Tim Mohin on how countries can best implement effective and transparent ESG standards

After the Climate Innovation Forum 2021, we spoke to Tim Mohin, Chief Sustainability Officer at Persefoni, to discuss how countries can best implement ESG standards that are both effective and create transparency across geographies and industries.

“Climate risk is financial risk for companies,” what does this observation mean for companies in relation to ESG reporting? What are the risks for companies who lack structures/technology to accurately measure and report on their emissions and other operations that impact the environment?

The number of institutional investors who have committed to investing responsibly, as per the Climate Action 100+, has doubled in just 24 months to $52 trillion in assets under management—or roughly half—of the world’s total, This shift in investment reflects Harvard business professor and management guru Michael Porter’s vision for corporate purpose in which he noted that sustainability concerns have now crossed a threshold from being nice-to-do reputational matters to must-do threats to core business In short, being an active participant in combating climate change is vital to any business’ bottom line and ability to compete in a global market.

Additionally, carbon is a data problem at its core, and until recently companies have lacked the tools and data that allow them to tackle that problem. Better tools provide real-time and forecasted data analytics. Using AI and machine learning, company leaders will be able to assess opportunities and weaknesses/risks across the organization and empower business unit managers in the field. It is not simply about identifying a carbon footprint--investors/shareholders and regulators, not to mention customers and employees, want to see demonstrable progress towards decarbonization. In order to keep up with the rapidly changing ESG reporting landscape and digest the so-called alphabet soup of ESG, companies need sophisticated tools that are reliable and up to date with the latest reporting frameworks and standards. You simply can’t do that in a spreadsheet.

There is a litany of ESG reporting standards and frameworks observed across the globe. How can countries or regions best implement ESG standards that are both effective and create transparency across geographies and industries?

Universal disclosure is coming with growing momentum for consolidation as universally required disclosures will provide greater consistency of reporting across sectors and thus increase the quality and comparability of reporting. When it comes to disclosures there is no ‘one size fits all,’ that’s why regulators are looking at defining ‘sector-specific’ disclosures. While it is still unclear about what exactly will comprise the list of universal disclosures, there’s one thing all parties agree upon — climate change. The US Securities and Exchange Commission, the EU, several APAC countries, and the standards organizations have all prioritized climate change, so it is a safe bet that reporting on a company’s carbon footprint will soon be mandatory.

Earlier this year the United States Securities and Exchange Commission (SEC) sought public comment on if/how they should require climate-related disclosures from publicly traded companies. Do you believe these climate-related disclosures are meaningful to combat climate change, and if so, are there other international frameworks they should look to follow/abide by to mandate climate-disclosures and reporting standards?

Climate related disclosures and commitments are absolutely necessary, however, they are only as good as the data and frameworks that support them. Without regulation, ESG investing is still the wild west. Claims of ‘green’ or ‘sustainable’ investing strategies are largely undefined and unverified which can lead to ESG investment in potentially lackluster outcomes or greenwashing. That’s why companies need reliable data and universal regulations to ensure consistency in reporting standards. The SEC can look to the International Sustainability Standards Board forming under the International Financial Reporting Standards Foundation (IFRS), which has recently taken the lead in driving convergence to a single internationally accepted reporting standard. The standards produced by IFRS are used by most countries in the world for financial disclosure. Endorsing these global standards will reduce confusion and reporting burden while increasing comparability across our connected economy. 

Despite financial institutions not directly emitting large amounts of greenhouse gases through their operations, a recent report from climate nonprofit CDP found emissions associated with investing, lending, and underwriting activities are more than 700 times higher than their direct emissions. How can financial institutions and FinTech better understand and reduce their emissions related to their financial investments?

Because the financial community essentially manages the flow of capital through the economy, they can fund the transition to a low-carbon economy.  But they can only do this if they have visibility of the climate impacts of their financial transactions – also known as their “financed emissions.” Financial services firms can make millions of transactions per year involving a myriad of companies across all industrial sectors.  In many cases, the transactions are made by computers and the investment can be quite short-term. State of the art information technology is needed to integrate standards like PCAF into the data engines used by the world’s largest finance companies. With the standards integrated into their investment decisions, financial firms will begin to put their money where their mouth is and start to fund the transition to the low carbon economy we need to sustain this planet.

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Persefoni spoke at the Climate Innovation Forum 2021 which took place 29 June - 1 July during London Climate Action Week. Missed it? Don't worry, you can now watch all sessions on demand here.