Getting ready to make changes

Sustainability is certainly on the political agenda, with pressure mounting for lower emissions in sectors as varied as agriculture, transport and data centres. At the same time, large multinationals have started to rank their environmental, social and governance (ESG) performance

For other businesses, however, the picture has been mixed. But this is likely to change. For the most part, when companies have thought about their environmental footprint – particularly when it comes to their IT use – it has historically been mostly box ticking: a bit of symbolic disclosure, Dr Aideen O’Dochartaigh, assistant professor in accounting, Dublin City University Business School, said.

“Now they’re starting to take it more seriously, as they have to take it more seriously,” she said.

O’Dochartaigh pointed out that new regulations would cast a wider net. “Previously, any regulations in place really only affected large companies, but now that’s beginning to change,” she said.

Legislative change is coming in many countries, including the United States and Britain, and Ireland will see the writing into law of the Corporate Sustainability Reporting Directive (CSRD), which was published in the EU’s Official Journal in November.

What will change is that sustainability will need to be considered as part of normal operations, said O’Dochartaigh.

“Once it’s a compliance issue, you have to start measuring and managing. You have to think about risk, you have to think about materiality, you can’t just ignore it anymore.”

This applies to more than just manufacturers or businesses selling to the public. Even business-to-business (B2B) service providers will be affected and find that they need to monitor their environmental footprint.

“There are a lot of tech, service-type companies who have to think about this, whereas before it was really just businesses that were consumer-facing and had a lot of stakeholder pressure,” she said.

There is also a notable push from shareholders and investors, including investment funds ranking the businesses in which they invest.

O’Dochartaigh said that the top issue right now was that many businesses were not prepared. Despite having made gestures toward sustainability, many lack the skills for deep reporting.

“The number one thing at the moment, and where we are seeing the gaps, is in knowledge and resourcing. For years it was about turning off the lights and running your machines more efficiently, but now it’s more a question of: do you have the knowledge to gather and use the data you need across your organisation and provide it to stakeholders and investors? Existing staff don’t have the knowledge and they don’t have the resources to recruit people or train the existing staff,” she said.

Typical tasks that businesses will need to take into account include the life cycle of their products and the entire supply chain which goes into producing them. Life cycle sustainability assessment (LCSA) is a method of evaluating the environmental, social and economic impacts of a product or service throughout its progression from raw material extraction to disposal.

“It’s not just your water and waste and energy and all of that easier stuff, but also things like supply chain due diligence: where are your suppliers getting rare earth minerals from?” she said.

In the end, it is about managing risk. Indeed, the standard climate-related financial disclosure provides a commonly used risk disclosure framework.

O’Dochartaigh said that while some businesses will certainly see these new requirements as potentially onerous, approached in the right way they could be of benefit – including providing them with a potential competitive advantage.

“Certainly, when it comes to tendering and procurement it helps create a competitive advantage. If SMEs can get in now before these regulations come into play, it will really help them,” she said.