​upgr4de your sust4inability perform4nce.

Sustainability in 2017

Madrid, 22 de Septiembre

Sustainability in 2017. Understand the potential start of a new era.

 

It is not easy to be impartial, much less optimist, when predicting events and trends for 2017, but there are glimpses of hope and, more importantly, a need to understand and be prepared for the potential start of a new environmental, social and technological era.

 

Those of us bombarded by social and traditional media – naturally more excited with bad news and celebrities’ deaths – or recent documentaries such as “Before the Flood” or “Years of Living Dangerously” can be particularly gloomy. As we summarised last year, 2016 was a year full of political surprises and probably the hottest recorded year ever. The unusually high temperatures in the Arctic and low in the Balkans can be potential chilling advance warnings of radical climate change.

 

Yet the world has never been such a good place to live. For now, at least. People live longer and healthier lives, poverty is being reduced, there are less armed conflicts, growth in world carbon emissions has stalled and the price of renewable energy is now competitive. In the end 2016 wasn't as bad as you think. Imagine, for a second, if China and India had decided to follow Donald Trump’s threat to “cancel” the Paris Agreement. On the contrary, both countries are investing even more on renewables and may become the new leaders in climate action and other sustainability issues, including (let’s hope) human rights.

 

As for 2017, our main sustainability prediction is that it is going to be harder than the previous years. There are obvious social, environmental, economic and governance challenges ahead of us. In the just-published Global Risks Report, prepared by the World Economic Forum, environmental concerns are more prominent than ever, with all five risks in this category assessed as being above average for both impact and likelihood, notably extreme weather events and failure of climate change mitigation and adaptation as well as water crises – have emerged as a consistently central feature of the risk landscape, strongly interconnected with many other risks, such as conflict and migration.

 

We already know most of the specific risks and opportunities – see our detailed forecast below, by themes. The recent techno-political disruption is a clear wake up call, as the MIT Prof Otto Scharmer argues. We now need to redouble the energy and creativity to not just face the challenges and embrace new opportunities, but to cooperate – an expected clear call from Davos next week –  and start shaping a new and more sustainable era, while dealing with more urgent needs. As Prof Scharmer says: “Keep in mind that experience is not what happens to us — but what we do with what happens to us.”

 

Count on SUST4IN if you need any help and watch this space for more news and events in 2017.

 

PS: 2017 is the official International Year of Sustainable Tourism for Development. Watch the promotional video and get inspired for your next sustainable trip!

 

Sustainability in 2017, by themes.

 

Sustainable Development Goals

The SDGs are clearly the broader and more important sustainability priority and opportunity for 2017 and until 2030. We will not see any major events or new trends in 2017 however. The official SDGs calendar is literally empty as we write. Most of us will be quietly working on their implementation using approaches such as Design Thinking and tools such as the SDG Compass. Each company needs to comply with the basics and understand which SDGs are more important or material, manage and report them. But please do KISS (Keep It Simple Stupid)!

 

Climate

As confirmed at COP22 in Marrakech, the Paris Agreement – now ratified by 123 countries and growing – is irreversible. No country, even the US, can stop its implementation. On the contrary: countries are even more united to go ahead. Also important, US companies, states and cities have already committed themselves to a low carbon future.

 

One of the best news for 2017 is that China will launch its national carbon emissions trading scheme, the largest in the world. China’s ETS would be twice the size of the European Union’s ETS and greater than all existing carbon markets combined. China is now the largest emitter, its ETS and various other initiatives are good news for the Chinese and world.

 

Following 13 editions, Carbon Expo will not happen in 2017. The old model is being replaced by Innovate4Climate – Finance & Markets Week to happen in Barcelona on 22-26 May. COP23, to be held in Bonn in November, is already being dubbed as the “Finance COP” and will remain as the main global climate conference, but it will be mostly another technical meeting aiming at preparing for the full implementation and the needed strengthening of the Paris Agreement. We will continue trying to support with our experience on issues such as the forthcoming sustainable development mechanism (Article 6).

 

Will 2017 set another record in temperatures? Hopefully not. More worryingly: Will the Artic replace China as the largest greenhouse gases, namely methane, emitter? We really do not know.

 

Our last – and easiest – prediction is that solar power will keep growing massively. It still tiny compared with existing capacity, but solar, together with other renewables, are already bigger in new capacity than fossil fuels.

 

Finance

Impact investing, socially responsible or ESG (Environment, Social & Governance) investing are becoming mainstream and set to keep growing. The market size in the United States alone in 2016 was $8.72 trillion, or one-fifth of all investment under professional management. BlackRock, the world’s biggest asset manager, and Goldman Sachs for instance are busy launching new impact funds driven by growing investor’s demand. Even better, there is plenty of room to grow. At Goldman’s asset-management arm, impact and ESG-integrated investments combined only make up $6.7bn out of a total $1.35trn in assets under management.

 

The UN Principles for Responsible Investment (PRI) celebrated its 10 years in 2016 with nearly 1,500 signatories, from over 50 countries, representing US$60 trillion in assets under management. In March it will launch its Blueprint for Responsible Investment which promises to shape the priorities of the organisation and the responsible investment community for the next decade, so we better pay attention.

