businesses must report their climate risks to investors from 2021.
The announcement by Chancellor Rishi Sunak means that from 2021, premium listed companies on the London Stock Exchange must include climate-related information in their accounts.
Businesses that do not take climate change seriously will find this to be a challenge.
Business still ignoring climate risk
The Financial Reporting Council (FRC) recently published its Climate Thematic Review 2020. It noted that only a quarter of the companies sampled referenced climate change in their financial statements.
The FRC noted that businesses who were publicly claiming “net-zero” ambitions were not detailing the progress of their efforts. Businesses should provide detail of milestones, targets, and metrics to enable investors to understand how their commitments were being implementedusinesses should back their claims with details of milestones, targets, and metrics..
There is little evidence that business models and company strategy are influenced by integrating climate considerations into governance frameworks – Financial Reporting Council, November 2020
Do only large businesses need to report?
The new requirement will apply initially to the largest public companies. These are the businesses who are best placed to understand their risks. Over time, the requirement will cascade down to smaller companies.
The requirement will also affect smaller, privately-held businesses that supply to larger businesses. Businesses must take responsibility for driving environmental awareness through their supply chain. Larger businesses will require even smaller suppliers to show how they are managing their impacts. Microsoft, for example have updated their supplier code of conduct to make sure that their supply chain supports their carbon negative commitment.
Another affected group will be growth-stage businesses seeking investment. Venture capitalists and private equity companies will need to include climate-related risks in their due diligence checks. The European Union’s commitment to sustainable finance in support of the European Green Deal requires more detailed climate risk reporting.
Climate-change impacts all of us. The choices that we make have consequences. Businesses need to understand their climate risk and the aspects of their activities that impact the environment.
How does ISO 14001 help?
The ISO 14001 standard is a framework for implementing an environmental management system. It requires businesses to understand their environmental aspects, and to implement controls to reduce their impact. Achieving ISO 14001 certification requires an independent audit of the system to confirm that it follows best-practice. ISO standards are internationally recognised and enable entry to new markets for growing businesses..
Customers, regulators, employees and neighbours have expectations of environmental performance based on how it affects them. This could mean pollution, noise levels, waste disposal, or workplace safety. Meeting these expectations will have a positive impact on the business. Businesses that actively manage their environmental performance are able to reduce costs, enhance their reputation, and improve employee retention.
ISO 14001 requires businesses to demonstrate risk-based thinking throughout their system. This approach should drive improvements in climate risk reporting. A business’s environmental policy should reflect:
- Legal, regulatory, and contractual obligations
- Risks that the organisation is exposed to
- Opportunities that the organisation can take advantage of
- Needs and expectations of its interested parties
- The overall strategy of the business
The standard requires that environmental objectives are set, and their progress is monitored and measured. This provides the transparency that the FRC highlighted as well as giving assurance to prospective clients, partners, and investors.
Businesses can improve their performance by implementing an environmental management system. ISO 14001 certification inspires confidence for prospective customers, partners, and investors that the system follows best practices.
If you’d like to know more about ISO 14001 certification, contact us to arrange a call