Insight

Responsible Business – Predictions for 2022

As we bid farewell to February and 2022 finds its feet, concern about climate change remains a key concern for policy makers. The UK holds the COP Presidency until November and will want to prove it was a successful custodian. But debate remains open and controversial, with some calls to scrap green levies in order to ease the cost of living crisis set to plague 2022.

Given conflicting pressures and challenges, we try to assess what the year ahead might hold for responsible business – with a particular focus on the UK government agenda and wider regulatory pressures.

Net Zero and the Just Transition

At COP26 we saw nations pledging net zero targets. However, the final Communique contained a last minute text change when referencing coal and fossil fuels, with many angered that “phase out” was re-written. Nations are instead encouraged to “phase down”, driven by India and other high-emitting countries. COP26 President Alok Sharma said he was “deeply sorry” for how events had unfolded.

The 2015 Paris Climate Agreement saw nearly 200 countries agree to limit global warming to 2C, or ideally 1.5C. The pledges made at COP26 mean we are woefully off course. If governments want to be sincere about their planetary commitments in 2022, we need to see more ambitious action to get back on track. Countries will meet again this November, shaking off the previous 5 year cycle, in order to strengthen plans.

At COP wealthier nations committed billions into new partnerships to help coal-reliant emerging economies kickstart a "just transition" that is green and socially fair. We’ll be watching this year to see how these commitments unfold, backed by governments in the UK, Canada and Germany, among others.

At home governments are under increased pressure to move away from fossil fuels and invest in cleaner, greener energy sources. Norway has already announced it will launch its first tender for bottom-fixed offshore wind turbines in the southern North Sea, planning to develop 1.5 gigawatt of electricity that will supply the Norwegian mainland. Other countries will be looking to make similar commitments, but with wholesale gas prices through the roof, and the consumer taking the hit, there is concern that any transition must not come with a price to the population.

Businesses must play their part in this drive to net zero and take responsibility for carbon emissions and reductions. However, an important word of warning came recently from the NewClimate Institute’s report published this month. It found that many corporate pledges are “often ambiguous and emission reduction commitments are limited.” The key lessons for companies must be this – as well as setting long-term targets for carbon reduction, ensure you develop and communicate a clear road map for action so stakeholders can monitor your progress on the journey.

Mandatory reporting

After a brief grace period due to the pandemic on the enforcement of the gender pay gap (GPG) reporting requirements in 2021, this remains a key priority for the Government, especially following notable concerns that the gap has widened since the start of the pandemic. Similarly, whilst the Government continues to remain silent on whether it will introduce harsher enforcement measures for non-reporting or lack of progress against stated goals, employee expectations are rising, with companies being motivated to change in order to retain talent amid the continued great resignation.

Although there remains no legal duty for firms to report ethnicity data, the Government is being increasingly urged by opposition parties, unions and business groups to introduce mandatory reporting as an “obvious first step” to tackling racial inequality. Just this week, the House of Commons Women and Equalities Select Committee recommended introducing mandatory reporting by April 2023 for all organisations that currently report their GPG, and for employers to publish a supporting narrative and action plan, alongside the raw data. Whilst we continue to wait on the Government’s response to both this report and its own 2018 consultation into ethnicity pay gap reporting, more employers are seeking to provide this data on a voluntary basis. This is in part driven by the increased prominence of the Black Lives Matter movement from summer 2020 onwards and an attempt to get ahead of any mandatory requirements, for instance from the Financial Conduct Authority.

Additionally, with the disability employment gap still at 28.4%, the Government has launched a consultation on disability workforce reporting for large businesses, which is exploring the possibility of voluntary and mandatory reporting practices. This consultation forms part of the Government’s National Disability Strategy, with a response expected to be published in June.

With diversity regulation anticipated to increase, it is important that all businesses in all sectors put in place systems to collecting data on these key measures of diversity and inclusion. However, reporting is only the first step – it is what your business does with the data that is crucial.

Safeguarding natural systems and biodiversity

One of the leading headlines from COP26 was the signing of the Glasgow Leaders’ Declaration on Forests and Land Use. Some 141 countries have committed to “working collectively to halt and reverse forest loss and land degradation by 2030 while delivering sustainable development and promoting an inclusive rural transformation.”

The UK is looking to take a lead with regulation on the use of forest risk commodities pushing forward the Department for Environment, Food and Rural Affairs’ consultation on implementing due diligence requirements on forest risk commodities will close in March, with a response expected later in the year.

We’re also eagerly anticipating the Government’s response to the National Food Strategy. The independent report published in July 2021 called out the environmental damage being caused by our food system and the subsequent threat to food security that is rapidly becoming a reality.

With the globalisation of supply chains, sustainable businesses must protect themselves from the inherent risk of ongoing disruption to natural systems and biodiversity loss. Businesses that want to survive and thrive will need to re-think agricultural systems, ensure they can deliver a just transition for farmers and local communities and re-learn how to do more with less, supporting a growing population without further encroaching on Earth’s limited natural resources.

