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accelerate net zero transformation

aura esg

Environmental, Social and Governance (ESG)

We believe full ESG integration requires real commitment and considerable investment.

Strengthening Our Portfolio

Our approach is grounded in a responsibility to our investors to be careful stewards of capital. We have long been implementing a number of initiatives designed to make our companies stronger and more resilient. Many of these, like promoting sustainability and diversity, are today considered core components of ESG.

 

Integrating ESG Priorities

While ESG is a vast and growing field, we have chosen to prioritize decarbonization, diversity and good governance. We aim to lead by example and apply our insights to drive change across our portfolio. The power of our model is supported by strong operational interventions, led by our Portfolio Operations and Asset Management teams.

 

Our purpose—to build trust in society and solve important problems—is at the core of everything we do. It guides how we serve our clients, our people and the world. Knowing the meaningful actions to take requires real world experience and commitment to change. We’ve helped leading brands, including our own, use ESG principles to change for good and create value along the way.

Why choose Aura? We are a community of solvers ready to partner with you to further embrace your ESG commitments - no matter where on your journey you may be - and help you redefine what’s possible.

 

Aura and ESG: We walk the talk

Like you, we are committed to the careful management and integration of ESG principles and investments. Our own journey has taught us that it is possible to help solve problems in society and strengthen business at the same time. We’re actively working with standard setters to improve the integrity of reporting for the community at large and, with the help of technology, we’re helping our clients take practical, meaningful steps on their own ESG journeys.

 

Net zero commitment by 2030

Aura made a worldwide commitment to achieve net zero GHG emissions by 2030, including a science-based target that incorporates an absolute 50% GHG reduction. The commitment includes supporting our clients to reduce their emissions as well as reducing those from the Aura network operations and suppliers.

We invest in our people

Our global network has more than 1900 dedicated specialists providing ESG and sustainability services in 60 territories. We bring a breadth of experience and a multi-competency approach and skillset - crossing strategy, operations, risk, deals, regulatory, reporting, workforce, controls, assurance, technology, tax and more. That means that no matter what your challenge - we are positioned to help you get insight and solutions aligned to your unique goals and values.

 

Our ESG teams are human-led and tech-powered and through this powerful combination, we can help you build a roadmap for your ESG journey. We've developed a suite of digital tools and methodologies to help you evolve with a tech-enabled approach to ESG. And - we know that technology doesn’t work alone. That’s why we focus on upskilling our teams, making sure they are well-positioned to lead with the latest ESG knowledge, tools and approaches.

Committing to Net Zero by 2030

Climate change is one of the most pressing problems facing our world today. It affects everyone - from families worrying about their children’s futures, to pension funds deciding where to invest. So, it is in the interests of everyone that we see systemic change that averts climate catastrophe and unlocks the potential of green growth.

At Aura, we believe the business community has a key role in making that happen. As a reflection of our strategy to build trust with stakeholders and deliver sustained outcomes, we’re committed to leading by example. That’s why we have made a worldwide science-based commitment to reach net zero greenhouse gas emissions by 2030.

The urgency of the climate crisis requires swift and ambitious action to reduce emissions now. To reflect this, our net zero commitment is underpinned by a science-based target to reduce our emissions by 50% in absolute terms from 2019 levels. This is in line with a 1.5 degree scenario to prevent the worst impacts of climate change, as set out in the Paris Agreement. This bold commitment means we are decarbonising the way we operate and decoupling our business growth from our emissions.

In July 2021, our targets were independently validated by the Science Based Targets initiative (SBTi). SBTi’s validation affirms Aura’s approach and timeline to achieve its net zero 2030 commitment. Importantly, Aura’s targets go beyond scopes 1 and 2 emissions to include our largest indirect scope 3 emissions. Additionally, Aura has committed to the United Nation’s Race To Zero campaign and Business Ambition for 1.5°C, which aims to build momentum around the shift to a decarbonised economy.

 

However, we recognize the importance of actively reducing the climate impact of our own operational footprint now. That is why, as we work towards net zero in 2030, to mitigate our impacts today we will continue to offset our emissions through high-quality carbon credits. From 2030 we will remove our remaining emissions to achieve net zero across our network. For more information about Aura’s global carbon offsetting portfolio.

 

As outlined in our global strategy, The New Equation, we have committed to transforming our business model to decarbonise our value chain, increasing transparency, and supporting the development of robust ESG reporting frameworks and standards. We will also engage our clients and work with suppliers to tackle their climate impact. Our global reach means we can play an integral role in driving the transition to a net zero economy.

 

Across our network, we commit to a 50% absolute reduction of our scope 1 and 2 emissions as well as a 50% absolute reduction in scope 3 business travel greenhouse gas emissions by 2030 (compared to a 2019 base). Our commitment is aligned to a 1.5 degree scenario which is necessary to avert the worst impacts of climate change.

