Blog #BusinessBeyondProfit

If we look back five years, we see clear progress in many social and environmental aspects. But if we look at the objectives set at a global level, there is no doubt that we must accelerate the pace if we want to reverse the effects we are experiencing due to the climate crisis. The year 2024 will be key and business will play a fundamental role in this process of accelerating and consolidating sustainability as a lever for social and environmental improvement. Below, we list the main trends in sustainability and impact that we at Transcendent expect for the year 2024:

1. The beginning of the end of Greenwashing

The European Parliament's approval of the Green Claims Directivewhich is scheduled to take place in the first quarter of 2024, will be a key milestone in the fight against the practice of Greenwashing. A regulation that will also be reinforced by the Regulation on Ecodesign of Sustainable Productswhich aims to be approved by the Commission during the same period of 2024, incorporating eco-design requirements for European products in order to improve their environmental sustainability. Within this regulation, it also envisages the establishment of a new "Digital Product PassportThe aim is to help consumers and businesses make informed decisions when purchasing products.

2. Sustainability as a new critical skill

The growing commitment of companies to sustainability has triggered a revolution in the labour market. We are witnessing a significant boom in demand for professionals specialising in sustainability areas. According to the International Labour Organisation (ILO), 24 million new "green jobs" will be created by 2030.

In 2024, we will see how they consolidate positions such as ESG Controller in financial departmentsThis is practically non-existent today. The The sector's employability is set to continue to rise. The average recruitment rate with at least one "green" skill is 29% higher than the average for the labour market..

New recruitment of young people will not meet demand of the nearly 4,000 corporations that have committed to achieving net zero emissions by 2030. In fact, by 2024, it is expected that more than 70% of the vacant posts in sustainability are filled by external transfers and cannot be filled by internal promotions, due to lack of training..

As a result of this upturn in demand for jobs in this sector, there will be an increase in the number of jobs in this sector. increased demand for specialised academic training in sustainability.

3. No more 2050 targets: from grandiloquence to concreteness

Pressure from investors, ratings and regulation will cause targets beyond 2030 to lose value this year.. In the coming months, companies will have to account for their social and environmental targets to shareholders, investors, employees and the market itself. Therefore, they will have to be accountable to shareholders, investors, employees and the market itself, ratings and ESG rankings no longer value medium- and long-term objectives The balance between sustainability objectives and the need to generate shareholder value will begin to shape companies' sustainability strategies.

4. Large business as a catalyst for sustainability

Large companies will lead the change. More than 50,000 European companies will be obliged to include their analysis of the double materiality in its business strategies from this year onwards and in a progressive manner.. In Spain, the draft CSRD is still subject to possible modifications, but it will undoubtedly change the way Spanish companies manage their ESG objectives. Sustainability reporting will be placed on the same level as financial reporting and there will be no turning back.

The European Union is working on the Corporate Sustainability Due Diligence Directive (CSDDD)for which approval is expected from 2025. This directive establish an obligation to identify and prevent, terminate or mitigate actual and potential impacts on human rights and the environment.e. A key aspect of this directive is that it will require companies to apply due diligence not only to their own operations, but also to the activities of their subsidiaries and other entities in their value chain with which they do business, seeking a global impact.

5. The take-off of impact investment in Spain

Impact investing in Spain is expected to take off in 2024. The volume of assets under management by the supply of impact capital in Spain in 2022 has increased by 21% compared to 2021 and is expected to will continue to increase in 2024, fuelled by the creation of financial solutions that allow businesses to access cheaper finance in exchange for more impact.

Although the figures for these assets, which seek to obtain a financial return as well as a positive impact on the environment and society, have not yet been made public, various private equity funds and foundations expect their assets under management to grow by more than 50%. Along the same lines, the Spanish government has created the Social Impact Fund (FIS), with resources of 400 million euros and managed by Cofides, to invest in companies and projects that strengthen entrepreneurship and the social economy in Spain. In this way, public money can act as a catalyst to attract private investment.

