The Impact Ledgers™

The Impact Forum Board Services

Corporate ESG Integration Strategy: Aligning Profit and Purpose

Different sets of impact measurement models and sustainability accounting requirements are compounding the cost, complexity and risk of impact and sustainability.

In response to the rapid proliferation of competing metrics and accounting approaches, investors and businesses look for more consistency in measurement, reporting and disclosure standards.

The Impact Forum environmental, social and governance (ESG) integration strategy sets out your organization's exposure and target milestones. How financial services and markets are increasingly incorporating environmental, social and governance (ESG) factors into their operations, products and service.

There are 4 main deliverables and outcomes of the session in order to develop the transition strategy to net zero:

ESG Risk and Exposure Analysis
Organizational Policy and Market Position Strategy
Execution Strategy
Accounting, Disclosure, and Audit

The ESG Imperative in Global Investment Process

A lack of strategy for integration of the evolving ESG considerations to investment strategy can disrupt future investments, and proposed deals to face obstacles and cancellations.

What we look into:

- Current Sustainability Disclosure and Classification frameworks, including:

The International Organization of Securities Commissions (IOSCO) framework for sustainability-related policies, procedures, practices and disclosures.
The Chartered Financial Analyst (CFA) Institute voluntary ESG disclosure standards for investment products and disclosure of key elements of financial product strategy.
The Investment Association (IA) Responsible Investment Framework,
The Investing and Saving Alliance (TISA) ESG factsheet on sustainability characteristics of investment products.
British Standards Institute (BSI) principles of sustainable finance and specifications for responsible and sustainable investment management.
The Task Force on Climate-related Financial Disclosures (TCFD) disclosure requirements on sustainability-related products and material sustainability-related product-level risks.

- Current efforts regarding Sustainability Maturity Classification and Labelling Systems for sustainable investment products and their entity level:

Not promoted as sustainable
Responsible (may have some sustainable investments)
Transitioning (sustainable characteristics, themes or objectives; low allocation to Taxonomy
Aligned (sustainable characteristics, themes or objectives; high allocation to Taxonomy aligned sustainable activities)
Impact (objective of delivering positive environmental or social impact)

- Existing Sustainability Classification Criteria and Metrics: How organizations identify and meet the requirements of the new ESG requirements, based on:

Repeatability - across all products and entity models.
Auditability - to provide effective reporting and disclosure.
Traceability - through processing of quality data input to avoid faulty output.

COMPLEXITIES OF MEASURING IMPACT

Threat of climate change, pricing the risk of impact investments, and return on impact investment

The United Nations Intergovernmental Panel on Climate Change predict that weather-related disasters are causing the greatest social, environmental, and financial damage and are likely to become more extreme in the future, due to climate change.

High Impact Low Frequency (HILF) climate incidents including hurricanes and floods pose a systemic threat to financial markets and the real economy such as devaluation of carbon assets and energy price volatilities, and potential decline in value of retirement funds, home prices, and stability of the financial system. However, as the urgent and rapid energy transition from using fossil fuels to using renewables takes place, potential risks from energy transition policies and efforts require as much attention and due diligence as risks of climate-related disasters.

The New York Fed November 2021 Report on climate change finds that climate policy risks to the global economy and risks of regulations to industry and banking may be as significant as climate change incidents, particularly through policies and efforts that inadvertently result in more expensive and less reliable energy through the greater use of renewables, new taxes, and new regulations.

While financial institutions need to urgently put in place frameworks to measure and price climate-related risks to avoid sizable losses on their climate-sensitive assets, the newly proposed climate regulations by the US Financial Stability Oversight Council (FSOC) and the US Securities and Exchange Commission may radically change the lending process, the energy sector, and the economy as a whole.

THE IMPACT FORUM IS CONDUCTING PROPRIETARY STUDIES FOR SELECT ORGANIZATIONS