Environmental sustainability: key messages for businesses

Climate change and ecosystem destruction are two of the defining issues of our times. Our collective response to them now will dictate the kind of future we, and our loved ones, get to enjoy.

They will impact almost every aspect of our lives: our health (physical and mental), our finances, where we can live, what food we get to eat and what we can do with our free time. These will all invariably be shaped by the decisions we make in the next decade. Whilst this brings an immense responsibility for all of us - governments, business leaders, employees, investors, parents, consumers etc – it also offers us a unique and meaningful opportunity: to be part of a global community working with a true sense of purpose to ensure a liveable and sustainable world for us all and for future generations.

It was realising the role I wanted to play in this transition that prompted me to take up a master's degree in environmental law and policy at University College London (UCL) last year. The decision was both personal and professional. On a personal front, getting to spend a year reading and engaging with some of the most important issues and questions that shape our world, with some of the greatest academic minds, was a complete privilege (although many friends were baffled by my willingness to sit another set of exams!). On a professional front, having spoken to multiple clients about the challenges they faced navigating the complex patchwork of incoming environmental legislation, the masters offered a way to get up to speed, fast.

The course tackled key environmental issues – climate change, plastic pollution, biodiversity loss, waste and water use – through a number of lenses: international law, EU and national legal frameworks, different forms of regulation, policymaking and governance. As well as the role of governments, we also looked in depth at the key developments affecting companies and business leaders in the areas of ESG and corporate governance. This included: the role of boards and directors in managing and addressing environmental risks, the increasingly complex web of climate and sustainability-focused corporate reporting requirements, rising shareholder and civil society activism on climate and environmental issues, and internal risk management and transformation processes such as supply chain sustainability and due diligence.

Key takeaways for businesses

Three key themes emerged from the course that are relevant for businesses and business leaders:

1. Climate change and damage to natural ecosystems are fast-emerging, material financial risks for businesses, and directors have a legal obligation to manage these. These environmental risks include (amongst others): physical climate risks (e.g. extreme weather events) that damage a business's operations or impact the supply chain; transition risks which arise from a business's adjustment to a carbon-neutral economy (e.g. the cost of investing in lower-carbon products or technologies); and biodiversity risk, such as the depletion of natural resources (e.g. water, cotton, agricultural products) that impact a business's products or operations. On top of this, businesses are facing a rising tide of litigation and other forms of legal challenge from NGOs, shareholders and regulators who are concerned about businesses' impact on the environment and wider stakeholders. These legal challenges can be costly, reputationally damaging and any resulting negative judgments can have a significant impact on business models. Directors and business leaders must therefore treat these environmental risks as they do other significant risks to the business - like AI, cybersecurity, and macro-economic events. By properly addressing the environmental impacts of, and risks to, their businesses, boards can support long-term value creation, mitigate the risks of legal challenge, and ensure that they are fulfilling their legal obligations to the company.

    

2. In any event, under emerging legislation businesses will increasingly be legally required to reduce their environmental impact. There is a growing patchwork of legal rules across the world requiring businesses to address, and report on, environmental impacts arising from their operations and supply chains. The EU is leading the way with a raft of new legislation, either in force or in the pipeline, which will legally require businesses to identify environmental impacts across their supply chains, take steps to address these and report on how they are doing so. This legislation is expected to include a requirement for businesses to address their carbon footprints by having a clear climate transition plan in line with the 1.5°c target in the Paris Agreement and publicly report on greenhouse gas emissions across the supply chain (so called 'scope 3' emissions). In addition, there is increasing focus not just on what businesses do but what they say about their environmental impact, with regulatory scrutiny of this delta at an all-time high. Consumer regulators in the UK have ramped up their investigation of alleged 'greenwashing' by businesses, and new rules being negotiated in the EU are expected to set much stricter rules for businesses on making, and evidencing, green marketing claims to consumers. The UK's financial regulator, the FCA, is also preparing to publish an 'anti-greenwashing rule' to ensure that sustainability-related claims made by regulated firms about their investment products are clear, fair and not misleading. The message is clear: sustainability is no longer a 'nice to have', but is integral to how businesses operate and engage with wider stakeholders. Businesses will therefore be increasingly expected to take steps to reduce their environmental footprint through changes to their business models, operations, and processes, and to work with suppliers to do the same. As part of this transition, transparency and credibility will be key.

    

3. There are significant opportunities for businesses in addressing their environmental footprint. Asides from the obvious short-term costs savings to be had through energy efficiency improvements and waste reduction, businesses that engage with sustainability issues early on and get to grips with the incoming legal requirements can benefit by getting ahead of legislative and regulatory curve. This is important as complying with the raft of new legal rules may well require significant internal investment and, in some cases, an overhaul of existing operations and supply chains, which will necessarily take time. Further, businesses that can credibly show they are committed to, and are actively reducing, their environmental footprint can also benefit from increased traction with purpose-driven consumers, thereby tapping into the lucrative ethical-consumer market. It can also help businesses to attract and retain top talent, particularly younger employees who look for companies whose values align with their own. It can also open up new investment opportunities by increasing businesses' eligibility for new types of 'green' finance, such as sustainability-linked loans, or equity investment from a growing group of socially-conscious investors. Finally, integrating sustainability firmly into the business's long-term strategy, and embedding this value across the organisation, can give the business an elevated sense of corporate purpose and help to balance and resolve trade-offs where they occur in decision-making.

Supporting businesses' sustainability journeys

So what next? Following the masters programme, I have returned to RPC full-time as the firm's Environment and Climate Change Practice Lead and a key member of RPC's multi-disciplinary ESG advisory practice, working with in-house counsel, business leaders and sustainability teams to support their organisations on their sustainability journeys. We support clients on a whole array of ESG/responsible business mandates – from green claims to corporate governance, sustainability reporting to diversity, equity, inclusion and belonging consulting.

My particular role involves advising on a range of regulatory, commercial and consumer matters with a focus on environmental sustainability. This includes advising on: compliance with environmental regulations; greenwashing risk and liability; green marketing campaigns and consumer protection law; supply chain sustainability, procurement and commercial contracting; corporate governance; and corporate sustainability reporting.

If you have any questions, or just fancy a chat, please get in contact! If you want to know more about the firm's ESG advisory services more generally please get in touch with Kelly Thomson.