“Zero tolerance for net-zero greenwashing”, asserted Antonio Guterres, UN Secretary General, in his opening remarks at the COP27, held in Sharm el-Sheikh, Egypt. The statement is a strong message to the companies to revisit their net zero commitment. He added that decarbonization plans “should be publicly available, with detailed, concrete actions to meet all targets, with management accountable for delivering on these pledges.” Since the Paris Agreement was signed in 2015, there has been a sharp increase in the number of companies setting net zero targets. But in the words of Catherine McKenna, chair of the expert group set up by the UN to look at greenwashing, "Too many of these net zero pledges are little more than empty slogans and hype." Tight regulation around green washing is currently being framed around the world.
To address the ambiguity and bring integrity, transparency and accountability to net zero commitments, the expert group, in its recent report launched at COP27, endorsed five key principles and ten recommendations. The recommendations focused on alignment with 1.5 degrees Celsius (°C) pathways and demonstrating integrity by aligning commitments with actions and investments. The report also called on companies to set emission targets to account for all scope 1, 2 and 3 emissions. Apart from the UN, the International Organization for Standardization (ISO) also unveiled net zero guidelines, which establish a common approach for businesses to achieve net zero by 2050, at the latest.
According to a recent survey by Deloitte on ESG disclosure and preparedness, technology companies are most prepared to disclose scope 1 and scope 2 emissions, but rank second best for disclosure of scope 3 emissions. The ESG ratings of Indian IT companies also validate the relative maturity in comparison with other industry segments. Disclosure of scope 3 emissions is less straightforward as the majority of survey respondents revealed that data availability and confidence in the available data are critical challenges. The growing volume of regulation on climate change related disclosures coupled with the regulations and standards to combat greenwashing elevate the reliability and accuracy of emission data to the highest priority.
Given the criticality and complexity of emission data, it becomes important for companies to have robust internal controls and processes to capture accurate and complete data points for reporting and analytical purposes. In the same survey, 99 per cent of the companies surveyed expressed a willingness to invest in new technologies and tools in order to be prepared to meet stakeholder expectations and future regulatory requirements. As the technology industry is more mature when it comes to readiness to report on emissions, it should be well positioned to help companies in other sectors to improve their readiness. Many technology companies have recently developed expertise in quantifying, measuring and disclosing emissions with a high degree of reliability. Adoption of the right technology solutions will help companies improve emission reporting. Furthermore, accurate analytics will help companies reduce their emissions in a more rapid manner and enable them to be more competitive in the evolving low carbon economy. This is a big opportunity the Indian IT companies have to help their clients charter their Net Zero pathway with data science and engineering.
Another significant outcome from COP27 was the launch of the Sharm el-Sheikh Adaptation Agenda, the first comprehensive global plan to bring together both governments and businesses towards defined adaptation objectives by 2030. The COP presidency called on businesses to support this critical Agenda and enhance their resilience. India’s annualized average loss (AAL) has been estimated to be 3.35 per cent of India’s GDP by the UNESCAP Risk and Resilience Portal. Government alone cannot achieve change. Businesses have a significant role to play, and ‘Adaptation’ needs to be an immediate action item. Companies need to integrate climate risk and adaptation planning into their core business strategies. They can start by evaluating the climate-related risks posed to their companies and then making informed decisions on where and when to allocate their capital.
Climate risk remains complex and difficult to evaluate, but new digital technologies can help process vast quantities of data from multiple sources to evaluate scenarios and create an aggregated picture of risk for companies. Risk managers in future will rely on machine learning and artificial intelligence with digital identity systems and probabilistic blockchain to make timely risk management decisions related to climate change. Technology solutions will be vital in unlocking the keys to managing climate-related risk. This is also an opportunity for the IT companies to explore.
COP27 clearly highlighted the way forward for companies as net zero commitments aligned to 1.5 degree Celsius pathways are simply not sufficient. Companies now need to transparently communicate the pathways to reach commitments. And a “too little – too late” approach will not work. A lack of action now on climate-related risks could erode the company's value in times to come.
While the risks are obvious, opportunities abound for technology companies willing to invest in solutions. The integration of the right technology solutions with business strategies and processes will fast pace the journey to net zero. Technology companies that focus their research and development in this space and create solutions that will go a long way in determining the future viability of our existence on this planet.
(The author is General Manager - ESG at HCLTech)
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