Business Risk Services

A Guide to the NewERA Climate Action Framework for the Commercial Semi-State Sector

Sara McAllister
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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 NewEra Climate Action Framework?

CSS companies have an important part to play in the achievement of 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 in a unique position 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.

NewERA developed the Framework after consulting with each of the 22 CSS companies—which vary in terms of their size, activities, resourcing, and climate-action stage—and learning about their existing climate action objectives and approaches. NewERA then drew upon best practices for delivering corporate climate action objectives to create the Framework, which includes five commitments for climate action and targeted approaches for delivering on those commitments.

CSS companies must fund the cost of meeting the commitments from their own resources. The Sustainable Energy Authority of Ireland’s public-sector monitoring and reporting system will measure the impact of their climate actions.

The NewERA Climate Action Framework’s 5 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 Climate Action Plan 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 the 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 meeting its shorter-term climate-related benchmarks and ultimately achieving 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 is likely to 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 take into account 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 appraisal 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 plan for transitioning 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 as well as 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 are continuing 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.

7 Steps CSS Companies Can Take to Meet the Framework’s Commitment and Climate Action Objectives

Implementing targeted approaches that help CSS companies progress towards meeting the Framework’s five commitments won’t be easy.

Meeting the commitments depends on the companies achieving the targets contained within each commitment (16 in total). Companies that sign up to the Framework will find that delivering on these targets requires a significant amount of work. Their progress—or lack thereof—will be highly visible as they’re required to report on their performance in annual reports and to disclose progress towards emission reduction targets and evidence of using carbon pricing in purchase decisions.

However, by taking the steps outlined below, CSS companies can successfully implement target approaches and deliver on their climate commitments.

Step 1: Understand the Framework

Companies need to fully comprehend the breadth of the Framework—including interpreting the letter of exception and understanding the process for a review of corporate plans—before they begin implementing targeted approaches to meeting their commitments. Drawing on policy, sustainability, and corporate expertise, they need to assess their current readiness before then creating a roadmap for climate action success.

Step 2: Risk Assessment

After senior leaders have approved the roadmap, management needs to identify all climate-related risks throughout the business. Senior management needs to ensure that they incorporate all identified risks as well as climate-related processes into the company’s overall risk management framework.

Step 3: Gap Analysis

After identifying risks, senior leadership needs to put together a firm-wide team to assess the company’s current state and determine its readiness for implementing the targeted approaches and reaching its commitments. The team will identify any gaps and draw attention to business areas where additional action or investment will likely be needed to achieve compliance with the Framework’s requirements.

Step 4: Continuous Monitoring

Senior management should implement a system for monitoring the company’s progress towards the commitments. Robust tracking and monitoring is a perquisite for reporting on performance and showing compliance. With a system in place, the company can track its progress towards the Framework’s commitments, monitor its compliance with general obligations under CAP 2021, identify instances and areas of non-compliance, and begin implementing remedial measures. 

Step 5: Controls Testing

Once the company has its climate-related policies, procedures and reporting process in place, it’s time to test their effectiveness. Management should also test any controls put in place to ensure compliance with the Framework’s requirements.

Step 6: Financial Disclosure Review

Climate-related disclosures in financial reporting are a major component of current and future compliance with climate action regulation. Companies must review the accuracy and completeness of their climate-related disclosures in financial reporting as well as ensure that they are maintaining compliance with the appropriate disclosure framework.

Step 7: Data Analytics

Companies need to have access to strong data analysts who can interrogate climate-related data, such as emissions data, and provide insights about trends and gaps. With this information, the company can optimise its data integrity, performance, achieve its carbon reduction and energy efficiency targets, and make more strategically-guided investment decisions.

How Grant Thornton Can Help

Becoming and remaining compliant with the Framework requires significant resourcing and expertise. The Framework will be reviewed and updated periodically, and companies will need to stay up to date with the latest changes to ensure that they maintain compliance, follow best practices for targeted approaches, and achieve their climate action commitments.

Grant Thornton’s Business Risk Services team can play a valuable role in supporting the management of CSS companies. Our team of experts will perform an independent and objective readiness assessment of the company’s adherence to the Framework’s commitments and its climate action objectives.  Following the assessment, we can assist with all of the above steps for implementing targeted approaches and making progress towards climate action objectives. We can also provide additional guidance and support to ensure that companies remain complaint with the Framework and make meaningful progress towards incorporating climate action as a core component of their business strategy.

Our specialist Business Risk Services team have extensive experience in managing environmental and climate compliance requirements for clients. If you would like to discuss your NewERA Climate Action Framework or other climate action needs, please contact a member of our team or your usual Grant Thornton contact.

This summary guide draws heavily from the NewEra Climate Action Framework. Read the full Framework here.