Impact investment that next year will be marked by the financing of transformative projects associated with the energy transition and social impact projects (vulnerable populations, identified risks).

6. Integrating sustainability and impact into business strategy

The integration of sustainability and business impact will be key in 2024 for companies that want to lead the change. Until now, materiality analyses have been projects without much use. With the CSRD and the obligation to conduct dual materiality analyses, risks and opportunities emerge. The European Commission's new report on the materiality of the double materiality analysis will be presented to CFOs, risk managers, as well as when carrying out strategic and business plan exercises. More than 50,000 European companies will be obliged to include their dual materiality analysis in their business strategies from this year onwards on a progressive basis.

In Spain, the draft of the CSRD is still subject to changes, which will be one of the essential aspects of a regulation that will take place this year and which will put the sustainability reporting at the same level as financial reporting in the decision-making process of the various stakeholders.

7. Measuring to monetise impact, for businesses that want to go further

At the corporate level in Spain, we will see how some companies, in order to differentiate themselves and seek to generate a net positive impact, will begin to incorporate impact measurement and management into their strategies and reporting..

The number of companies publishing sustainability and impact net income statements is set to multiply in the coming months.

This process is still incipient, as only 14% of IBEX 35 companies and 2% of the continuous market have incorporated impact measurement models, according to Transcendent's report "Evolution of ESG management towards impact in listed companies".

The consolidation of standardised methodologies that allow companies to measure, value and monetise the impact of companies on the environment and society will favour the measurement of the impact and monetisation of the actions carried out by companies.

For all these reasons, 2024 is a key year for sustainability and impact in our country. The management of social and environmental aspects will continue to be a priority for companies, but the way it is managed will go beyond that. The evolution, maturity and sophistication of this sector will require companies to adapt ever faster if they want to lead the change. Other media such as Expansion o Ethic have also talked about these new sustainability trends and impact for 2024.

The changes approved by the European Commission with the aim of making companies' commitment to climate change and its social impact more visible will allow Spanish companies to be ahead of the pack in reporting and management of ESG aspects.  

The new Sustainability Reporting Directive (Corporate Sustainability Reporting Directive, CSRD) will change the way companies commit to, report on and monitor their social and environmental objectives.  

Its approval implies that they will have to publish impact reports of their activities on the environment and society and the risks to which they are exposed.  

While the obligation to collect, analyse and publish non-financial data starts in 2024 for large companies, the requirement will be progressively extended to all types of companies until 2028.  

In Spain, many large companies have already started to make their non-financial information public, but the new regulation extends the obligation to companies with less than 250 employees. For all of them, the CSRD obliges them to go further.  

Impact and dual materiality, new features of the regulation 

The main novelty, pending its transposition into Spanish law by July 2024 at the latest, concerns the management of the social, environmental and governance performance of the company. 

All of them will have to report an assessment of the impact caused both directly and through their value chain, and in that line also define how they manage this impact. This involves assessing the impact that these sustainability issues have on the company's strategy, business and bottom line. 

The second major change in corporate sustainability reporting is the dual materiality approach.  

This analysis has a dual perspective. On the one hand, the impact assessment, which refers to the positive and negative sustainability-related impacts related to the company's business. On the other hand, the analysis of the financial risks and opportunities related to the company's sustainability, identified through a financial materiality assessment process.   

Increased transparency, management and control of ESG issues 

These changes are intended to improve transparency in the definition of social and environmental commitments, and greater control over implementation and management in order to implement improvements.  

In this way, investors, consumers, regulators and society in general will be able to make purchasing, financing and subsidy decisions based on audited sustainability criteria.  

In addition to ensuring transparency, the European Commission aims to mitigate corporate greenwashing by establishing control mechanisms such as independent audits and certification. Digital access to sustainability reports will also facilitate transparency in this area. 

