A lot of companies publish corporate social responsibility (CSR) reports that describe their actions to contribute to the United Nations Sustainable Development Goals (SDGs). However, in the absence of standardized reporting rules, it is not always clear how much of these reports is genuine action, and how companies compare from their peers.
Specialized on CO2 tracking, Nota Climat is bringing transparency over major brands’ climate action using publicly available data since 2015. We caught up with CEO and co-founder Vincent Pappolla.
Vincent, what trends are you seeing in ESG reporting?
At first, we saw a lot of cherry-picking around the SDGs. However, I think there is now a better understanding that it is important that a company needs to act on all SDG that are relevant to its activities.
ESG is now becoming more important for companies. Increasingly, companies go beyond their direct impact (meaning gender equality, saving energy, sorting waste…) and start having an extensive view of the external impacts of their activities. And even though ESG reporting is still not perfect, it anchors company’s impact into its habits, into the culture of the company.
This past 5 years, we are seeing more and more clearly the advantages of ESG-advanced companies, especially on financing and on markets. This “environmental and social competitivity” is benefitting companies that are anticipating the evolution of their environment and their ecosystem. We have seen examples back in 2017, with Danone being granted a preferred-rate loan from a private bank, thanks to it’s triple A-rating on CDP Climate, Water and Forest. ESG and Financial results are to be intrinsically linked. We already see strong signals that may help us to be optimistic.
What would you say distinguishes companies that are more mature in their approach to ESG issues?
There is a first simple test. The two main signals when we read an ESG report are the exhaustivity in their measure of impact, and the tracking of performance to improve its main ESG KPIs. On climate, mature companies report an extensive scope 3 (all categories reported) and are tracking CO2 reduction for several years (scope 1 & 2, as well as scope 3).
Too many companies are still late in measuring accurately their scope 3 emissions. And too many companies are still at the stage of commitment claims. But the good news is that this is increasingly easy to identify leaders and laggers in terms of climate action. Maybe it will send a signal strong enough for laggers to accelerate!
Another particularity of mature companies is the internal organization of ESG. Two interesting cases: Bel group, for instance, has merged the ESG division and the Finance division into an “Impact division”. ESG decisions are taken by the team that are also accountable for financial profitability. Another example of efficient organization is Danone’s. They are ahead on this topic. CSR is increasingly embedded in company’s culture, and it results in high year-on-year CO2 reduction, as far as we could track.
Finally, we could add that you can look at the rank of the Head of CSR. More and more companies are integrating the Head of Sustainability in their executive committee. You can also see often companies integrating an internal carbon pricing at project level for all their business decisions.
Are there some sectors that are further ahead than others, or is it simply at an organisational level?
There are disparities between sectors. For example, the agri-food industry is ahead of the game. Companies in the sector realized much earlier the impact of climate change on their business, so they were more aware on these issues. Obviously, the energy-intensive sectors are also acting fast as the regulations are getting stronger, and the carbon tax impacts directly their profitability.
For other B2C sectors, I think the companies moving fastest are those that have a strong reputation at stake, for instance cosmetics companies, or luxury products, as their turnover may be highly impacted if consumers awareness becomes suddenly exponential due to climate change adverse effects.
Do you think there are factors that are more important than others, too?
The climate issue is obviously very important, and biodiversity is a real driver, especially for societal awareness. However, we don’t yet have standardised risks or measurement methods linked to biodiversity losses, even though this is probably the area that will have the greatest impact on most people.
Plastic wrap is still very high in the public mind (citizens and regulators), and thus on companies’ agenda.
Regarding internal ESG management, I think getting the social and governance aspects right is necessary today. Companies have to be beyond reproach on these topics that were to be tackled in the past decade.
What obstacles do you see to change?
Following regulations will certainly be a challenge to get up to speed with the requirements, rather than an obstacle. The major obstacle is inertia! In many’s mind, we are talking about the third industrial revolution. This is serious transformation here—and it’s never easy to make people change their habits. It’s even harder to change company culture and processes.
How much impact do you think ESG activities will have on the profitability of companies?
Companies’ climate action is now scrutinized by all their stakeholders. Investors were the first to ask for climate resilience. Now regulations are driving pressure on companies directly on cost (for carbon-intensive companies), and indirectly on turnover, through B2B call-for-tenders, as their value chains are included in one another. For example, in France, retailers are putting pressure on their suppliers to meet certain climate requirements, and if they don’t do so, the supermarkets will cease to sell suppliers’ products (cf Carrefour 2026 strategic plan).
And last but not least, climate action is now part of purchasing decisions, and job decisions! Citizens are seeing the adverse effects of climate change and react how they can. This fast-growing consumer trend is an additional and much more impactful risk for companies, as they directly threaten companies’ turnover. Reputation is now key for business resilience.
So, yes, in my view, CSR and climate action will have a major impact on companies’ profitability in the very short term. At Nota Climat, we empower all stakeholders to make informed choices about the companies they use. With more clarity, we can all move together in the right direction! Companies and citizens along.