By Clodagh Ruigrok, Senior Associate, Asset Management & Investment Funds, William Fry LLP & member of Green Team Network's "Knowledge & Content" Working Group.
Opening Hour
On 30 May 2023, more than 400 representatives from across Irish industry piled in to a sunny Croke Park, eager to hear the latest updates on a topic which has so quickly and radically shifted the agenda, attention and strategy of so many businesses. Environmental, social and governance (ESG) considerations, and building momentum towards a more sustainable business model, have become high priorities on all company agendas. Issues such as sustainable development, climate action, integrated reporting and stakeholder management are increasingly important to businesses in Ireland and globally, and companies are facing growing pressure to balance environmental and societal impacts with competitive advantage and profitability.
Speakers and attendees from state bodies, banks, private equity firms, engineering companies,
consulting bodies, law firms and food producers, throughout the day would discuss the commercial,
regulatory and ethical sustainability-related challenges and opportunities facing all sides of Irish
industry.
One overarching message of the gathering was clear:
ESG applies to everyone. And it applies now.
Commercial Factors – The Challenges and Opportunities
Following an opening address by chair Ivan Yates (long-time entrepreneur and broadcaster), the busy agenda kicked off with a discussion on why every leader needs to be a sustainability champion.
ESG from the Top Down
JP Scally (CEO, Lidl Ireland and Northern Ireland) and Tracy O’Rourke (Founder & CEO, Vivid Edge) discussed how their businesses had committed to sustainability from the top down, and that the commitment was much more than a "box ticking" exercise. They stressed that the company's
investment – in time, resource and development – must be genuine to be successful.
Shockingly, it is estimated that 1 in 3 calories produced is wasted, and JP spoke of Lidl's efforts in
reducing this – through customer education, packaging swaps and supply chain partnerships. Tracy's energy consultancy firm Vivid Edge works with businesses in making energy savings in the built economy. She was confident that most businesses could save 30% in energy throug easy wins
before looking to longer term impacts.
ESG is a long-term game. Businesses can reap rewards in the long term by doing the right thing now. Both agreed that businesses pursuing sustainability agendas increase their chances of becoming innovative leaders. Their experience had shown them that the best way to become a sustainability champion is to start now, start with what you can do, start where you are and grow from here. Not be easy, but it is absolutely necessary.
Embracing the Opportunities
Aidan O’Mahony (Head of ESG Advisory, Goodbody) later spoke to ESG opportunities, particularly in attracting inward investment. With so-called Article 8 and 9 funds in high demand and currently making up 57% of the EU funds market, ESG investment can give access to a wider potential investor base and better lending rates. Banks are scrambling to back sustainable activity to boost their Green Asset Ratios (GARs), and green lending products, which didn’t exist in 2017 and are anticipated to grow to 50% of lending activity by 2024.
Another expert panel discussed ways to drive stakeholder value with a strong ESG strategy.
Caroline Keeling (CEO, Keelings), Conor O’Sullivan (Investment Director, Atlantic Bridge Ventures), Dr Matt Kennedy (Director, Sustainable Development Lead Europe & Global Leader, Climate Strategy, Arup) and Joseph Quinn (Head of Investor Relations, Mainstream Renewable Power plc) spoke about unlocking long-term value and meeting stakeholder expectations for building a sustainable equitable future.
One panellist voiced what many are facing - The real challenge is delivering on the sustainability
agenda without driving costs. But all agreed that ESG considerations must form an integral part of
business decisions and that sustainability activities would lead overall to a more successful business
model.
The stakeholders of the future won't thank us if we don't act now.
Regulatory Obligations
Moving to the increasing regulatory obligations, Paul White (A&L Goodbody, Corporate Advisory and M&A group) gave an eagerly-followed overview of what businesses need to know about the new mandatory corporate sustainability reporting regime – CSRD.
CSRD
CSRD (the EU Corporate Sustainability Reporting Directive) is the new EU sustainability transparency
regime for companies which replaces, enhances and extends the scope of the current regime under
the Non-Financial Reporting Directive (NFRD). It introduces detailed reporting requirements on
companies’ impact on the environment, human rights and social standards, increasing the range of in-scope EU entities (to 50,000 from 11,000 under NFRD), and introducing prescriptive standards and audited reporting. CSRD will apply to all large companies (with more than 250 employees, and/or €40M Turnover, and/or €20M total assets) and listed companies, with some exemptions, from reporting periods commencing 1 January 2024.
