In the aftermath of COP26, countries from around the world made pledges (albeit they were non-legally binding) to cut emissions from C02 and methane, reduce coal consumption, stop deforestation and much more. Whilst these pledges came under fire for not being robust enough and not going anyway to combat the issue at hand, it is hard to ignore the huge appetite for saving the planet.
Many of these pledges will be self-policed and as people rightly note, change on an impactful scale will only come from the government in the form of legislation. It is now not just the younger generation who care about climate change, as was commonly stereotyped. A recent report showed that 70% of the UK want their money to make a positive difference. Becoming environmentally positive can be a huge marketing tool for businesses that do it right and can even save them money.
There are many things businesses can do to help, ranging from small changes, such as installing movement sensors in lights and switching to green energy suppliers to using sustainable suppliers for every aspect of your business.
Even before COP26, the Chancellor announced new requirements and standards that the UK expects their businesses to adhere to. What are the new legal requirements for the environment, and what changes can businesses make now?
New obligations for businesses
The Chancellor announced that some businesses will be mandated to publicly disclose climate-related financial information, to ensure businesses really consider their environmental impact. From April 2022, 1,300 of the largest registered companies will be obliged to disclose their climate-related financial information. Initially, it will affect most of the largest publicly listed companies. It will also impact private companies with over £500mln turnover and 500+ employees.
The move is in line with the net-zero Strategy and aims to make the UK’s financial system the greenest on the globe. It will make the UK one of the first countries to impose a mandatory obligation on businesses, and it is a welcome sight. The finalised rules will come into force in April of 2022.
These new obligations are aimed at helping businesses/investors understand the financial impacts of their climate change exposure. Businesses will have to clearly set out the environmental impact of all activities that it finances. Businesses will also have to justify any environmental and sustainability claims that they make to stop greenwashing, where firms make misleading claims about their environmental commitments and hold businesses to account to ensure they are moving in the right direction. In addition, they must set out their own net-zero transition plans.
Is this important for SMEs
Yes. Although only aimed at large businesses at this stage, it is expected that employees, investors, and other stakeholders will not want to work with a business that is shying away from its responsibilities. If companies wish to work with the larger companies, they may need to comply to the same standards to ensure they are able to continue their relationship. Therefore, it is recommended that all businesses are aware of the new regulations and comply as best they can. It is also not implausible that this legal requirement will be expanded to smaller businesses in due course.
It is also worth noting that asset managers will be required to show how they include sustainability in their investment strategies. That will allow their own stakeholders/customers to make informed decisions about who they want to invest in. So, if a business is looking for investment, it may be wise to act fast. We expect to see due diligence enquiries increase in areas such as sustainability and the environmental impact of businesses.
Tips for businesses
Businesses must look at the problem holistically. There is little merit in focusing on one single issue and ignoring the rest. Businesses must make as many changes as possible and understand the overlap of the many environmental, social and sustainable issues they face.
We are already seeing a large increase in businesses applying to register as a B-Corp company via B-Lab. B-Lab is an initiative to benchmark businesses focused on sustainability. It is currently considered as a ‘gold standard’ for sustainable, ethical and environmentally focused enterprises. Those going through B-Corp certification are required to amend their company’s constitution to enshrine the commitments being made. There is currently over a six-month waiting list for consideration, and we expect this to increase significantly following COP-26. You can find more about B-Corps here: https://bcorporation.net/
Renegotiation or moving suppliers
If businesses are serious about their environmental commitments, they must look at existing suppliers, the contracts they have in place with them and their own environmental impact. Should the business be unhappy with their suppliers’ impact on the environment and/or their internal practices, it is time to move or renegotiate. This will allow them to keep their environmental impact untarnished, and this will look attractive to stakeholders.
Businesses could approach suppliers and ask them to provide sustainable alternatives, to review their environmental policies (and request evidence that they adhere to it) and to identify and mitigate their own environmental risks.
Businesses should have policies in place to reflect their new environmental standpoint. They must ensure they have options if a stakeholder falls short of their expectations. This can be incorporated into new policies and/or can be negotiated within existing contracts. Many businesses are keen to show their willingness to help the environment, so will be open to the idea.
Many businesses are now showing their internal and external stakeholders their commitment to environmental change through environmental policies. This document can be internal and/or displayed on external facing websites and it sets out commitments to support the sustainable community. It will serve as a helpful reminder to staff of their obligations and is a focal point for environmentally conscious people/businesses wishing to engage with a new business.
The environmental crisis is becoming impossible to ignore. Many suppliers will soon be forced to stop working with environmentally unfriendly organisations. Research has shown that customers are looking more and more to sustainable businesses. Change is needed, and it is often a complex minefield. However, with the right support, businesses can benefit from the change. Businesses are implored to audit documents, processes and suppliers and renegotiate/redraft where possible, keeping the environment in mind.
Here at ACLF, we are extremely proud of doing our bit wherever we can, and we welcome new change with open arms. We moved to be paperless some time ago, which is no easy feat for a law firm, and we are constantly on the lookout for how we can improve.
If you need any help with your obligations or if you need assistance implementing some of the above suggestions, redrafting policies, going through the B-Corp process or renegotiating contracts, please reach out to our experienced and environmentally conscious team for a chat.