Extended Producer Responsibility

Extended Producer Responsibility is a policy which gives responsibility for the treatment or disposal of post-consumer products back to the producer. Last year the UK Government undertook a consultation on plans for an EPR scheme on packaging - the design, governance and enforcement - and the response is expected to be published imminently. Mandatory reporting will be introduced and producers will be expected to:

Have an increased financial incentive to use packaging that is widely collected from householders for recycling, as well as to increase recycled content in packaging
Additional data will need to be collected and reported
Data reporting requirements will become more complex
Reporting will need to be completed and aggregates for sales made in each of the devolved administrations (England, Scotland, Wales and Northern Ireland).

Introduction of modulated fees could also see producer compliance costs increase, with packaging that is difficult to recycle, not recycled or unrecyclable likely to see higher costs associated with complying with the reformed Packaging Waste Regulations. In addition, because research suggests there is insufficient evidence that compostable packaging results in benefits to agriculture, it seems unlikely that biodegradable and compostable packaging will be considered as recyclable under EPR, meaning it will attract a higher rate. The UK Government and the Devolved Administrations have said they will continue to monitor developments in biodegradable plastics where they may represent the best environmental and economic outcome.

While reporting won’t come into effect until 2023, it will be based on 2022 data. Businesses will need to use this year to begin collecting necessary information, prepare and stream line operations in order to manage the new legal requirements, as well as potentially mitigate any risks that may be avoided.

Sustainable consumption and the circular economy

According to the Circularity Gap, our current take-make-waste economy consumes 100 billion tonnes of materials a year and wastes over 90%.

Pressure is building on businesses to support the transition to circularity. Last year, the Department for Environment, Food and Rural Affairs consulted on the Waste Prevention Programme for England, which sets out priorities for action to manage resources and reduce waste according to the waste hierarchy - by increasing reuse, repair and remanufacture of products, among other things. This year we expect to see how the Government responds to this consultation which is likely to make recommendations for policy and businesses to support a more circular economy.

Embracing a circular model could have a significantly high potential positive impact on the Fashion and Tech industries in particular. DHL’s “Delivering on Circularity” report reveals that 80% of emissions of an average fashion or consumer electronics item are accrued during production, and therefore extending the product lifetime as much as possible is imperative. Looking at the fashion industry as an example, data driven digital tools will start to scale circularity, as more tech companies such as Re-fashion and Hirestreet are becoming more popular with fashion brands who are looking to more circular offerings.

Not only does unsustainable consumption and waste effect the environment, but unnecessary waste is increasingly being considered an economic and social issue. With rising costs of living and uncertainty for families across the world, issues such as food waste are deemed unacceptable. Partnerships between key food retailers and circular food charities, such as John Lewis and Hubbub’s £1 circular economy fund, are helping close this gap – but more work needs to be done.

Similarly, a spotlight is being shone on the poor living conditions in which local citizens live in the countries that import the UK’s and other western markets waste. It is no longer accepted that waste is shipped off and left to pollute other locations, and businesses and governments are being pressed to present solutions that deal with waste at home.

Businesses this year will need to develop their services and products in ways that support circularity for the end users. Consumers and other stakeholders want to take part in a circular economy, but that requires the products they use to be designed with circularity in mind. Planned obsolescence should no longer be part of any business strategy.

Resilient supply chains

Finally, moving beyond the regulatory environment, we note one significant impact of the COVID-19 pandemic has been an increased emphasis on the need for more resilient supply chains that can deliver reliability for the global economy.

When examining the lessons learned, many commentators focus on strategies to withstand disruptions. A recent article by the World Economic Forum, for example, highlighted the need for more localised sourcing, diversification of the supply base and increased inventory at critical locations.

While this is sound and sensible advice, there is a more important aspect to this problem. Instead of trying to adapt current business practices to meet unforeseen challenges, the question should be reframed. We should be asking ourselves, as responsible business leaders, how do we better identify and anticipate these rare and often unpredictable events?

The ability to be resilient in the face of an uncertain future is central to any successful and sustainable business. There are a number of strategies companies need to embrace in order to build this resilience:

· Avoid the trap of trying to predict the future by extrapolating from the recent past. Very few events follow a linear path.

· Ensure you take a broad view in horizon scanning and future forecasting. Actively engage with others who have wider insights beyond your own sector perspective.

· Integrate these ideas into the mainstream business thinking through scenario planning and risk management.

In short, always think long term and try to spot emerging risks and opportunities. Identifying and adapting to low-probability but high impact events will drive success and ensure your business is responsible and sustainable.

Contact us.

To find out how you can shape the responsible business landscape of tomorrow, please contact Andrew Wilson, Director and Head of Responsible Business at andrew.wilson@lexcomm.co.uk