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How to manage sustainability risks and tap into opportunities in the green economy

To tackle the climate crisis, corporates need to set science-based targets aligned to a 1.5 degrees Celsius future and have credible climate transition plans to achieve this. This is key to managing long-term success in business

Davy Horizons, Davy’s sustainability advisory team, from left:: Amy Ward-Whelan, Aoife O’Donnell PMP, PIEMA, Seamus Higgins, Dr Helen Kavanagh, Ellie Walshe CEnv, MIEMA, Dr Dorothy Maxwell FICRS, Jonathan McKeown CIFD, MBA, and Gabriele Bunyte. Photograph: Chris Bellew/Fennells photography

Fri Nov 10 2023 - 04:45

As we approach another major climate summit of world leaders at COP28 in the United Arab Emirates, sustainability challenges for business continue to grow in scope and complexity. While the solutions to keep the world below the 1.5 degrees Celsius global warming Paris Agreement target are well known, progress towards meeting them is far too slow, as is the mobilisation of finance required to fund them.

“Achieving the net-zero transition in business requires corporates to adopt science-based reduction targets for Greenhouse Gas (GHG) emissions and credible climate transition plans to meet them,” says Dr Dorothy Maxwell, head of Davy Horizons, Davy’s sustainability advisory division. “It will also require substantial investment in green technologies and sustainable economic activities.”

Established three years ago by Davy Group, Davy Horizons helps organisations understand what is required of them and by whom, and how to deliver meaningful sustainability improvements to drive their long-term success.

“Organisations are under increasing pressure not just from their core stakeholders but from society at large to develop a deeper understanding of their environmental, social and governance (ESG) responsibilities,” says Maxwell. “Managing sustainability risks and opportunities is a growing priority for companies. Urgent environmental issues like climate change and biodiversity loss are creating a growing range of policy, legal and market challenges and opportunities for business to navigate.”

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Unparalleled expertise

Davy Horizons’ sustainability services range from strategy to implementation and reporting, and are designed to help clients navigate the challenges and opportunities of the green economy. The team comprises nine sustainability and ESG practitioners with a combined seventy years’ experience across most industry sectors and an international track record covering Ireland, UK, USA, EU, China, Middle East and Australia.

“By combining our world class sustainability and ESG expertise with the unparalleled expertise of our colleagues in Davy Capital Markets, we provide not just advisory services but also access to institutional investors, equity research and decarbonisation finance capabilities. This ensures end-to-end support to businesses on their sustainability transition,” Maxwell says.

“We understand what shareholders require on ESG and how to implement it in corporate sustainability strategies, programmes and reporting. We work with plcs, large private companies, government bodies, semi-states, and not-for-profits.”

Companies need to own the narrative and credibly tell their own ESG story to financial stakeholders

Regulatory and reporting requirements are helping to drive sustainability to the top of the corporate agenda, according to Jonathan McKeown, director of ESG at Davy Horizons. “Corporate reporting requirements are evolving,” he says.

“The Sustainable Finance Disclosures Regulation (SFDR) went live in 2021 and directs shareholders and other financial actors on their ESG disclosures. The Corporate Sustainability Reporting Directive (CSRD) will phase in from 2024 and mirrors this direction for corporates. We are working with clients on preparing for that.

“Sustainability, ESG and access to capital are becoming intertwined as corporates seeking access to capital are increasingly being asked about sustainability matters. Nowadays, questions are as likely to relate to shareholder or lender queries as they are to regulatory or compliance requirements.”

These standards are bringing about a step change for businesses and financiers to provide high quality data and reporting across material ESG risks and opportunities, he notes. And they are not confined to the EU. The US has incoming climate disclosure regulations, the UK has mandated Net-Zero Transition Plans and the International Financial Reporting Standards (IFRS) – S1 (Climate) and S2 (Sustainability) – from the International Sustainability Standards Board (ISSB) is driving this agenda globally.

Working with plcs, private and public sector, Davy Horizons at Davy Group offers clients world-class expertise in sustainability services across strategy, implementation, policy and reporting

Sustainability covers more than climate change

The sustainability agenda is by no means limited to climate change. “Biodiversity and value chain supplier engagement on decarbonisation, human rights and modern slavery across international supply chains are key focus areas for business and finance as we look towards 2024,” says Maxwell.