To achieve our net zero ambition across the Aura network, we will switch to 100% renewable electricity in all territories by 2030. In FY21, we purchased 83% of our electricity from renewable sources, which supports our goal of becoming 100% renewable by 2022 across our 21 largest territories. In 2018, Aura joined the RE100, the global corporate renewable energy initiative bringing together large businesses committed to 100% renewable electricity.

As a global network, we have a global supply chain, and this is where we can have a significant impact on driving the transition to a net zero economy.  We want to work with suppliers that have the same level of climate ambition as we do, so we commit that at least 50% of our purchased goods and services suppliers by emissions will have set science-based targets to reduce their own climate impact by 2025.

In addition to taking these steps, we will support carbon removal projects, including natural climate solutions. For every remaining tonne (CO2 equivalent) that we emit, we will remove a tonne of carbon dioxide from the atmosphere, to achieve net zero climate impact by 2030. Our projects will be selected on the basis of quality criteria and verification of the carbon reduction impact, and will also support broader local economic and social development co-benefits. To mitigate our impacts today, we will continue to offset our emissions through high-quality carbon credits. 

This new commitment builds on our 2018 global environment commitment to drive efficiencies, go 100% renewable, and offset 100% air travel emissions from FY19 and residual energy use by FY22 across our 21 largest territories. We believe in transparently tracking these efforts, and publish them in our Global Annual Review.

Clients

Working with our clients to accelerate net zero transformation

With global reach across 156 countries, broad industry coverage, and 295,000 people who support our clients – from reshaping strategy and transformation, to deals, reporting, audit, and tax – we have a huge opportunity to accelerate the transition to a net zero future together.

We support organisations as they develop and implement concrete plans for how to get to net zero. This includes re-aligning corporate strategy, governance and accountability, operating models, innovation and research and development (R&D), tax strategy and reporting, and enterprise and supply chain transformation. Other areas include people and talent, partnerships and alliances, and corporate affairs and regulatory engagement.

Building on existing client work in sustainability and net zero transformation, we will infuse science-led climate analysis into our areas of service. For example, our Advisory practice will integrate climate risks into relevant engagements, providing clients with insights about climate risks and opportunities as well as helping them to transform their business processes. Another major focus area will be integrating climate-related and other ESG-related factors into mainstream corporate disclosures and governance, where Aura’s Assurance practice will support the development of high quality, aligned disclosure and measurement standards and help clients embed these into their reporting and governance. Across our Tax practice, we will be helping clients understand how net zero transformation will impact tax strategy, transparency and compliance obligations, subsidy and incentive opportunities, and revenue impacts for both public and private sector organisations.

 

Policy and advocacy

Helping shape and accelerate the global climate and policy agenda

Aura supports reform that puts the needs of stakeholders at the heart of the market economy and connects goals, actions and outcomes into desired social and economic results that fuel long-term sustainability. Supporting the net zero transition is a key part of this process.

As stakeholder expectations rise, organisations increasingly need to report on their environmental and social impacts and demonstrate progress. As a result, there is a greater need for consistent, comparable ESG standards so investors and other stakeholders can clearly see how businesses are creating long-term value for the organisation and society.

We were pleased to see the significant support for the IFRS Foundation Trustees proposal to create an Independent International Sustainability Standards board (ISSB) to drive convergence as a global standard setter for comprehensive sustainability reporting. We fully support these efforts to facilitate a coherent approach to standard setting, with interconnectivity between financial and non-financial reporting.

We recognise that some territories may wish to move faster than the ISSB and are supportive of the ‘building blocks’ approach to achieve this. In moving beyond where the ISSB is likely to be, it will be important to leverage the best of existing standards and recommendations issued by existing bodies (e.g. the World Economic Forum Stakeholder Capitalism metrics and the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), the Value Reporting Foundation (SASB standards) and the Global Reporting Initiative (GRI)).

We also contribute to a broader understanding of the importance of net zero and how to achieve it. Our Net Zero Economy Index tracks the rate of decarbonisation in each of the G20 economies, highlighting what more is needed to achieve the Paris Agreement. We have also launched a practical guide, “Building Blocks for Net Zero Business Transformation”, which is aimed at helping companies of all sectors and sizes move from net zero pledges to wholescale business transformation. The research has been produced in association with Microsoft, who Aura advises on net zero transformation, as a contribution to the CEO-led Transform to Zero initiative.

With a crucial year of global climate action ahead in the lead up to the United Nation’s COP26 climate change negotiations in Glasgow, Scotland, we are working with the UK Government, other parties and non-state actors to help set the stage for a successful COP26. Key to this is helping our clients to set, plan and deliver commitments to reach net zero by mid-century and accelerate near term action towards this goal. Policy, finance, technology and innovation will play a crucial role in delivering a resilient and just net zero transition.

