The We Mean Business coalition, for example, came to the fore in the run-up to the 2015 UN Climate Change Conference (CoP21) in Paris. It now consists of 1,766 leading companies with a market cap of $20.1tn, and is committed to bold action on climate change.

Yet, just 30 per cent of industrial corporations have set targets consistent with those in the Paris Agreement. Action on wider sustainability issues is still fragmentary and variable in quality.

Meanwhile, there’s a move away from voluntary corporate social responsibility (CSR) reporting to more precise, quantitative environmental, social and governance (ESG) reporting. It’s largely driven by the increasing demand from investors for much greater precision on actual sustainability performance and risk to enable sustainability screening.

Public pressure has grown here too, not least through consumer awareness leading to reputational risk, coupled with corporate concerns over impacts on supply chains such as resource depletion. Most recently, key factors such as the European Union’s green taxonomy initiative to enhance transparency for investors are likely to accelerate stronger corporate action. Central banks now see a risk of stranded assets if material climate and sustainability issues are not transparent to investors.

Promises, promises

Two thirds of UK corporates disclosed material risks from climate change to varying standards in 2019, while reporting rates across various ESG issues have also grown, albeit less prevalent and of variable quality.

Has reporting really driven sustainability action? John Elkington, world authority on corporate sustainability and Founder of sustainability advisory firm Volans Ventures, notes a lack of hard data. Even so, he considers ‘reporting… a necessary condition of corporate illumination and awakening, but very rarely a sufficient driver’.

Jonathan Cocker is the Sustainability Initiatives Officer of the IBA Environment, Health and Safety Committee and a partner with Baker McKenzie. He sees ‘a real disconnect between the corporate commitments we have seen around sustainability and the operational ability of those companies to meaningfully achieve such commitments’ such as ‘zero emissions’ and ‘zero waste’ status in short timeframes. This presents reputational risk in the age of social media and public concern.

Cocker argues that in order ‘to meaningfully progress towards these goals, companies will need to do what they have, to date, been reluctant to fully embrace: industry collaboration among competitors to achieve the types of economies of scale and system changes (including shared methodology) necessary for tangible change.’

Legal requirements and formal guidance are slowly creeping into corporate reporting requirements. The EU is leading, with the Non-Financial Reporting Directive affecting around 6,000 companies. Examples at EU Member State level include the Grenelle II Act in France and Germany’s Sustainability Code.

Elkington is cautiously optimistic about how much corporate behaviour has really changed. He notes that while he hasn’t seen hard evidence either way, his sense is that ‘the cumulative impact is considerable, particularly as the central banks start to wade in.’

Cocker notes that within the EU, there is ‘an increasing amount of rigour in respect of the reporting’, but stresses that the international value of these schemes ‘is limited by their failure to share the same methodology and… the quality of the underlying data’. Outside the EU, Cocker sees Japan as ‘a real leader in sustainability legislation and action’.

Sophie Thomashausen is Newsletter Editor of the IBA Mining Law Committee and a fellow at the Columbia Center on Sustainable Investment. She says ESG in supply chains is having an impact ‘as large companies are increasingly sourcing from suppliers that certify their compliance with all applicable laws and agree to adhere to supplier codes of conduct that impose the requirement to adhere to internationally accepted human rights standards and other norms, including industry specific standards’. She adds though that pressures to source on price often still outweigh ESG principles, so that investor pressure can often be more effective.

Speaking at the launch of the World Economic Forum’s Global Risk Report 2020 in mid-January, John Drzik, Chairman of research group Marsh & McLennan Insights, noted that ‘regulators are starting to demand more transparency’ to enable businesses to focus better on risks and opportunities and to better enable banks to carry out corporate stress testing and investors to screen for risk.

Overall though, Cocker warns of ‘a credibility gap caused by competing schemes which urgently needs to be addressed’, with wide variation in methodology and reporting between such different voluntary schemes as the Global Reporting Initiative sustainability reporting standards on one hand and the United States Securities and Exchange Commission filing requirements under the Sustainability Accounting Standards Board’s standards, on the other. A broader issue still ‘is the veracity of the underlying data’, Cocker adds.

Over time, Elkington believes ‘initiatives like the “€1 trillion” EU Green Deal could have a massive psychological and economic impact’. Cocker sees the deal as ‘likely the most important development we have seen recently’ as it ultimately increases international legal and financial risk for companies practising differing standards in different jurisdictions.

Dangers exist in rapid, uncoordinated change as corporate laggards play catch-up, with a risk that perceived solutions to some issues could adversely affect the United Nations Sustainable Development Goals. ‘The greater the sense of urgency, and in some cases borderline panic, the less likely it is that the solutions will be integrated across the triple bottom line’, warns Elkington.