This year is billed as the year that regulations will catch up with sentiment around sustainability. Much of the drive to date has been voluntary and a result of a shift in public sentiment, but the next 12 months will see an influx of new environmental reporting standards, both legally required and voluntary.
These reporting requirements are geographically diverse, with UK-specific regulations alongside European and US requirements.
Government bodies and regulators have been working for a few years on their own drafts and guidelines, many of which have either just come into force or have been published for consultation. While facilitating the transition to a greener economy, the sheer volume and speed of change presents a challenge.
These regulations have been in the pipeline for a while and to some extent companies have had the opportunity to prepare. However, we know that many are not ready. Organisations that do adopt these frameworks early have an opportunity to lead by example.
With the vast majority of regulations being influenced by the framework of the Task Force on Climate-Related Financial Disclosures, organisations that have a good understanding and adopt this well will have a head start on the reporting of other regulations.
What is happening in 2023?
This year began with the roll-out of the EU taxonomy KPIs reporting for certain non-financial undertakings and the Corporate Sustainability Reporting Directive coming into force, which aims to ensure that companies disclose information on both the risks that sustainability issues present and the impacts of companies themselves on people and the environment. This also intends to improve the allocation of capital to companies engaged in sustainable activities.
With six environmental objectives outlined in the EU taxonomy, firms are now required to report on the proportion of turnover, capital expenditure and operating expenditure that comes from qualifying environmentally sustainable activities. Technical screening criteria set out thresholds for defining what it means for the construction of new buildings, renovations, refurbishments, and the acquisition and ownership of buildings.
Also in the UK, this year marks the first TCFD-aligned mandatory reporting on climate impacts, risks and opportunities for some companies.
Meanwhile, the US SEC Climate Risk Disclosure rules are planned to be finalised in spring 2023, with three scopes of greenhouse gas emissions and climate impacts proposed to be reported on and targets and transition plans disclosed.
For financial market participants, the EU Sustainable Finance Disclosure Regulation deadline is 30 June, whereby those in scope have to disclose their first statements on principal adverse impacts of their investment decisions following the Regulatory Technical Standards, while the UK Sustainable Disclosure Requirements, due to be published mid-year, aim to prevent greenwashing by introducing consumer-focused labelling and increase transparency regarding the sustainability of investment products.
Other anticipated developments
Global: The Greenhouse Gas Protocol
Ongoing stakeholder survey to determine the need for additional guidance
EU: Taxonomy
The technical screening criteria for the remaining four environmental objectives
Going the extra mile
In addition, there are a number of new voluntary reporting frameworks that are expected to be widely adopted when finalised.
The International Sustainability Standards Board aims to deliver a global baseline of disclosure standards and general requirements for companies, in order to provide investors and lenders with a complete set of sustainability-related financial disclosures.
The UK Net Zero Carbon Buildings Standard’s purpose is to provide a single methodology in determining what constitutes a net-zero building. Following data collection in January, the process of identifying the most appropriate methodology is underway.
The Taskforce on Nature-related Financial Disclosures, meanwhile, should provide a framework for organisations to address nature-related risks and opportunities, with the ultimate goal of channelling capital flows into positive action.
Time to act
So, how to tackle this to-do list? First, identify which of the country-specific and regional compulsory regulations affect your company and understand what type of reporting is needed.
Then consider which of the voluntary standards is best suited for your company’s activities and reporting needs, and how to achieve these. Next, define reporting methodologies and set reporting processes in line with the relevant regulations and frameworks.
Finally, assess the sustainability impacts and communicate those results internally and externally.
What does it all mean for property? Depending on what is discovered through measurement and reporting, possible outcomes include the changing investment and occupation trends, and potential impacts on operational costs and capital investment.
But the key change will be the transparency required within the industry for investors and occupiers to make sustainability assessments of the risks and opportunities associated with assets.
Key developments in 2023 within sustainability reporting
Matthew Fitzgerald is a director in cross-border tenant advisory EMEA, Jade Bonney is a graduate surveyor and Sarune Ringelyte is a sustainability director at Savills