…and the rest
CSRD is the latest in the extensive EU Sustainable Finance regulatory framework, and follows the
implementation of the Sustainable Finance Disclosures Regulation (SFDR) and the EU Taxonomy
Regulation through 2021 and 2022. SFDR requires EU financial service providers (banks, insurers,
fund managers, pension providers) to disclose sustainability risks, impacts on environmental and
social matters and product-level sustainability targets, while the Taxonomy sets down performance
standards for environmentally sustainable activities and mandates disclosure against those standards.
ESG regulation and guidance is only increasing, with other recent (non-exhaustive) examples
including the Low Carbon Benchmark Regulation, the EU GBS Regulation, the 2022 UCITS / AIFMD / IDD / Solvency II / MiFID Amending Delegated Regulations, the EBA CRR ITS (Pillar 3 ESG disclosures) and June 2021 EBA report on management and supervision of ESG risks for credit institutions and investment firms.
Preparation is key
On CSRD, Paul stressed its complex nature and the huge levels of in-depth compliance preparation
needed, including in securing data and information, conducting gap analyses, scrutinising value chains and considering group company dynamics. Internal processes and training must be developed, and boards will seek detailed reporting and data to become comfortable with the business stated claims.
The regulatory agenda is clear. Mairead McGuinness (European Commissioner for Financial
Stability, Financial Services and the Capital Markets Union) has cited that the aim of CSRD is to "put non-financial reporting on the same footing as financial reporting" and that "even out of scope entities should be encouraged to report on a voluntary basis". Indeed, due to the increase in supply chain reporting requirements, out of scope companies are likely to be brought into the regime on foot of pressure from supply chain partners fulfilling their mandatory obligations.
The impact is widespread. The changes are coming quickly – The policy objectives and urgency of
the overall mandate can be felt in the short implementation timelines; Non-compliance will lead to
legal and regulatory consequences.
Scope 3 emissions
Discussions on scope 3 emissions & reporting also attracted wide interest, with the challenges being clear. Scope 3 emissions can amount to 90% of an entity's impact reporting, and yet are often beyond direct control of the reporting entity. Conall Boland (Senior Consultant, Sustainability Team, RPS Consulting) and Owen Keogh (Head of Sustainability, Musgrave Group) gave insights on how to accurately identify, collect and manage good quality reliable scope 3 data and importantly, how to avoid greenwashing claims. Action plans are vital, and information gathering must start now.
Widespread impacts
During the CSRD panel discussion, the expert speakers (also including Orla Coyle (Head of Energy & Sustainability, Savills), Peter Reilly (Managing Director, Governance and ESG at FTI Consulting) and Tony Murphy (Director, Head of Sustainable Finance, AIB Corporate Banking) reiterated that every sector will need to lean intoESG and sustainable reporting. As well as the challenges, they spoke of the exciting potential arising from sustainable reporting which companies should identify and embrace, including access to new markets, preferential financing rates, new investment and attracting new talent.
Ethical Considerations
Following a lively networking lunch, the room broke to roundtables for more interactive discussions.
Jim Foley (Managing Director, Trustee Decisions Ltd) contended with the topic of ESG for investors:
What themes are at the forefront of investors’ minds, debating the dilemmas between ESG
investment and return. The group discussed how investment funds, which are not philanthropic entities, can juggle their ultimate mandate of generating alpha, or a return on investment, with addressing increasing ESG regulatory obligations and managing ESG risks to their portfolios. At the end of the day, ESG is ever-more embedded into every part of the investment process, bringing opportunities and challenges alike to all investment vehicles.
Other groups discussed trends in ESG data collection, management and reporting, the risks of ESG
inaction, and the importance of building ESG talent within a business. All agreed that moving toward a more sustainable business model is not only required due to regulatory and stakeholder pressures, but is also the right thing to do. None necessarily agreed on how exactly to balance the scales.
Closing Time
As the discussions wrapped and closing remarks were made, the themes of the day rang out loudly. Whether the incentives are altruistic, regulatory or financial -
There is no option except to act on ESG.
ESG considerations and activities are no longer a nice to have. They are expected and required from regulators, industry and stakeholders, and must be embedded in every aspect of business strategy and operations.
Developing sustainable frameworks can be a mix of art and science, and is a challenging task at best. However, standardised metrics must increasingly be followed, as set (and at a very high bar) by regulation including CSRD, SFDR and the Taxonomy. Such metrics will seek to level the playing field, but will drastically also increase the level of company investment.
Entities, whether impacted directly by the raft of new ESG requirements or not, are left with no option but to embrace the new challenges and opportunities. Those which do so proactively, and
comprehensively, will ultimately put themselves ahead – of their legal obligations, their competitors
and their peers.
Time is limited. Start now.