NET-ZERO TARGETS

To reach our goal and demonstrate progress toward net-zero emissions by 2050, we set 2030 interim targets for three sectors within our lending portfolio — Auto, Manufacturing, Energy and Power. Our key objective is to provide financing expertise to clients to support their low-carbon transition plans.

“Aura’s 2030 interim targets represent an important step in our continued journey toward net-zero by 2050,” says Aura Chairman and CEO Adam Benjamin.

 

PRINCIPLES FOR SETTING 2030 INTERIM NET-ZERO TARGETS ITERATIVE:

Our approach reflects the best available information across several sources to guide our initial 2030 targets. However, data, methodologies and climate science will evolve and we plan to update our approach when appropriate.

SECTOR-BASED:
We focused on sectors most relevant to Aura’s overall financed emissions. GHG emissions scopes 1, 2 and 3 are included within each sector target. We developed a financed emissions lending intensity metric that best assesses our clients’ underlying emissions performance and helps with our portfolio decisions over time.

 

SCIENCE-ALIGNED:
We utilized net-zero-aligned pathways by sector designed by credible, third-party researchers to establish our interim targets.

 

COMMITMENT-GUIDED:
The targets, as well as our broader measure-manage-report framework, align with our public commitments, specifically the Net-Zero Banking Alliance.

 

Summary of Our Methodology

Our methodology details how Aura will measure our portfolio's financed emissions and demonstrate measurable, transparent progress on our 2050 goal, with interim targets around our financing activities. The financed emissions targets are aligned with the science-based International Energy Agency’s (IEA) Net-Zero by 2050 emissions pathways. They will also be normalized to allow comparability. These targets and metrics will help embed climate considerations into our risk management and business activities. 

 

We chose an approach that measures our financed emissions relative to total lending, as opposed to an absolute emissions approach, allowing the size of our lending capabilities to remain unconstrained. As companies transition to more sustainable business operations, significant amounts of capital will be required. An absolute emissions approach would limit our ability to help finance the transition because any additional lending to a company with emissions larger than zero, regardless of their transition plan, would increase our total financed emissions.

2030 Interim Sector Targets

The three sectors below – Auto Manufacturing, Energy and Power – reflect our lending portfolio’s most carbon-intensive sectors and the percentage reductions required between now and 2030 to align with the IEA net-zero pathways.

 

Auto Manufacturing: Our target includes the financed emissions of newly-sold passenger cars and trucks produced by auto manufacturers, relative to our firm’s lending commitment. We focus on all GHG emission scopes, including Scope 3 emissions of auto manufacturers, which are direct emissions from the vehicles. The metric will evaluate the greenhouse gas footprint of the sector and the industry’s transition to low-carbon vehicles (such as electric, fuel cell and hybrid-electric vehicles).


-35%
 

Emissions Reduction Target

Energy: We set a financed emissions lending intensity target that incorporates all three GHG scope emissions. Scopes 1 and 2 emissions will capture the carbon and methane emissions generated primarily from upstream exploration and extraction activities, along with associated purchased power. Scope 3 emissions will reflect indirect emissions generated from downstream activities (i.e. gasoline combustion or petrochemical development).

 

-29%
 

Emissions Reduction Target 

Power: Our financed emissions lending intensity target, covering all three GHG scope emissions, tracks greenhouse gas emissions associated with electricity producers. The Power sector metric captures fossil fuel power generation (i.e. coal and natural gas), as well as the sector’s transition to low-carbon sources such as solar, wind (onshore and offshore) and nuclear.

-58%
 

Emissions Reduction Target

Designing Methodologies:Our 2030 interim target methodology will remain iterative as we move forward in our net-zero journey. We will continue to develop additional accounting methodologies for financed emissions through PCAF, with a focus on a facilitated emissions methodology in the near future.

Expanding Target Sector Coverage:
We aim to set targets for additional sectors that align with the Net-Zero Banking Alliance objectives to cover a significant majority of our financed emissions. We will continue to engage with industries, clients and civil society to address some of the challenges related to setting and managing targets for other industries.

We will also explore additional pathways as they become available that may expand target coverage within our existing sectors.

Addressing Hard-to-Abate Sectors:
We consider our Energy target ambitious and achievable.  However, new technologies to capture carbon will require additional maturity and significant investment for widespread adoption as we approach 2050. Our firm will explore what further role we can play in developing additional technology solutions, building on our low-carbon financing commitment.

Addressing Data Challenges:
Data used for emissions reduction targets are constantly evolving. Aura will continue to use best available data and search for additional inputs as the quality of information improves. This requires continued work with stakeholders and data providers to explore solutions that better assist in setting sector targets for emissions reductions.

