We need to move from abbreviations and regulations to materiality and purpose!
During the last few weeks, I have made several presentations for senior executives, and board members. On a couple of occasions, I have received the feed-back that the sustainability field has turned into a massive wall of regulations and abbreviations, almost impossible to get through. I find this deeply problematic; sustainable business ought to be about solutions, purpose, and joy. If we let new regulations such as CSRD and ESRS (see below for explanations) dominate this discourse, we will not make it.
As an advisor to companies, I often work on regulations and frameworks, but I find my joy and meaning in discussing and helping companies identifying what is material to them, finding their purpose and adopting their business models to opportunities and threats. In order to do that, however, there are a few concepts that you may need to be aware of. I have assembled a few of them below, with brief explanations and sometimes links.
Hope it helps! Enjoy!
- Carbon credits and carbon offsets. There is a carbon compliance market and a voluntary market. In brief, both “systems” are based on either reduced emissions (e.g. energy efficiency), removed emissions (carbon capture from e.g. forests or capture and storage and avoided emissions. Read more here or here
- Circular economy is a kind of a business model developed in response to the fact that the supply of raw material (virgin material) is limited. It involves, for example, sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible. In this way, the life cycle of products is extended. The “waste” in one process, becomes “food” (input) in another.
- Corporate Sustainability Due Diligence Directive (CSDDD) – Due Diligence of Human Rights and Environment: this is a new piece of legislation from the EU that, once ready and included in national laws, aims to ensure that businesses address adverse impacts of their actions, including in their value chains inside and outside Europe. Companies must have policies in place and conduct due diligence in their supply chain. The aim of this Directive is to foster sustainable and responsible corporate behaviour and to anchor human rights and environmental considerations in companies’ operations and corporate governance. It makes reference to the OECD framework for Due Diligence. CSDDD can be seen as a complement to CSRD (see below).
- CSR: Corporate Social Responsibility. Initially often referred to as a business model that companies could use to integrate social and environmental concerns into their operations. Not so commonly used today as some 10-20 years ago. Read more for examples here
- CSRD: Corporate Sustainability Reporting Directive. A new directive on sustainability reporting that will be incorporated into national laws in the EU. One of the biggest reforms in accounting and reporting ever, according to some observers. Gradual start from 2024 and onwards (depending on size etc. 50 000 companies will use the directive). Guidelines on how to report are found in the ESRS standards (see below). It is envisioned that CSRD will lead to substantially better – and more comparable – sustainability reporting, once operational. It will probably also be fairly “heavy” (and expensive) for companies to comply with.
- EFRAG: European Financial Reporting Advisory Group
- ESG: Environment, Social, Governance. An approach used by investors to analyse companies. Focus on risks but increasingly used interchangeably with “sustainability”. Has also often become synonymous with CSR, though originally that was not the purpose. Read more for examples here.
- ESRS: European Sustainability Reporting Standards. A set of currently 12 standards that shall be used to specify what companies must report on according to the Corporate Sustainability Reporting Directive. The 12 standards are meant to help companies disclose their material impacts, risks and opportunities in relation to environmental, social, and governance sustainability matters.
- EU Taxonomy for sustainable investments: A classification system approved (and developed within) the EU to establish a list of environmentally sustainable economic activities. Also includes a list of minimum safeguards relating to human rights, etc. One purpose of the taxonomy is to help e.g. investors agree on what an environmentally sustainable investment is. Very few economic activities in the EU are today classified as “taxonomy aligned” May be followed by a “social taxonomy”.
- GHG–protocol and Scope 1–3: The world’s most widely used greenhouse gas accounting standard. The standard is used to calculate the emissions caused by a company (or a city/country). Scope 1 is direct emissions caused by the company, Scope 2 measures purchased electricity or steam, and Scope 3 indirect emissions caused by e.g. suppliers or customers. Many/most companies will find most of their emissions in scope 3.
- Net-zero: when global greenhouse gases (not only CO2) emissions are in balance with emission reduction. Term used by SBTi (see below). Other similar concepts include “carbon neutral” (often includes offsetting emissions), and “climate neutral”.
- Materiality (with regard to sustainability): a materiality analysis is a method to assess the issues that are most important to an organisation or company, as well as to its different stakeholders. With new legislation there is an increased focus on double materiality, which is a concept/tool to determine how a company impacts the planet from a sustainability point of view, and how sustainability issues impact the company (financially).
- Science Based Target Initiative (SBTi): An organisation “approving” targets set by companies. Targets are considered ‘science-based’ if they are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement – limiting global warming to well below 2°C above pre-industrial levels and pursuing efforts to limit warming to 1.5°C.
- Shared value: “policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress.” – Porter & Kramer
- Sustainable Development: From the Brundtland report/”Our Common Future” in 1987:
“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Widely used definition and starting point for both business and public sector.
- Task Force on Climate–related Financial Disclosures (TCFD): a task force that has come up with recommendations and a framework on climate disclosures, structured around four thematic areas: governance, strategy, risk management and metrics/targets.
- Task Force on Nature-related Financial Disclosures (TNFD): this task force has developed a set of disclosure recommendations and guidance for organisations to report and act on evolving nature-related dependencies, impacts, risks and opportunities.
- 17 Sustainable Development Goals & Agenda 2030: In 2015, world leaders agreed on a what they wanted the world to look like in the year 2030. This agenda, the 2030 Agenda for Sustainable Development, includes 17 Goals (SDGs) and 169 targets and has become a way of concretizing what sustainability is all about.
(I also have a slightly longer version of this document, where I go through concepts and abbreviations such as GRI, SASB, and B-Corp and Benefit Corporations, Global Compact, UN Guiding Principles, OECD Guidelines for Multinational enterprises, GISD, PRI, etc. But let’s save that for some other time. Or just google them!)