Technical

The Climate Action Framework was approved by the Irish Government in August 2022. Sara McAllister, Partner and Head of Business Risk Services at Grant Thornton, sheds light on its origins and the obligations that organisations must fulfil In August 2022, the Irish Government approved the Climate Action Framework (the Framework) for the commercial semi-state sector. Developed by the New Economy and Recovery Authority (NewERA) in collaboration with the Department of Public Expenditure and Reform and the Department of Environment, Climate and Communications, the Framework applies to all commercial semi-state (CSS) companies.  CSS companies that sign up to or adopt the Framework are bound to a series of commitments for delivering on climate action. The Framework also outlines targeted approaches, informed by existing best practices, for implementing solutions that address the sector’s climate action objectives. What’s behind the Framework? CSS companies have an important role in achieving the Government’s 2030 climate action targets as set out in the Climate Action and Low Carbon Development (Amendment) Act 2021 and Climate Action Plan (CAP) 2021. A robust climate action strategy includes objectives for both mitigating and adapting to climate change. The public sector is uniquely positioned to lead by example, implementing changes that help Ireland achieve its climate action objectives and transition to a low-carbon and climate-neutral economy and society.  By taking charge, upholding commitments and successfully delivering on climate action strategies, public sector bodies can show other industries that meeting the Government’s climate action targets is achievable. CSS companies must fund the cost of meeting the commitments from their own resources. The Sustainable Energy Authority of Ireland’s (SEAI) public-sector monitoring and reporting system will measure the impact of their climate actions. Five commitments for CSS companies The five commitments within the Framework map onto the three pillars outlined in the Public Sector Leading by Example sections of the CAP 2019 and 2021 – measurement of carbon footprint, green public procurement and carbon pricing in capital evaluation.  The two additional commitments relate specifically to climate actions for corporate environments, focusing on the governance of climate action objectives and financial disclosures. Commitment 1: Governance of Climate Action Objectives What is it: Oversight at board level and integration of climate action objectives in the company’s strategic business planning. Why it matters: Having board-level oversight offers a clue about the importance of climate-related issues to an organisation as a whole. Buy-in and involvement at this level sends a signal to the entire company that meaningful climate action is integral to the company’s strategic direction. The board’s approval and monitoring of the resulting sustainability strategies ensures they are progressing appropriately, putting the organisation on track to meet its shorter-term climate-related benchmarks and ultimately achieve its long-term climate action objectives. Commitment 2: Emissions Measurement and Reduction Target What is it: Formal adoption of government emission reduction targets for the public sector and the SEAI measurement methodology. Why it matters:  Having a reporting structure to capture, compare and monitor carbon emissions over time is critical for driving accountability in reducing emissions.  At a minimum, organisations should be measuring their Scope 1 and Scope 2 emissions; however, the reporting requirements for Scope 3 emissions are set to increase, so companies can get ahead of the curve by beginning to report on these emissions now.   CAP 2021 requires that public sector bodies reduce their emissions by 51 percent. That’s an ambitious and challenging target, and the challenge will likely increase as the types of emissions included 'in scope' continue to expand. Commitment 3: Measuring and Valuing Emissions in Investment Appraisals What is it: Having investment decision-makers incorporate the value of carbon emissions in their decision-making parameters. Why it matters: Project appraisals for public capital investments need to consider fossil-fuel consumption to avoid any expenditures on long-term projects that have a commitment to or dependency on fossil fuels.  Greenhouse gas emission targets are legally binding and challenging to meet, so investment decision-makers need to take a project’s potential carbon emissions into account before they make a financial investment. Using carbon pricing during appraisals allows decision-makers to fully understand the cost that society will bear for a project’s emissions.  As a result, they can appreciate the climate consequences of their investment decisions and make better, more informed choices when presented with different options. The 2019 Public Spending Code sets out current carbon pricing; however, the Code is likely to be updated again to estimate the cost of achieving CAP 2021’s enhanced target of a 51 percent emission reduction. CSS companies must be in full compliance with this code year on year. Commitment 4: Circular Economy and Green Procurement What is it: The promotion of circular economy measures and implementation of green procurement processes. Why it matters: A circular economy reduces waste by maintaining the value of products and materials for as long as possible. Forty-five percent of carbon emissions come from the production of goods, so implementing a circular economy is a necessity for meeting emission reduction targets. The Whole-of-Government Circular Economy Strategy sets out Ireland’s transition plan to a circular economy. The public sector will play a leading role in this transition by implementing green procurement and circular economy practices. The Office of Government Procurement (OGP) has updated its procurement frameworks to align with these practices, providing guidance to public and semi-state bodies on how to meet their need for goods, services, works and utilities with solutions while simultaneously considering the total economic and environmental cost – from cradle to grave – of a solution. CSS companies should engage with the OGP and central purchasing bodies to facilitate their transition to green procurement practices. Commitment 5: Climate-related Disclosures in Financial Reporting What is it: Compliance with a relevant and appropriate climate-related disclosures framework within a defined time frame. Why it matters: Companies, including CSS companies, must become more transparent and aggressive about reporting climate-related information. Transparency is key for building and maintaining stakeholder trust and preventing reputational damage. Investors, regulators, purchasers and other stakeholders increasingly want access to this climate-related information because these insights often have implications for their own climate-related decision-making. Regulatory authorities and governments continue to update and strengthen their environmental reporting requirements. For instance, the new EU Corporate Sustainability Reporting Directive requires that companies operating in the EU report sustainability disclosures across several topics related to environmental and societal issues. CSS companies can keep pace with such regulations by adhering to a robust and appropriate climate-related disclosures framework.