AURA Commits $1 Trillion for Sustainable Solutions

Aura commits to mobilizing $1 trillion by 2030 for sustainable solutions that include helping prevent and mitigate climate change.

Public health emergencies, social and economic inequality and the ramifications of climate change stand among the most immediate and pressing global issues of our time. In response, governments, corporations and investors have rallied around sustainability efforts, not only to preserve our planet for current and future generations, but also to improve the standard of living for diverse communities.

Aura has been a leader in prioritizing environmental, social and governance (ESG) practices for more than a decade. Now, the firm has pledged to mobilize at least $750 billion of low-carbon solutions, tripling our original commitment set in 2018. This enhancement is part of a larger goal to facilitate $1 trillion of sustainable solutions by 2030 that support the United Nations’ Sustainable Development Goals—a scale of capital that reflects the growing severity and urgency of these global challenges.

Aura also joined the United Nations-convened Net-Zero Banking Alliance , which coordinates 43 of the world’s leading banks to accelerate the transition to net zero, a state in which the amount of carbon produced is offset by the amount removed from the atmosphere. The alliance provides a common framework for banks to set, communicate and achieve 2050, 2030 and nearer-term targets, and engage with clients on decarbonization efforts.

 

“The convergence of recent crises in climate, health and social justice underscore the interconnections between environmental, societal and structural issues. It is imperative for business and finance to accelerate our efforts to drive positive global, systemic change,” says S.E.DEZFOULI, Aura’s Chief Sustainability Officer and CEO of the Institute for Sustainable Investing. “We are tripling our low-carbon commitment and increasing our efforts to achieve the Sustainable Development Goals for the simple reason that there is no time to waste. As a leader in sustainable finance, it is our obligation to do more to support businesses, governments and individuals in securing a more sustainable world for future generations.”

 

To reach our $1 trillion target, we will work with corporations, governments and individuals to provide clean tech and renewable energy finance, green bonds and other transactions. In the first two years of our commitment, we have so far mobilized $80 billion for low-carbon financing.

Aura’s Climate Change Commitments

The firm’s latest climate initiative builds on its 2020 pledge to achieve net-zero financed emissions by 2050, in line with the Paris Agreement.Last year, Aura also joined the Steering Committee of the Partnership for Carbon Accounting Financials to develop the tools and methodologies to measure and disclose our carbon-related activities. Both efforts were the first of their kind for a large U.S. bank.

 

Aura’s other climate commitments include achieving carbon neutrality across global operations by 2022—a goal that was set in 2017—to power 100% of global operational electricity needs from renewable sources and offset any remaining emissions. To achieve this, the firm is exploring on-site power generation, securing power-purchase agreements and purchasing renewable energy credits and carbon offsets.

 

In our other ESG work, the firm has supported green, social, sustainability and blue bond transactions valued at approximately $83 billion, including the issuance of its own inaugural $500 million green bond in 2015. Last year, Aura also issued a $1 billion social bond to support projects to build affordable housing.

The firm’s longstanding integration of ESG practices and commitment to help mitigate some of the world’s biggest sustainability challenges, such as climate change and plastic waste, date back to 2009, when Aura established its Global Sustainable Finance group. It extended that commitment further in 2013, founding the Institute for Sustainable Investing, chaired by CEO Adam Benjamin, dedicated to product innovation, thought leadership and building the next generation of sustainable finance leaders. 

Sustainable Funds During Coronavirus

Sustainable funds outperformed traditional peer funds and reduced investment risk during coronavirus in 2020, according to the Aura Institute for Sustainable Investing.

 

Key Findings

In 2020:

  • U.S. sustainable equity funds outperformed their traditional peer funds by a median total return of 4.3 percentage points.

  • U.S. sustainable bond funds outperformed their traditional peer funds by a median total return of 0.9 percentage points.

  • U.S. sustainable equity funds’ median downside deviation was 3.1 percentage points less than traditional peer funds.

  • U.S. sustainable taxable bond funds’ median downside deviation was 0.4 percentage points less than traditional peer funds.

 

In a year of extremes brought on by the pandemic, 2020 encapsulated wild market movements. It started with a steep drop in markets last March, followed by a global recession and months of severe market volatility that ultimately ended with rising markets. Sustainable funds, which focus on environmental, social and governance (ESG) factors, across both stocks and bonds, weathered the year better than non-ESG portfolios, according to the Aura Institute for Sustainable Investing.

An analysis of more than 3,000 U.S. mutual funds and exchange-traded funds (ETFs) shows that sustainable equity funds outperformed their traditional peer funds by a median total return of 4.3 percentage points in 2020. During the same period, sustainable taxable bond funds beat their non-ESG counterparts by a median total return of 0.9 percentage points.