 

Green bonds more than doubled in 2016 to $81bn and will definitely pass the $100bn mark in 2017, maybe doubling again. The Climate Bonds Initiative, together with the Green Bond Principles and others, are organizing their Annual Conference and Green Bonds Awards in March in London.

 

Climate finance will be big not just in the usual financial centres, but, as mentioned in Barcelona and in Bonn. The Paris agreed target of $100bn a year in climate investments will however remain distant.

 

As for your personal finances, we are not financial advisors, but do try investing in ESG instruments, ask your bank. And make sure you sell that beach hut and your diesel car, if you have them, as soon as you can. It may be harder to sell later and insurance companies are already paying attention.

 

Sustainability Reporting

In Europe, more than 6,000 companies will start collecting information to report under the new EU Directive on disclosure of non-financial information and diversity. Despite the fact than only 5 countries have transposed the directive into national legislation and the absence of guidelines, companies covered by the directive will have to comply with the reporting requirements for accounting periods commencing on or after 1 January 2017.

 

Sustainability reporting will not become “integrated reporting” in 2017 – and probably never. Even among a sample of the members of the World Business Council for Sustainable Development, only 13% of reports are self-declared integrated reports. It is a complex task and, worse, sustainability or “non-financial information” can get diluted.

 

The Global Reporting Initiative (GRI) Standards will remain the world’s favourite reporting model – 87% of the WBCSD reporters use GRI guidelines – despite the challenges posed by a new set of standards. There are now 36 standards ranging from GRI 101: Foundation to GRI 419: Socioeconomic compliance and quite a few differences between the G4 guidelines launched in 2013. Some companies have already started collecting data to comply with the new standards. The GRI Standards will be effective for reports or other materials published on or after 1 July 2018, replacing the G4 Guidelines.

 

The Sustainability Accounting Standards Board (SASB) has finished the publication of standards for 79 industries in 10 sectors in 2016 (including yours most probably). Although SASB is still more popular in the US – and directly affected by the new government and the Securities and Exchange Commission (SEC) changes – it will also keep growing in influence at least.

 

However, the potential big bang in 2017 and years to come is the recently published Taskforce on Climate-Related Financial Disclosure (TCFD) Recommendations, led by Michael Bloomberg. The recommendations are applicable to organizations across various sectors and jurisdictions. You can provide your input as they are open for public consultation until 12 February and will be officially published in June

 

Water

Water scarcity will remain a problem in various geographies, normally as a consequence of climate change, water pollution, wastage, old infrastructure or just growing demand. We will certainly hear more stories of companies and their supply chains being disrupted with effects on production and job creation.

 

Conflicts can be triggered by and cause further water scarcity. The 4 million people (still) living in Damascus, Syria, started the year without water as water has been cut because of fighting. As we write the UNICEF is trucking water into the city and doing its best to minimize the crisis.

 

The good news is that the true value of water, mainly business continuity, is becoming better understood and tools such as water footprint and the international standard ISO 14046 are becoming more popular, namely with practical examples (eventually) being published shortly in the new ISO 14073 report. Water reuse will be a hot topic, in Europe at least, see more below in Circular Economy.

 

Air Emissions

It is embarrassing that we are not yet competent to manage air emissions to healthy levels. 92% of the world’s population lives in places where air quality levels exceed WHO limits. 2017 will see more episodes of air pollution in cities around the world making headlines and passionate debates.

 

In 2017 cars will be less welcome in cities. Madrid and Paris, for instance, are setting stricter – and long needed – measures to reduce urban air pollution. Further to that, Paris, Madrid, Athens and Mexico City will definitely ban diesel cars and vans by 2025. Expect to see more electric vehicles – normally not banned – on the road.

 

In the meantime, Volkswagen will continue to spend billions to compensate for its emissions cheating. A few more executives maybe detained, thousands more employees will lose their jobs, but VW will remain a top fossil fuel carmaker, although its fundamental and oldest problem is governance, as this candid Financial Times editorial says.

 

Circular Economy

2017 can be arguably “the year of the circular economy revolution”, even in the US. Companies like Procter & Gamble will be announcing commitments to go waste free. In Europe the implementation of the EU Circular Economy Package will continue with a proposal for minimum quality requirements for reused water in the European Union (open for consultation until 27 January), in addition to existing proposed directives on waste, packaging waste, landfills etc and even more funding.

 

If your boss or clients are not yet convinced by the circular economy opportunities, show them this McKinsey report published recently or talk to us.

 

Management Systems

In March the Environmental Management System standard, ISO 14001, will start its final transition step. The old ISO 14001:2004 will be dead from 31 March, except for existing certificates for laggards. From then on, only new ISO 14001:2015 will be issued. The transition ends in September 2018.

 

By June, the most popular Social Accountability Management System standard, SA 8000 will end its transition. By 30 June all current certifications to SA8000:2008 must be transitioned to SA8000:2014.

 

By December, the new international standard on Health & Safety Management System, ISO 45001, is expected to be published to replace OHSAS 18001.