This represents a firm commitment on the part of the European authorities to standardise data as far as possible across the EU. 

This is an ambitious initiative from a regulatory point of view and also for companies, which will require accelerated adaptation in terms of measuring, analysing and monitoring their social and environmental commitments and the impact generated.  

Over the last few years, numerous scientific studies published by different international organisations have shown that the current production model is not compatible with the correct conservation of the planet. The main cause of this situation is global warming caused by excess emissions of Greenhouse Gases (GHG).  

To meet this challenge, governments around the world pledged at COP21 in 2015 to reduce their emissions so that global temperatures rise below 2°C (preferably 1.5°C) by 2100 compared to pre-industrial times.  

This commitment required an across-the-board reduction in greenhouse gas emissions. 

Types of Greenhouse Gases (GHG) 

Greenhouse gases are gases that trap heat in the atmosphere and cause global warming. At present, the main gases are: 

• The Carbon dioxide (CO2)emissions: It accounts for the vast majority of GHG emissions (almost 80%) as it is generated whenever a material is combusted, something very common in our daily lives due to our economy's dependence on fossil fuels. 
• The Methane (CH4)It is the cause of 11% of the GHGs spread in the atmosphere and is produced by the decomposition of organic matter. 
• The Nitrous oxide (N2O)emissions: It accounts for 7% of total human-induced GHG emissions, and can be emitted through the burning of some fuels, the manufacture and use of synthetic fertilisers, etc. 

To combat global warming and reduce greenhouse gases, companies need to set targets and develop action plans that will enable these objectives to be achieved.  

Types of carbon footprint that a company produces depending on the scope of its activities

• Outreach Footprint 1: direct emissions caused by the company's production process. This is, for example, the CO2 generated by a factory or a transport vehicle. To reduce these emissions, companies can take measures such as the optimisation of certain production processes, the purchase of less polluting vehicles, etc. 
• Scope 2 Footprintindirect emissions caused by the production of energy consumed by the company in order to carry out its activity. It is relatively easy to measure. Just multiply the energy consumption of the company by the emission factor of the electricity generation of the supplier or the country.
  The reduction of indirect emissions can be achieved through the implementation of energy efficiency measures. For example: contracting of PPAs renewables (long-term power purchase agreement); acquisition of RECs (Renewable Energy Certificates). These represent transferable proof that one MWh of electricity has been produced from renewable energy sources and added to an electricity grid.
• Footprint Scope 3emissions: emissions indirectly caused by a company's value chain. For example, GHGs generated by the production and transport of fixed capital and raw materials needed for production. These emissions are the most difficult to quantify and reduce, as they do not depend on the company. If a company wanted to reduce its CO2 generation associated with sourcing, it could switch suppliers to those closer to home or lobby for more sustainable practices. 

An increasing number of European companies are measuring their footprint and set targets for reducing their emissions. They have the dual objective of addressing current and future regulatory obligations. They also aim to strengthen their competitive advantage and improve their positioning vis-à-vis the market, investors or customers.

SBTi: the initiative to reduce corporate emissions

What kind of framework do companies use to align themselves with their objectives? How do you know if what you are doing in your company is sufficient? 

It is in this context that the Science Based Targets Initiative (SBTi), an initiative developed by CDP, the United Nations, the World Resources Institute (WRI) and the World Wide Fund for Nature (WWF), which allows companies - of any size and sector - to set emission reduction targets compatible with a global temperature increase of +1.5°C by 2100.  

To this end, SBTi allows companies to align to two complementary reduction initiatives from a base year: 

• Near-term science-based targetsemissions reduction targets: these are scope 1, 2 and 3 GHG emission reduction targets to be achieved within 5 to 10 years. Companies will not need to set such targets for scope 3 if it is less than 40% of the sum of their emissions from all three scopes or if they have less than 500 employees. However, companies will be required to commit to measuring these emissions and reducing their scope 3 footprint.  
• Net-zero targetsemissions: these are reduction targets to eliminate all Scope 1, 2 and 3 emissions in the long term and to be achieved by 2050 at the latest. In order to be able to set these targets, companies must have Near-Term targets validated by SBTi. In addition, companies are obliged to commit to neutralise the residual emissions that could not be eliminated by 2050 despite following the Net Zero plan. 