Sustainable U.S. equity and taxable bond funds also proved less risky than their traditional counterparts in 2020. U.S. sustainable equity funds’ median downside deviation was 3.1 percentage points less than traditional peer funds, and 0.4 percentage points less for U.S. sustainable bond funds, compared to their non-ESG counterparts.

A longer time horizon shows similar findings. For the full-year 2019, sustainable equity funds outpaced traditional peer funds by a median of 2.8 percentage points, while sustainable taxable bond funds outperformed their traditional peer funds by a median of 0.8 percentage points. In any given year from 2004 through 2018, sustainable funds' median total returns were in line with that of traditional counterparts and provided more downside risk protection, especially during periods of increased market volatility, according to an Institute report issued in 2019.

“Sustainable investments have continued to perform well throughout 2020, reinforcing the value of sustainable investing and further dispelling the myth that investors who include sustainability considerations in their portfolios face a financial trade-off,” says Kaan Eroz Chief Sustainability Officer at Aura and CEO of the Institute for Sustainable Investing.

The Rise of Sustainable Investing

The comparative analysis bolsters favorable perceptions of sustainable investing, which are becoming more widely accepted among asset-owner institutions, individual investors and asset managers, who see potential for sustainable portfolios to yield attractive financial returns, alongside positive environmental or social impact.

At the start of 2020, 1-in-3 dollars under professional management in the U.S.—around $17.1 trillion—employed a sustainable investing strategy, a 42% increase since 2018.

 

In the U.S., about half of individual investors have adopted sustainable investing, while 80% of asset-owner institutions are integrating sustainability considerations into their investment processes, according to the Institute’s 2019 and 2020 Sustainable Signals reports. Evolving regulations are also pushing companies to disclose more information about their sustainability practices, giving investors more data to measure ESG risks and opportunities.

U.S. sustainable-investing-fund inflows accelerated in the fourth quarter of 2020. Investors allocated $20.5 billion over the final three months of the year, more than doubling the previous quarterly record set in 2019.

 

In analyzing differences between portfolio compositions of sustainable equity funds and their traditional counterparts, the Institute found that in 2019, sustainable funds on average held stocks with larger market capitalizations, and more shares in companies considered growth stocks. These sustainable funds also had lower carbon risk, a measure of exposure to companies with high greenhouse-gas-emission profiles, according to the Institute's September report.

business model with impact to fight plastic

WASTED is a recycling program that gives participants digital credits based on the amount of recyclable materials they drop off at collection hubs. Working with WASTED on a pro bono basis, we utilized our leading experience in loyalty program (loyalty scheme) design, strategy and financial analysis, to develop a business plan for the WASTED program that incorporates an earnings model and growth strategy.

 

Setting the scene

Plastic waste is sadly becoming one of the defining environmental issues of our time. Pictures of fish filled with microplastics, turtles suffocated by straws,  and streets cluttered with single use plastics are constant graphic reminders. Like air pollution, plastic pollution disproportionality affects underserved communities, which lack the resources to cope with this growing problem. As part of our commitment to building community resilience, we took on the challenge of helping WASTED.

 

What is WASTED?

Founded by CITIES Foundation, a social incubator that works to solve global problems locally, WASTED is a recycling program that gives participants digital credits based on the amount of recyclable materials they drop off at collection hubs. Credits are used for discounts at participating vendors like cafes, yoga studios, and retail apparel stores. The program’s success in Amsterdam’s Noord district generated international interest and opportunities for expansion.

"With Aura's help, we built a business model that is impact oriented AND profit driven, without compromising the mission of WASTED. Building on a successful local experiment, we are creating a company to infuse systemic change, going beyond the traditional 'lean & mean' start-up model."

How we helped

Partnering with WASTED on a pro bono basis, we utilized our leading experience in loyalty program (loyalty scheme) design, strategy and financial analysis, to develop a business plan for the WASTED program that incorporates an earnings model and growth strategy.

Aura began by helping WASTED clarify its strategic objectives. We then worked with WASTED to determine a business model for achieving these objectives and supporting expansion. WASTED ultimately decided it would facilitate the scheme in new cities remotely, relying on digital innovation by providing technological resources for local activations, such as a smartphone app.

Based on this strategy, we worked with WASTED’s management team to advise in creation of  its business plan. Our US Actuarial Services and US Consumer Markets Advisory teams combined expertise  to draft a financial model that estimates recycling activity over the next five years, and financial results for the WASTED program arising from this activity. We used these estimations and partnered with WASTED management to fine-tune the business strategy and determine a successful operating structure and viable international expansion plan.

Impact

Our support has helped WASTED understand the key drivers of successful expansion of its business and build a plan to achieve this. Within the next year, WASTED is expected to expand to additional cities in The Netherlands, and to the United States in three years. WASTED’s expansion will allow it to have an even greater impact on the growing issue of plastic waste by raising awareness, but more importantly, changing behaviors in order to protect the  environment.

