KPMG
ESG
It comes back to the contextual language – we need to talk about how we can support the levers that are already understood rather than create new ones.”
Tackling short-term thinking While business leaders have become better at using scenario analysis to drive boardroom conversations, a critical“ missing link” remains between understanding climate risk and allocating capital. Simon notes that the core challenge is translating scenario outputs into financial forecasts, without which the business case for sustainability will continue to be underplayed.
“ We need to be able to better translate sustainability-related risks and opportunities into financial forecasts, and therefore, financial decision-making at a company and investor level,” Simon says.
“ Once we have solved this, we can focus on the same translation at the government level, to drive the policies required to further the financial business case. The issues arise when we jump to policy too quickly, driving the wrong behaviours and risking the removal of value from the economy.”
A strong financial business case is also seen as essential for public-private partnerships that work to reduce risks in large transition projects. This helps prevent these projects from failing when political situations change. At the same time, corporate teams must upskill their internal analysts to challenge the external data they receive. Geoffroy thinks analysts should
KPMG
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understand weightings, proxy data, estimation techniques and materiality.“ Analysts need to shift from being just ratings users to methodology challengers,” Geoffroy says.
Creating strong governance frameworks Recent economic and geopolitical changes have shown the fragility of relying solely on compliance-led corporate models for sustainability strategies.
Simon offers several approaches to ensure plans withstand external influences.“ In a recent conference, I talked about the three options we have to deal with the pushback on sustainability. It is important we approach them in this order: firstly, prove the financial business case for sustainable action; secondly, tap into the emotional case for change; and finally, drive change through regulation,” Simon says.
“ The mistake we have made in recent years in Europe, and beyond, is jumping straight to the regulation option as it is currently the most straightforward one.
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