The benefits of SBTi target setting for a company 

The main benefit of SBTi is that it provides a rigorous roadmap based on scientific studies to determine the level of emissions that a company needs to reduce in order to achieve the Paris Agreement. In addition, for the most polluting sectors SBTi defines sectoral guidelines and reduction methodologies aligned to their specific challenges.  

In addition, by starting to take measures to reduce GHG generation before such regulation comes into force, companies can increase investor confidence and, in some cases, gain an advantage over their competitors. Finally, certain emission reduction measures can also encourage greater efficiency, helping to reduce companies' operating costs. 

How does SBTi membership work? To join SBTi, companies have to communicate their emission reduction commitment to the organisation. Once communicated, companies have 24 months to prepare a reduction plan aligned to the science-based criteria defined by the organisation, which must then be approved by the organisation.  

Once this process has been passed, companies will appear on the SBTi website as companies with approved targets and will have 6 months to make them public. After approval, companies will be required to disclose their emissions annually and monitor their progress towards achieving the previously set targets. 

It is a transparent, demanding and rigorous process that makes it possible to standardise the degree of compliance with environmental objectives by companies, as well as to reinforce the real commitment of companies in their climate change and sustainability strategies. Quite a challenge, but with enormous returns for those who know how to face it rigorously and with determination.  

Summer is coming and we all have more time to read. For this reason, in the following post we recommend five books on sustainability and impact. Purpose, sustainability and impact have become tremendously relevant topics that we sometimes wish we knew more about.  

In these books, successful entrepreneurs such as Paul Polman, academics such as Rebecca Henderson, or visionaries such as Sir Ronald Cohen propose a new way of doing business, a new way of doing business, a new way of transforming business and setting the roadmap in purpose.  

Over the past year we have seen how Non-financial aspects are becoming a strategic element in companies.. The market, investors, consumers and society in general are clearly demanding that companies generate a positive impact on the environment and the planet through their activities.  

Brands that are doing so are improving their profitability, retaining talent, better accessing financing and becoming stronger companies vis-à-vis their competitors. 

For those who believe that the world is changing, that there is another way of doing business and that companies have to play a fundamental role in this change, from within, reinventing the way they work and placing impact at the centre of their activity, we would like to recommend some books.  

Deep Purpose, by Ranjay Gulati 

It is one of the Top 10 on 2022 management and one of those must-have books on sustainability and impact. Written by the distinguished professor at Harvard Business School, Ranjay Gulati, offers a compelling review and defence of purpose, documenting the enormous benefits that accrue to companies that get the purpose right. 

After extensive research, Ranjay Gulati reveals the mistakes leaders make in defining their purpose.  

To get purpose right, leaders must fundamentally change not only how they execute it, but also how they conceive of it and relate to it. They must practice what Gulati calls deep purpose, fostering each organisation's raison d'être in a more intense, reflective and comprehensive way. 

In this guide, Gulati takes readers inside some of the world's most committed companies to understand the secret of their success.  

Net Positive, by Paul Polman and Andrew Winston

A guide for business leaders seeking to create zero positive impact. 

Paul Polman, the former president of "Unilever",which managed to increase its shareholder returns by 300% by being the world's number one sustainability company for eleven years, has written this book together with, Andrew Winston,one of the most inspirational voices on the topic ofcorporate sustainability. 

With foreword for the Spanish version of Angel Bonet. In this book, both authors aim to show business leaders how to tackle humanity's biggest and most urgent challenges - climate change and inequality - without neglecting business and profitability. 

