Non-Financial Performance Analysis Flashcards
What are key points of accounting for sustainability?
- Shift in how society view corporations; from shareholder to stakeholder value
- Sustainability to forestall risk, and for operational efficiency
- Increasingly on financial sector’s agenda
- Reporting has gone from voluntary, separate reporting to regulated and more or less taken-for-granted
Critique in sustainability efforts:
- Walking the talk?
- Focus on disclosure
- Voluntary, cherry-picking, too optimistic, etc
Which is the original sustainability reporting actor?
GRI, still the main provider
What are different views on materiality between the frameworks?
- SASB: financial materiality (investor perspective)
- GRI: Outward impacts and financial risks/opportunities/impacts resulting from these. (cannot be deprioritized if they are not financially material)
- European commission: Double materiality, affecting value of company and stakeholders
- World Economic Forum: Dynamic materiality, not material today may be in future
- IFRS: focus on enterprise value (financial materiality)
What are typically the axes is the materiality matrix?
- Influence on stakeholder assessments and decisions
- Significance of the reporting organization’s economic, environmental and social impacts
In what two dimensions may shareholders rank materiality?
- Management of ESG risks (exploiting/leveraging)
- Exposure to ESG risks (work to mitigate?)
Issues that will significantly affect ability to create long-term shareholder value
What affects sustainability metrics?
- Sector
- Framework (GRI guidance or tailor made)
- Comparability vs specificity
- Voluntary nature
- Cherry-picking
- Quantitative vs qualitative
- Unit of measurement varies
- Relative vs absolute
Which is the most common sustainability metric?
Carbon (GHG) intensity = GHG emissions (scope 1+2) / Total revenues
What are the different scopes of emissions?
- Scope 1 emissions: Company facilities and company vehicles.
- Scope 2: electricity (produced elsewhere = indirect)
- Scope 3: other indirect emissions in upstream and downstream activities (purchases, fuels, transportation and distribution, waste generated, business travel, employee commuting, processing/use of sold goods, etc). Large for many sectors.
What are the different measurements for Scope 2 emissions?
- Location based: what we get in our socket, reflects the average emissions intensity of grids on which energy consumption occurs.
- Market based: what we have paid for, includes green electricity certificates. Reflects emissions from electricity that companies have purposely chosen (or lack of choice). Derives emission factors from contractual instruments, including any contract between two parties for the sale/purchase of energy.
What are some discussions around incorporation of scope 3?
- historically only 1+2 has been included in calculations, which can be seen as problematic since scope 3 accounts for large amounts of a firm’s emissions
- If we include scope three, we are essentially double counting emissions as a whole, since our scope 3 is someone else’s scope 1 or 2.
- Using only scope 1 and 2 incentivizes firms to buy from others (outsource).
What is the EU taxonomy?
- Framework for determining which economic activities are truly sustainable.
- Mandatory for significant number of European companies
Activities are aligned if:
- makes significant contribution to sustainable objective defined
- does not do significant harm to any sustainable objective, AND
- passes separate minimum safeguards (e.g. human rights)
What are some areas in the EU taxonomy that should be adopted?
- Climate change mitigation
- Climate change adaptation
- Sustainable use of water and marine sources
- Circular economy
- Pollution prevention
- Healthy ecosystem
What is some criticism of the EU taxonomy?
- binary, exclusionary, fear of negative signalling
- Sectors must transition but will not reach green performance level defined
- Some activities not included (no sustainable transition options, low-impact activities). These may still need financing
What does SASB provide?
A list of issues that an organisation following their guidance can adopt as material, based on industry
What is the residual mix?
Scope 2: When a company does not have contracts (for green electricity), there market based number uses the residual-mix: regional emission factors representing the emissions that remain after certificates, contracts and supplier-specific factors have been claimed and removed from the calculation.
