Where are leading Irish companies on decarbonising and embracing sustainability?

It’s a fair bet that in a comparison between today’s Top 1,000 Companies and those of some years ago a distinguishing trait will be that most among the current cream of the crop are decarbonising, embracing sustainability, scaling up renewable energy use and pursuing energy efficiency rigorously – all very commendable in transitioning to a green circular economy.

But the critical question is whether these trailblazers – and Irish companies generally – are reducing their carbon footprint with adequate pace and to the necessary scale given the world’s interlinked climate and biodiversity crises?

“The short answer is no,” says sustainability consultant Dr Tara Shine of Change by Degrees. “And the proof is that our emissions keep going up. A larger number of companies now have strategies and targets but mobilising the investment and business transformation to reduce emissions and increase resilience still lags behind. Too many companies are still tinkering at the edges rather than rethinking their business model.”

There are exemplars of sustainable transformation – and they are not looking at carbon in a bubble.

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“They are connecting it to wider sustainability and business-purpose goals, and mobilising the entire business behind a mandate for change,” says Shine.

Businesses viewing climate and sustainability as an opportunity and an invitation to innovate are leading, in her view. “Those that resist and deny the risks climate impacts pose will be the losers,” Shine predicts. “All companies can do more on making sustainability part of every employee’s role and in investing the time, talent and budget needed to make real change.”

There is evidence, however, of greenwashing and engaging in dodgy carbon offset schemes with little transparency, says Shine, “and in that we reflect the rest of the world”.

“It is not enough to set targets, issue nice reports, pay for credits and claim you are great,” she says. “You actually have to change the way you operate, use your influence and engage your employees – and your whole supply chain – to bring down emissions.”

United Nations secretary general António Guterres and the EU are taking a hard stance on greenwashing so companies do it at their peril, Shine warns. “A social licence to operate can be lost overnight when reputations are lost due to false climate and environmental claims.”

Best-in-class businesses are validated by external standards, such as B Corp – a designation indicating high standards of verified performance, accountability and transparency on factors ranging from sustainability and supply chain to input materials.

Her advice for those at the early stages is to seek advice. “Before you look for an expert talk to a company in your sector that is just ahead of you. Learn from them. Then make the most of Local Enterprise Office, SEAI and Enterprise Ireland grants to get access to expertise to get started. You will need to build knowledge and skills, measure your carbon footprint and create a sustainability strategy.”

Action on biodiversity is not yet being pursued in a meaningful way, Shine believes.

“We cannot do effective climate action without investing in biodiversity,” she says. “Nature is our best ally. Business has many direct and indirect impacts on nature; we just don’t name them and cost them yet. New regulation will place as much emphasis on nature as climate so businesses should get ahead and start planning for this now.”

The green transition is gathering momentum, according to EY global head of sustainability law Michelle Davies, but organisations need to view sustainability beyond compliance and de-risking the business. There is growing realisation that “those who fail to transition will lose business, becoming non-investable, losing key stakeholders”.

A recent EY client survey found that, among Irish finance leaders, ESG (environmental, social and governance) is viewed as a responsibility rather than an opportunity. ESG and non-financial reporting have fallen down the critical list when a sustainability plan must shift from a “nice to have” to a “must have”, Davies adds.

Momentum is driven by increased regulation, especially in the EU and the UK.

“What we’re starting to see is that regulation is becoming a little bit more nuanced and refined. Because what happened with regulations like TCFD [taskforce on climate-related financial disclosures] was that it was starting to become a tick-the-box exercise on compliance rather than driving through fundamental transformation,” says Davies.

Initial regulations around climate reporting were designed to avoid a risk to capital as climate disruption was seen as a real hazard. “If it wasn’t dealt with it could lead to quite significant financial implications. It was forcing financial institutions and the companies they invested in to behave differently,” says Davies.

Now there is a shift from compliance to transformation, she says. New regulations are aimed at getting businesses to set out a plan and to report against that plan to give key stakeholders – notably financial institutions – visibility on their actions.

However, some believe financial institutions are still letting corporates get away with too much, ie still treating it as a tick-box exercise, says Davies.

With climate change happening and getting worse are companies just protecting core assets in a short-sighted way?

“I think the key is transition,” Davies replies. “There are some participants in the market who expect organisations to be at point A today and get to B tomorrow. And that is not going to happen.”

The wrong kind of pressure may deliver less helpful outcomes, she says. There is shareholder activism driving momentum but there must be recognition that different companies within different sectors need to go about this differently. “We don’t want to create stranded assets because we are forcing organisations to transition in a way which means they ultimately go out of business because it’s maybe being pushed too quickly or in a way that is just not appropriate,” Davies warns.

One difficulty facing CEOs and CFOs is they are being asked or told to do certain things by different stakeholders but cannot track that through to share price. “That makes it really difficult for them to drive transition when they can’t see where that impact on share price is going to be.”

Davies suggests looking at other value triggers such as cost of capital and insurance, “the terms on which, and the price, you engage with your customers”.

“The pricing may not change but there may be other terms which can be improved and enhanced by implementing a sustainability strategy and delivering on that,” says Davies. It will eventually boost share price, she adds.

Sectors with a good traction and success are consumer facing, such as food and beverage. “We’re starting to see quite significant changes in clothing, retail and the real estate sector,” says Davies.

EY Ireland law partner Alan Murphy believes there is increased commercial awareness about carbon, though it might not yet be visible. One of Ireland’s largest real estate developers remarked to him recently that they see sustainability as a key competitive differentiator. “They’re seeing that they won’t get lending from financial institutions unless they meet certain sustainability criteria,” says Murphy. “They’re seeing that certain tenants will not take buildings that aren’t built or refurbished in a sustainable manner.”

However, Irish companies do not appreciate the extent to which decarbonisation will soon be tied into mandatory reporting, the Compliance Institute has found. Its research points to a lack of understanding of new EU regulations to tackle misleading claims that products or services are sustainable under the Corporate Sustainability Reporting Directive (CSRD), which strengthens rules around reporting social and environmental information.

Large companies and listed SMEs will have to provide more detail and be more transparent about the impact of their actions and policies on the environment, human rights and social standards. Around 41 per cent of companies surveyed by the institute said they would struggle to provide the required data, while almost 60 per cent said the new rules would have a significant or huge impact on their business. Almost half were unaware the CSRD requires that they be independently audited.

There are rules in place already for front-end reporting for certain large entities but the directive completely expands the scope for some smaller entities.

Mandatory reporting standards developed by the European Financial Reporting Advisory Group already mean they have to report impact risks, metrics and targets on climate change, pollution, water and marine items – among others.

Many businesses thought compiling gender pay gap information would not be that onerous but underestimated the task, says Compliance Institute chief executive Michael Kavanagh. “This is arguably 12 times harder because there are 12 standards out there, so put that project plan in place and resource it now.”

Companies not complying could face harsh penalties, as well as being named and shamed – yet another indication that vague commitments to reducing emissions and weak sustainability goals just won’t wash any more.