News & Views

Four actions for business following COP26

The recent COP26 in Glasgow had a much greater focus on private sector businesses than in previous summits, increasing the pressure on them to transition to net-zero carbon emissions.

So, here are FOUR ACTIONS UK business owners should consider in the light of COP26, as governments collaborate to make the world a greener place in which to live and work.

ACTION 1 - CONSIDER GREENER BOARD GOVERNANCE

Company directors will need to pay more attention to climate change and wider environmental factors including biodiversity, resource efficiency, and waste reduction when making decisions at board level. In fact, more and more consumers will expect companies to show they care about the environment, not just supply sustainable products.

Currently, under the Companies Act 2006, larger companies must prepare a strategic report, containing a non-financial statement outlining information on environmental matters that are relevant factors in the development, performance, or position of the company's business. While these provisions do not yet apply to smaller companies, the shift in focus following COP26 suggests that smaller companies should expect similar obligations in the future. Being ahead of the game and incorporating environmental considerations into corporate governance is considered good ‘green’ practice that will likely deliver short-term and long-term benefits.

ACTION 2 - EXPLORE B CORP STATUS

The outputs from COP26 are likely to lead to an increase in businesses seeking B Corporation (B Corp) status, as greater transparency and disclosure on net-zero emissions, sustainability credentials and awareness of environmental factors start to drive business decisions.

Achieving B Corp status means joining a network of like-minded, for-profit organisations that value positive social change through community and environmental centric decision making. Achieving B Corp status involves the following steps:

• Step 1 – Attaining a verified total score of at least 80 across all impact areas in a self-assessed performance assessment that focuses on governance, workers, community, environment, and customers.
• Step 2 - Meeting the B Corp legal accountability requirements. These differ depending on jurisdiction and the size of the company but, generally, the requirements are that most of the revenue is generated through trading and the company is not a registered charity or public body. In the UK, B Corps often make this legal change by updating their Articles of Association to reflect the importance of considering the impact of their decisions on all their stakeholders.
• Step 3 - Signing the B Corp Declaration of Independence which incurs an annual certification fee based on turnover.

ACTION 3 - RESPOND TO PROPOSED CONTRACT CHANGES

Increasing environmental legislation will have a trickle-down effect on smaller companies. As the outputs from COP26 start to put pressure on larger companies to hit their green objectives, these larger companies will look to impose additional contractual obligations on their suppliers and manufacturers to ensure their supply chain is as sustainable as possible. Small suppliers may, for example, be required to report regularly to buyers on potential environmental risks arising from their products or services and indemnify buyers in respect of environmental regulatory breaches. Attempts by large companies to impose new terms and conditions on small businesses should be responded to with the benefit of specialist legal advice and a careful consideration of the practical consequences of such new terms and conditions.

ACTION 4 - REVIEW BUSINESS INSURANCES

COP26 reminded the world of the growing frequency of extreme weather events, increasing insurers’ exposure to large claims and losses, particularly in relation to property and business interruption. This is likely to have a general upward pressure on insurance premiums, notwithstanding the competitive insurance marketplace.

Insurers may start to favour insureds that conduct business in an environmentally responsible way. Those insureds that do not, may find insurance cover becoming prohibitively expensive or unavailable. Indeed, some insurers are already encouraging climate-friendly projects or choices through changes in insurance policy terms and conditions, such as discounts for all-electric vehicle fleets, energy efficient buildings or for those investing in heat-pump systems.

Taking specialist legal advice on policy wordings when brokers are placing insurance will ensure the cover is right for your specific business.

These FOUR ACTIONS should help businesses keep pace with the major outputs from COP26 and keep them on the front foot as regulatory changes are fleshed over in the coming months.

To discuss any issues arising from item, please email Phil Bowers or ring him on 0151 906 1000.