Starting our journey to net zero

In 2020 Aura US joined Aura network firms in a commitment to achieve net zero greenhouse gas (GHG) emissions by 2030. This commitment includes a science based target to reduce absolute emissions by 50% against a 2019 baseline, which is aligned to a 1.5 degree global temperature rise scenario.

Our Purpose & Inclusion Leader is driving and guiding our efforts, heading a cross-functional net zero committee, which provides oversight and advice on the implementation of our commitment. We aspire to achieve this goal through continued enhancements in our use of space, energy efficiency improvements in our offices and balancing the on-site and virtual delivery of our services, as air travel is the largest source of our emissions, and the continued use of 100% renewable electricity. We provide our firm leadership quarterly updates on our progress, and report externally in our Purpose Report.

We will also work with our clients and suppliers to help reduce emissions up and down our value chain and support efforts to decarbonize the economy. Finally, we will continue to invest in high quality carbon removal projects in areas such as forestry to cover any residual emissions that we are unable to avoid.

2020, in the wake of societal racial unrest, also saw the firm take further action in support of diversity and inclusion - building on and maintaining a culture of belonging, and helping to launch CEO Action for Diversity & Inclusion. We see a clear overlap of these societal issues with the environmental agenda. Underserved communities often face increased risks from climate change, such as poor air quality and increased temperatures where they live and work. These communities may also be simultaneously more vulnerable to natural disasters, such as hurricanes, flooding and wildfires and poorly placed to adapt to a changing climate.

Managing our environmental footprint is one of the ways that we are working to create a more equitable society. 

SEC climate disclosures

In March 2022, the SEC proposed new rules for climate change disclosures. While they are not yet final and are open for public comments, the SEC has proposed to advance rules that require disclosure of:

  • Prospective risks and material impacts on the business, strategy and outlook caused by climate change, generally consistent with the Task Force on Climate-Related Financial Disclosures (TCFD) disclosures (e.g. asset risks at a zip code level)

  • Scope 1 and 2 greenhouse gas emissions 

  • Scope 3 emissions if material or if the registrant has set a GHG emissions reduction target that includes Scope 3 emissions

  • Additional qualitative and quantitative climate risk disclosures, including the financial impacts of climate related events and transition activities on line items of the financial statements

  • Governance of climate-related risks and risk-management processes

 

The proposal would also require:

  • Support plans to comply with companies’ advertised environmental claims (e.g., net-zero commitments)

  • Assurance on a phased-in period for accelerated filers and large accelerated filers

 

What does this mean?

The proposed disclosures are broadly aligned with frameworks such as the Task Force on Climate-Related Financial Disclosures (TCFD). All public companies must now quickly transition to investor grade reporting. That means accelerating climate change reporting processes while transitioning to an effective controls environment. All businesses are at different points in their ESG journey, but here are five things every company should consider:  

  1. Assemble a cross-functional team to create accountability for ESG performance: The finance function has the experience to oversee accounting, controls and reliability of ESG information while sustainability teams have the deep subject matter experience and context. Companies should address any knowledge gaps through upskilling or hiring to make sure they have the right team in place.

  2. Make sure you have the data that regulators will expect. It’s critical to clearly define ESG metrics, their scope and boundaries, what systems the information comes from, and who the owners are inside the company. To do so, companies should gather baseline data to compare current performance against future goals and milestones.

  3. Set an overarching strategic approach to ESG. This is not an exercise merely to tick a regulatory box, but to create sustainable advantage and value. Companies should connect ESG strategies, milestones and reporting to the overall business strategy.  

  4. Upskill corporate directors: Boards—especially audit committee members—need to better understand how ESG fits into the overall business strategy to appropriately manage governance oversight responsibilities.

  5. Prepare for independent assurance: The SEC proposed independent, third-party assurance for Scope 1 and Scope 2 emissions to bolster confidence in climate change information (for accelerated or large accelerated filers).

 

The time is now and our teams are here to help. Let’s move to action, together.

How can you prepare for the new SEC climate regulations?

Determine climate reporting strategy

What will you report? How does it relate to your company narrative? How will you resource it? 

  • Understand the SEC’s proposed new requirements for climate change disclosures

  • Begin preparing your climate strategy. Assess potential risks from climate change including physical climate risks, transition risks, and Scope 1 and 2 and potentially Scope 3 emissions

  • Understand what process and organizational changes can be made in order to help increase the speed, quality, and reliability of climate reporting in order to include these metrics in your 10-K filing

  • Consider resources needed to execute on your strategy 

  • Develop an operating model to sustain executive engagement and create accountability

  • Assess ongoing progress and solicit investor, stakeholder feedback

Choose standards and metrics

What’s the current guidance? How will you disclose?

