Session Five

Question 1

Problems with Reporting

Answer 1

1. Lack of mandates and auditing
2. Specious Targets
3. Opaque Supply Chains
4. Complexity (e.g. Scope 3)
5. Confusing Information
6. Inattention to Developing countries

Question 2

Problems with Sustainable Investing

Answer 2

1. Unhelpful Definitions of “Sustainable”
2. Unreliable Ratings
3. Lack of Comparability
4. Challenges in assessing the success of socially responsible investing
5. Difficulty of scaling up truly effective impact investingS

Question 3

Suggestions to Improve

Answer 3

1. Measure Less, Better
2. Mobilize
3. Spend government funds on the right things
4. Change the system

Question 4

What is the CSRD?

Answer 4

It aims to enhance sustainability reporting and transparency by obligating companies to use common standards to evaluate companies’ sustainability performance.

The directive requires all large companies and listed companies to disclose information on the risks and opportunities for their business arising from social and environmental issues and on the impact of their activities on people and the environment.

The CSRD also puts sustainability reporting on the same level as financial reporting, requiring that information about sustainability risks are more publically available.

Question 5

What does the CSRD mandate?

Answer 5

The main objective of the CSRD is to provide relevant stakeholders, including investors, consumers and policymakers, with comparable non-financial information to assess company risks around climate change and other ESG issues.

Companies will have to start by disclosing an overview of their legal and policy structure before diving into their sustainability journey.

The reported information should cover short-term, medium-term, and long-term perspectives, as appropriate. The report must be integrated within a company’s management report, rather than published as a separate annual report, and it must be in a standardized digital format so it can be easily compared with other companies.

The CSRD emphasizes double materiality as a key step for compliance and requires companies to perform a double materiality assessment, which considers both a company’s material impact on society and the environment and how a company is materially impacted by ESG issues.

In addition to double materiality, companies must disclose their strategies to mitigate and adapt to sustainability-related risks.

Question 6

What is Double Materiality?

Answer 6

An approach that includes both how sustainability issues create financial risks and opportunities for a company (financial materiality) and a company’s own impacts on people and the environment (impact materiality).

​Financial Materiality →​ A sustainability issue has an impact on or could reasonably be expected to have an impact on (positive or negative) a company’s business model, cash flow, revenue or enterprise value.

Impact​ Materiality → ​A business activity has an actual or potential impact (positive or negative) on people or the environment over the short-, medium- or long-term.

Question 7

Physical vs. transition risks

Answer 7

Physical: typically defined as risks which arise from the physical effects of climate change and environmental degradation.

Transition: business-related risks that follow societal and economic shifts toward a low-carbon and more climate- friendly future.

Stranded assets are financial assets that suddenly lose their value, suffering from unanticipated or premature write-downs. Climate change is expected to cause a significant increase in stranded assets for carbon-intensive industries

Question 8

Main limits of LCAs (Life Cycle Assessments)

Answer 8

• LCAs provide a simplified model, based on certain scenarios and assumptions
• It is a time-consuming tool, very much dependent on the data collected
• Data collection in itself is a tricky process
• The results a rather complex to interpret, especially for non experts
• Thus, the results are not easy to communicate to stakeholder groups
• ➔ it can be difficult for decision-makers to decide which product has the best performance on the environment (depending on the multiple variables to be taken into account)

Question 9

Glocal Reporting Initiative

Answer 9

The Global Reporting Initiative (GRI) is an independent, international standard-setting body for reporting and disclosure on the sustainable development performance of business, government and non-government organisations.

The GRI Standards cover topics including biodiversity, waste, emissions, diversity, equality, health and safety.

Question 10

What is a materiality matrix?

Answer 10

GRI’s Definition of Materiality:
> ‘Materiality’ are “those topics that have a direct or indirect impact on an organization’s ability to create, preserve or erode economic, environmental and social value for itself, its stakeholders and society at large”.

A materiality analysis is a method to identify and prioritize the issues that are most important to an organization and its stakeholders.

Question 11

Key Takeaways

Answer 11

> ESG investment is a booming market in the finance industry

> Sustainability may represent a very significant financial risk in relationship with planetary boundaries:
Physical / transition risks
Stranded assets

> However, risks are not yet fully perceived and integrated by financial logics: eg. time horizon and amortization, lack of climate literacy, belief in market efficiency

> Sustainability Reporting: the « raw material » to green financial markets -> importance of common standards to increase the quality and comparability of reporting (single vs. double materiality)