Explore the undeniable benefits of embracing a green transition strategy for businesses. From reducing environmental impact to attracting conscientious consumers and investors, discover how forward-thinking sustainability initiatives can enhance your brand image and financial performance.
Our natural environment is a source of raw materials that are eventually processed into the finished product at the end of its supply chain. Over-extraction of raw materials and the subsequent disposal of finished goods transpires into significant environmental degradation. Environmental degradation may transpire into economic costs, reduction in available raw materials which eventually result in output losses. The benefits of a green transition by a private company are undisputable – the identification of an organisation’s environmental impact through an environmental review will assist in identifying wastes and areas for process improvement whilst congruently reducing dependency on fossil fuel use and reduction in biological stress. It is therefore clear that a transition plan is not solely beneficial on a macroeconomic level, but also for individual organisations, as it seeks to promote resource efficiency and contribute to financial savings for businesses.
Coincidentally, the benefits and case for a green transition plan were touched upon earlier this week during an event entitled “ESG Focus – Sustainable Investment Strategy” held in London, attended by 250+ attendees. PKF Malta attended this conference together with a Finance Malta-led delegation. During the event the concept of a green transition plan was discussed at length, and UK experts in the area stressed that this needs to be above all – accountable, flexible for any changes, forward looking, time bound and quantitative, internally coherent, and complete. A successful transition plan necessitates a good operational strategy that includes stakeholder engagement (including customers, suppliers and industry peers) and a commitment towards continuous innovation. This also includes setting sustainability goals which addresses all the steps throughout the value chain.
The transition also comes with some initial costs including technology, employee re-training, retrofitting of existing infrastructure and consultancy costs. It particularly requires adequate and timely planning and strategic decision-making especially at board level. Like any other investment, it may take some time for the organisation to realize returns on its investment. Despite the time-lag for yielding returns on investment and the push by the EU towards a green transition by the private market, we should not look at it as another mundane ticking the box exercise, but rather an opportunity to grow and enhance your brand image. If your efforts are truly backed by scientific evidence concerning your impact reduction, then that would be an opportunity to attract environmentally conscious consumers and investors to your company.
Now that we’ve established the case for a green transition plan – it is a good idea to know from where to start. A materiality assessment coupled with a gap analysis is the first step. This materiality assessment is a process which the organisation must go through to identify the key ESG issues that are relevant and critical to the operations of the company, hence material to the eventual success of the organisation. A proper determination and prioritisation of the current ESG risks which the company is facing is essential for the next steps of the company’s ESG journey and this is to include aspects of all environmental-related matters that are affected throughout a company’s operations and its value chain. This will pave the way for sustainability reporting requirements in line with the EU’s CSRD which information should be a truthful representation and verifiable information of the company’s green efforts. The EU’s taxonomy for environmental impact information as per the ESRS’s cover a number of criteria, climate change mitigation and adaptation, water and marine resources, circular economy, pollution and biodiversity and ecosystems. Whilst the CSRD has come into place, with the first reporting due by listed entities during 2024 with the first CSRD-compliant annual report to be published in 2025, we cannot ignore the fact that ESG matters will become more prevalent and demanded by stakeholders and investors alike, with a request of obtaining supporting data to back up companies’ claims on their reporting of scopes 1, 2 and 3 emissions, in particular. Moreover, good quality of data and information is imperative particularly as the non-financial information included in the annual reports will eventually be subject to an assurance exercise. The ISSB’s IFRS S1 and S2 standards and the Global Reporting Initiative have ushered a new era in the financial sustainability disclosure requirement for companies falling under scope, whilst the proposed ISSA 5000 standard on sustainability assurance will provide the necessary guidance for auditors to provided limited and reasonable assurance on sustainability information as included in the annual report.
Guest author: Miriam Sultana
Miriam Sultana is the Director of Advisory Services at PKF Malta Limited, and is in the business of providing specialist consultancy services on ESG related matters as part of the firm’s service portfolio. You may contact Miriam directly through miriam.sultana@pkfmalta.com to discuss any aspects related to an ESG transition plan.