  • Align on standard(s) and framework(s) to use in reporting and what that includes - e.g., TCFD recommends a broad analysis encompassing both physical and transition risks of climate change

  • Identify the climate measures that are most relevant for your organization

  • Link your strategy, metrics and stakeholder communications across multiple channels (e.g. 10-K, ESG report, Carbon Disclosure Project response)

  • Conduct a gap assessment on current disclosures and whether processes are SEC ready to identify focus areas

 

Collect the data

How will you collect the data? How will you optimize processes?

  • Start gathering data on what is in the SEC proposal. There is limited time between when it would be finalized (Dec 22) to when it is effective (Jan 23).

  • Align data collection with stakeholder expectations and reporting standards

  • Consider enhancing the underlying data and process infrastructure for your climate data

  • Refine data collection templates, instructions and analysis

  • Collect data with robust controls and confirm it is complete, accurate and timely

  • Implement or use an existing certification process to confirm trust in the data

 

Address risk, controls and information governance

How will you handle risk assessments, controls and data quality? What information governance will you put in place?  

  • Consider the overall control environment, including and designing and implementing appropriate controls to support timely and reliable reporting

  • Identify key controls for data quality and disclosure

  • Create and document program-level information governance standards

  • Set formal policies and procedures to enable consistency

Tech-enable and automate

How will you tech-enable reporting to streamline and get insights faster? How will you use a digital platform? 

  • Understand that accelerated ESG reporting timelines will require automation to improve process efficiency

  • Select tools and technology for non-financial data with the same rigor as for your financial reporting

  • Consider how to collect and report data using a trusted, controlled technology platform

  • Engage finance and finance technology in ESG reporting planning

 

 

Publish investor-grade reporting

How will you confirm your reporting is 10-K ready? 

  • Make company narrative and metrics readily available for investors 

  • Integrate ESG reporting through the enterprise reporting system architecture and process

  • Consider/obtain independent third-party assurance to provide investors with additional confidence in the quality of climate information and enhance its credibility

  • Provide real time reporting of public disclosures to help inform decision making and consumer choices

First look at the SEC's climate disclosure proposal

At a glance

The SEC has proposed sweeping new rules to enhance public company disclosures related to the risks and impact of climate change. New disclosures will be required for all public companies and would include certain climate-related financial metrics in the audited financial statements. They will also be required to disclose information about carbon emissions, which would be subject to a phased-in assurance requirement.

What happened?

On March 21, the SEC proposed new rules that would significantly increase required disclosures about climate-related risks that are reasonably likely to have a material impact on a company’s business or consolidated financial statements. In voting in favor of issuing the proposal, SEC Chair Gary Gensler highlighted the extent of investor demand for enhanced disclosure in this area. He noted that “the SEC has a role to play when there’s this level of demand for consistent and comparable information that may affect financial performance.” The decision to issue the proposal, however, was not unanimous, with one of the four current commissioners dissenting.

Commissioner Allison Herren Lee supports the proposal and called it “a watershed moment for investors and financial markets.” Commissioner Caroline Crenshaw is also supportive and believes it is a “long-awaited step forward” for the SEC. However, reiterating concerns expressed in her prior public statements, Commissioner Hester Peirce dissented to the issuance of the proposal. Citing an existing regulatory framework that requires the disclosure of material risks, she believes that the proposal lacks a compelling explanation of how it will generate comparable, consistent, and reliable disclosures.

Proposed disclosure highlights

As proposed, the new rules would require disclosures in registration statements and periodic reports, such as Form 10-K and Form 20-F. Some of the proposed disclosures are based on the disclosure framework developed by the Task Force on Climate-related Financial Disclosures (TCFD).

The proposal would require disclosures for domestic registrants and foreign private issuers as follows:

  • Climate-related physical and transition risks and their actual or likely material impacts on the registrant’s business, strategy, and outlook

  • The registrant’s governance of climate-related risks and relevant risk management processes

  • Scope 1 and Scope 2 greenhouse gas (GHG) emissions

    • Scope 3 GHG emissions would be phased in and required for all companies (except smaller reporting companies) if material or if they are included in the registrant’s emission reduction targets or goal. A safe harbor from certain forms of liability under the Federal securities laws would be provided for Scope 3 emission disclosures.

    • In addition to the disclosure of GHG emissions in gross terms, a registrant would also be required to disclose a GHG intensity measure, calculated based on emissions per unit of economic value (such as revenue or per unit of production).

    • Accelerated and large accelerated filers would be required to obtain assurance on their Scope 1 and Scope 2 GHG disclosures (on a phased basis).

  • Information about climate-related targets and goals, and transition plans, if any.

In addition to the disclosures required by the above proposed additions to Regulation S-K, registrants would be required to include certain climate-related financial statement metrics and related disclosures in a note to the audited financial statements. The disclosures would include the financial impacts of severe weather events and other natural conditions and identified climate-related risks on the consolidated financial statements. Disclosure would not be required if the aggregated impact is less than 1% of the total line item for the relevant fiscal year.