“Accountability, transparency and reporting on ESG issues aligned to law and standards are becoming ‘business as usual’ requirements to ensure credibility and to avoid greenwashing.”

The Davy Horizons team deploys its unique hybrid model of sustainability and capital markets expertise to support clients in the development and implementation of sustainability as well as the associated reporting and disclosure requirements.

We will have to keep evolving to meet the changing needs of our clients and indeed the landscape in which we operate

“We also help plcs communicate their sustainability plans to shareholders and lenders,” McKeown points out. “These companies need to own the narrative and credibly tell their own ESG story to financial stakeholders.

“Also, more and more corporates are raising capital through sustainability-linked loans with terms linked to non-financial KPIs, including GHG emissions reduction targets. We can provide assurance statements for companies to demonstrate that they are meeting those targets.”

Keeping pace with the rising tide of regulation as well as broader stakeholder demands is a key area of focus. “Most of our work is with ISEQ and FTSE 100 and FTSE 250 companies,” Maxwell explains. “They might be headquartered here in Ireland, but they operate around the world. Lots of these companies have been working on sustainability for a number of years. But there is always something new coming along, as the urgency of ESG grows and stakeholders demand continuous improvement.”

That includes the Corporate Sustainability Reporting Directive (CSRD) which brings new standards of accountability to sustainability reporting. “CSRD is a real step change,” says Maxwell. “The ESG data and actions taken have to be credible and science-based and the company must be able to stand over them. Data must be assured to avoid perceptions of greenwashing.”

Davy Horizons services cover strategic advice, through to practical implementation and reporting across all ESG topics and sectors of the economy

A strategy on emissions reduction

The team also works with clients on their GHG emissions reduction strategy and climate transition plans. Maxwell explains that emissions are categorised as scope 1, 2 or 3, with the latter applying to those arising in the value chain.

“On average, 70 per cent of emissions or more can arise in companies’ value chains,” she says. “We work with companies to help them reduce emissions in their supply base as well as in their own operations. We work with them to understand what they do as a business and where the opportunities for sustainability improvements lie. We help them to set reduction targets validated to the industry gold standard Science Based Targets initiative (SBTi) and develop Climate Transition Plans with KPIs to support tracking and reporting progress over time.

“If you can measure it, you can manage it. This is very important as shareholders are increasingly demanding that executive remuneration be linked to sustainability KPIs.”

The Davy Horizons team is also active in the wider thought leadership community; it co-chairs the Central Bank of Ireland climate forum capacity building working group, is a member of the ISSB expert working group, it sits on the boards of the Institute of Corporate Responsibility and Sustainability (ICRS) and the Institute of Environmental Management and Assessment (IEMA), and is an approved sustainability trainer for the Construction Industry Federation (CIF) and the International Sustainable Finance Centre of Excellence (ISFCoE).

Sustainability, ESG and access to capital are becoming intertwined as corporates seeking access to capital are increasingly being asked about sustainability matters

In addition, the team shares its expertise and experience with clients through its ESG Peer Network. “We set up the network just over a year ago,” says Maxwell. “It is attended by C-suite, sustainability and Investor Relations executives for plcs and large private businesses and gives them the opportunity to meet and share knowledge and learnings. We also draw on our international expert network to bring world leading speakers on key sustainability topics and ensure businesses are up to speed on upcoming themes.”

Recent ESG Peer Network keynote speakers included the chair of the European Financial Reporting Advisory Group (EFRAG); Chiara Del Prete, who leads the CSRD European Sustainability Reporting Standards work; and Lois Guthrie, special advisor to the International Sustainability Standards Board (ISSB).

“Our next ESG Peer Network event on November 15 will focus on the net-zero transition from a shareholder perspective through a fireside chat with the head of sustainability at the world’s largest asset manager,” says Maxwell.

For the future, she believes change will continue to be a hallmark of both the corporate sustainability landscape and of Davy Horizons. “We will have to keep evolving to meet the changing needs of our clients, and indeed the landscape in which we operate. We have had financial accounting and reporting for a very, very long time. Now the non-financial component has become just as important. That’s as it should be, but it does present new challenges and opportunities for many businesses. And that’s where we come in.”

For further information, contact the Davy Horizons team at sustainability@davy.ie or visit davy.ie/horizons

You can read more here on Davy Horizons insights on how to future proof financial reporting for sustainability, responsible sourcing in value chains and the ABCs of ESG glossary of terms

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