Climate governance is becoming central to corporate strategy
EBRD corporate clients shared practical steps emerging market companies can take to manage climate risks and identify new business opportunities in a recent event organised by the EBRD with the Financial Times. We share four key insights from the conversation below.
1 - Corporates should invest in improving climate-related governance and disclosure now even though global standards are yet to fully emerge. Panellists noted significant uncertainties due to data gaps in emerging markets and emerging global reporting standards but agreed that these were not reasons not to invest in improving governance and disclosure now.
Derya Özet Yalgı, sustainability director at Turkish conglomerate Sabanci Holding and Julia Bereshchenko, director for business development, investor relations and ESG at Astarta Holding, a Ukrainian agribusiness, shared how their organisations have sought to manage uncertainty around evolving standards by ensuring climate-related targets are sufficiently ambitious.
Ms. Bereshchenko highlighted difficulties in comparing the performance of her company with national and international peers due to the lack of standardised methodologies for calculating emissions from different agricultural activities. Astarta Holding manages this by using “the highest benchmarks” for its own methodology she explained.
Similarly, Ms. Yalgı shared that, “because standards, regulatory frameworks, and the ambitions of our peers are moving in the same direction, Sabanci Holding has to set targets high in every geography.”
The EBRD’s Acting Director for Green Economy and Climate Action Gianpiero Nacci stressed that investment in skills and data is essential for companies to respond to growing regulatory and investor demands for disclosure and to identify new business opportunities. “The EBRD will set up a Corporate Climate Governance Client Advisory Facility in early 2022 to help clients identify data and capacity gaps and find governance structures and technical tools that allow them to set targets but also to manage climate-related risk in a dynamic way,” he said.
Burcu Guner, senior director at Moody’s Analytics, agreed that building internal capacity would allow corporates to adjust their approach as the climate changes and policy, regulation, and reporting standards evolve. “It is important for corporates to be comparable and transparent in their disclosures but also appreciate the limitations of some of the metrics and targets they use. Many will change and there will be uncertainty around those measures that they will have to adapt to.”
2 - Scenario analysis helps corporates establish the business case for climate action. Ms. Yalgı detailed how scenario analysis has helped Sabanci Group establish the business case for climate action across each business line. “Scenario analysis helps us to understand the cost of emerging regulations like the EU’s Carbon Border Adjustment Mechanism (CBAM), how our own facilities might be hit by the physical impacts of climate change, and to identify likely hotspots for supply chain disruption,” she said. “It helps us to see that inaction and business-as-usual will cost more than decarbonising our operations. This shaped our decision to invest more in sustainable business areas, like electrification, sustainable finance, and sustainable business materials.”
Ms. Guner also noted that, “We should work towards the net zero ambitions but there are so many uncertainties with climate change. Climate scenario analysis is not just about the carbon metrics or targets corporates set and monitor. It must also accommodate strategies for adaptation and resilience in the short, medium and long-term.”
3 - Engagement from corporate leadership is essential for improved climate governance. Panellists noted corporate leadership is essential to improving understanding and driving informed and integrated action. Ms. Bereshchenko and Ms. Yalgı highlighted that the boards of their respective institutions monitor progress towards climate-related goals and that executive remuneration is linked to it.
“We disclose annually in our non-financial reports but our board considers our ESG and carbon-related data on a quarterly basis along with our financial results so we can monitor our performance regularly,” observed Ms Bereshchenko.
The boards of Sabanci Holding and its group companies consider a range of metrics to understand progress towards its long-term net zero emissions goal. Ms. Yalgı explained, “Sabanci has investee companies in diverse sectors. We cannot just set emissions reductions targets. We need other parameters for success. For instance, we look at how much R&D is SDG-oriented, and how much revenue comes from mitigation or transition linked activities to achieve the shift in mind-set from sales, product development, and R&D teams that is necessary to transform these businesses.”
4 - Defining what low-carbon looks like in different countries and sectors can reduce corporate risks and unlock investment. Often the barrier to greater corporate climate-related investment is a lack of projects rather than a lack of finance. Defining the investments and technologies needed can provide the clarity corporates and investors need to better manage risks and to engage more fully.
“Developing long-term, low-carbon, climate-resilient pathways is one way to address this,” stated Mr. Nacci. “They bring together different parties – project sponsors, corporates, policymakers, investors, and financiers – to define the investments and technologies needed for transition.”
“The EBRD works with partners to support the development of such pathways. For instance, over the past two years we have partnered with the IEA to support the International Fertiliser Association and its members in developing a low-carbon pathway for the nitrogen fertiliser industry that clearly identifies investment, technologies and the timing of investments needed to decarbonise this critical sector.”
The event is available to view on demand until the end of November. It followed a previous FT-EBRD event that highlighted the growing gap between climate-related financial disclosure levels in emerging and developed markets that is also available to view on demand until the end of this month.
Contact us to find out more about the facility:
Craig Davies, Head of Climate Resilience Investments, DaviesC@ebrd.com
Marta Modelewska, Climate Resilience Investments, ModelewM@ebrd.com