The 26th climate negotiations in Glasgow, the COP26, are currently causing many institutions and us at Briink to take another close look at the progress made since the Paris Climate Agreement in 2015. Are we as nations, businesses, and civil society “on track”? Can we keep global warming at 1.5°C by 2030?
The preliminary publications from the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) from this summer answers this question quite clearly: No. Global surface temperature will continue to increase until at least the mid-century under all emissions scenarios considered.
This will then lead to increases in the frequency and intensity of hot extremes, marine heatwaves, and heavy precipitation, agricultural and ecological droughts in some regions, and proportion of intense tropical cyclones, as well as reductions in Arctic Sea ice, snow cover and permafrost. (IPCC 2021)
A dire scenario and a clear signal towards COP26 — the time to act is now!
The EU Taxonomy as a driver of transformation
The current wave of regulation at the European and international level under the header of “Sustainable Finance” aims to accelerate this transition by financing climate-friendly economic activities. The inventory of the European economy according to the EU Taxonomy makes these green activities identifiable — at least for their contribution to Climate mitigation and adaptation.
But there has been a chorus of criticism directed toward the EU taxonomy and we at Briink also hear these voices loud and clear:
“Climate reporting has not yet saved the climate.” - “An administrative burden, especially on smaller companies, takes away their time and financial resources to deal with the core of the problem, the reduction of emissions.”
These voices should not go unheard, but knowledge (internal) and transparency (external) about one’s own climate contribution can also be a business opportunity. It’s worth tackling climate reporting!
Navigating the jungle of climate frameworks to climate reporting
In fact, it is not easy for companies to find their way through the jungle of reporting standards and select a framework that fits their industry, size, regionality and type of company. Because in the end, climate reporting should encompass many things: reporting on internal responsibilities for climate issues and the collection of CO2 data as well as the goal of reducing the company’s own CO2 emissions and the establishment of measures.
It also includes the screening of climate risks for the company and the possible adjustment of the business model for compatibility with the 1.5 degree target.
Into the jungle and out again: how climate reporting can help companies with EU Taxonomy reporting
Climate reporting can help companies in two ways: first, reporting provides the company with the opportunity to reflect on itself and to monitor and manage its own development - this means, above all, establishing climate change activities. In addition, others, like investors, have the opportunity to see a good ESG performance and possibly reward it — e.g. in the form of more favorable credit terms.
But compliance with the latest requirements of the EU Taxonomy Regulation can also become easier for companies. According to Article 8, companies that already report in accordance with the non-financial reporting directive (NFRD) should also report the share of green activities in turnover, CAPEX and OPEX from the next financial year — initially for the two environmental goals of climate mitigation and adaptation.
This is where the previous climate reporting can help. For example, if a company establishes climate reporting according to TCFD (TCFD 2021):
1. Governance: for climate reporting, questions about who is responsible for climate issues have already been discussed. Taxonomy reporting builds on these structures and expands them to include a working group with accounting and finance participation.
2. Strategy: Targets have already been set for climate reporting and progress towards achieving targets has been tracked. A great foundation to show and track corporate investments in green activities.
3. Risk management: key climate change risks to the business have already been identified for climate reporting. That means, that the resilience of the business model is backed up.
4. Metrics and Targets: A data base has already been created for climate reporting and appropriate reporting structures have been set up. These data are valuable in terms of auditing business activities according to the Technical Sreening Criteria.
Of course, the preliminary work done by climate reporting does not cover all requirements of the EU Taxonomy: The (1) mapping of eligible activities to company financials, (2) screening of quantitative and qualitative company documents for proof of meeting the Technical Screening Criteria as well as regular qualitative and quantitative reporting, and (3) screening of the Technical Screening Criteria for a tightening of the criteria need extra work.
This is where AI can help: Keep following us to learn more!
To sum up
The transformation towards a sustainable economy is a huge effort for states, economic actors and civil society — we see this in the COP26 negotiations.
However, climate reporting can also be the first step for smaller companies to establish governance structures, collect data, set targets and back them up with concrete climate measures. Synergies between climate reporting and EU taxonomy reporting can be leveraged and finally, companies actively contribute to climate protection!