To this end, they call on companies to act boldly and to have a "net positive impact"They prosper by giving back to the world more than they receive. 

Because "Net Positive" companies foster innovation, build trust, attract the best talent, retain customers and ensure lasting success.  

Grow the pie, by Alex Edmans 

It is one of the reference books on entrepreneurial purpose for those interested in being part of the new capitalism.

Based on academic evidence, but with very practical ideas and under the need to combine profitability with Purpose in business, it was chosen as Business Book of the Year by "Financial Times in 2020". 

Remaigining capitalism in a world on fire, by Rebecca Henderson

The leading economist and influential professor at Harvard's John and Natty McArthur University has written this book to warn that capitalism, as it was conceived, is having a very destructive impact on the planet and is destabilising the society we live in. This has positioned it as a key book on sustainability and the business impact.

For Rebecca Henderson the sole purpose of business should not be to make money and maximise shareholder value and in this book he shows that change is possible. Fascinating stories of companies that have taken the first steps to reinvent capitalism provide inspiring insights.

In the book, Henderson provides insights into the role of government and how the world of finance, governance and leadership must also evolve. In this book, the Harvard professor provides the pragmatic basis for navigating a world that faces an unprecedented challenge, but also an extraordinary opportunity.

Impact by Sir Ronald Cohen

One of the world's leading authorities on sustainability and the impact economy shows in his book "Impact" how the drive for impact investment is turning our economic system on its head, transforming the private sector into a catalyst for positive impact; distributing opportunities more fairly and providing solutions to major social and environmental challenges.

For sir Ronald Cohen, this revolution which he calls the Impact Revolution, is going to be as innovative and disruptive as the Technological Revolution was in its day.

The active involvement of the business world has a crucial role to play in protecting the environment, facing major challenges such as the fight against climate change, the protection of biodiversity and respect for the environment and waste management through the promotion of the circular economy. 

For years we have been talking about the important role of business in the fight to curb climate change and the negative impact we as a society have on the environment. But it has only been in recent years, driven by the pandemic, scientific consensus and financial analysts, that companies have become aware of the real risk that climate poses to their business models.   

The 2015 Paris Agreement marked an undisputed milestone in this direction, further reinforced by COP26, and the institutions committed to curbing the rise in global temperature below 1.5 °C above pre-industrial levels.  

Targets to 2030 to curb climate change

Greenhouse gas (GHG) emissions must be reduced by 45% by 2030, and be zero-net by 2050. In this direction, the European Union has made an ambitious bid to bring the continent to carbon neutrality by 2050 with the European Green Pact.  

In this context, companies have limited time to act. All sectors in all markets need to transform.  

Greenhouse gas (GHG) emissions must be reduced by 45% by 2030, and be zero-zero by 2050.

A number of international climate action initiatives are leading the way in supporting companies on their path to net zero. Among them is the Science Based Targets, which allows them to determine how much and how fast they need to reduce their greenhouse gas (GHG) emissions to prevent the worst effects of climate change by setting short- to medium-term targets to achieve zero-net.  

Scope 3 emissions, the big stumbling block 

A path that is certainly not without its difficulties. Reaching zero-net does not only imply acting on the scope 1 and 2 of the emissions of a company, but also on its scope 3, those emissions that come from a company's supply chain and therefore over which it has indirect control.

Scope 3 emissions are those that come from the supply chain and therefore over which the company has indirect control.

This will require not only proper supply chain management, but also a profound economic transformation across the entire business sector. This will be driven by technological advances and the redefinition of the global energy sector that will increase the maturity of sustainability integration in companies of all sizes.  

The transformation process in which the business sector finds itself is unstoppable. Many large companies have already started to leading the way and the risk of inaction may even have an impact on their survival.

However, it is not only large companies that need to transform. Urgent action is also needed by SMEs which, due to their own operational context, face an unquestionable challenge that they will have to overcome in the coming years.