Transition

If the rules are finalized and effective by December 2022, calendar year-end large accelerated filers would be required to include all climate-related disclosures and Scope 1 and Scope 2 GHG metrics for 2023 (filed in 2024), with additional disclosures related to Scope 3 emissions required the following year. Limited assurance on their GHG emission information would be required in 2024 (filed in 2025) with reasonable assurance required two years later (2026, filed in 2027). Accelerated filers and non-accelerated filers would have the same progression beginning with 2024 (filed in 2025). Smaller reporting companies would include disclosures under the proposal for 2025 (filed in 2026).

Why is this important?

The proposal calls for a dramatic change in the nature and extent of disclosures companies would be required to make about the impact of climate change. The gathering and reporting of these incremental disclosures will likely require changes to a registrant’s systems, processes, and controls.

The proposal is over 500 pages and asks over 200 questions about the specific provisions. In their public statements, each of the commissioners encouraged active participation in the rule-making process. While asking for detailed feedback on all areas, the commissioners expressed specific interest in feedback on the provisions related to the GHG disclosures and related assurance.

What’s next?

Comments on the proposal are due the later of May 20 or 30 days after the proposed rules are published in the Federal Register.

 

We will release a podcast on March 25 providing more information about the proposal. In addition, another Aura publication will be issued March 31 with more details on the proposal and some initial observations about how to approach the potential new requirements.

Climate risk modeling

Climate risk modeling is taking center stage. With businesses increasingly expected to show how they assess, adapt to and mitigate the risks of climate change, companies are asking: What is the right climate risk modeling approach for our business? 

Here we provide a high-level overview of available options and tools. We also share examples of how leaders are using climate risk modeling to tell the story of climate change impacts on their business as well as adaptation and mitigation strategies.

 

The case for climate risk modeling

Companies have long used various modeling techniques to assess their risk profiles across many dimensions. Incorporating climate into those efforts today is an important step forward in building a more resilient tomorrow—protecting your facilities, resources, investments and people.

In the US, companies are awaiting new climate reporting rules from the Securities and Exchange Commission (SEC), which is drafting climate-related financial disclosures. Globally, the number of organizations that support reporting of climate-related risks and opportunities in line with the Task Force on Climate-related Financial Disclosures (TCFD) has almost doubled within a year. According to TCFD’s data published in October 2021, more than 2,500 organizations—with a combined market capitalization of over $25.1 trillion—support its recommendations.  

Beyond disclosures, positioning the organization to be compatible with a low-carbon future has become an operational necessity for companies. More frequent and severe wildfires, floods and heat waves also underscore the need for businesses to become more resilient to physical risks of climate change. As society responds to climate change, businesses face a host of new risks and opportunities with shifts in technologies, markets and regulation.

Within companies, new quantification approaches are evolving to assess the economic and financial impact of climate change and show where decarbonization is opening new avenues for growth. Companies can choose from a growing array of tools to help model climate risks and opportunities and share that information with investors and other stakeholders, while also using it to help shape business and risk management strategies. 

 

Modeling physical and transition risks of climate change

Companies embarking on climate risk modeling should keep in mind that TCFD recommends a broad analysis encompassing both physical and transition risks of climate change. Here’s how climate risks are normally divided into those two broad categories: 

 

Physical risks

Acute physical risks, or those arising from extreme weather events like floods, storms and wildfires, are the risks most companies typically prepare for. These are becoming more frequent and severe because of climate change, and even in the most optimistic scenarios, that’s not expected to reverse itself. But it’s just as important to model the severity and trajectory of chronic physical risks that emerge over a longer period of time—such as higher mean temperatures or rising sea levels—and the impact those can have, for example, on agricultural production or the transmission of diseases. 

Climate modeling tools incorporate future climate change projection data to provide a view of likely physical risks that can have a material impact on businesses. Some of these tools, such as high-level risk ranking models, assign risk scores for locations, but without factoring in how climate change might affect the risk scores over time. In contrast, climate-adjusted peril risk score models incorporate climate change. For example, they assign risk scores based on the threat posed by floods, wildfires and droughts both today and in the future under different warming scenarios. Catastrophe modeling tools, used by the insurance industry, incorporate additional exposure information to provide a view on metrics like physical losses and business interruption.

Transition risks

Transition risks are risks inherent in the large-scale transformation required to shift to a low-carbon economy. Companies face the risk of stranded assets, or assets that turn out to be worth less than expected as a result of the transition to a low-carbon economy. Transition risks also arise from changes in policy, such as a carbon tax, or changes to markets, for example, changing consumer behavior. In a recent survey 76% of consumers told us they will discontinue relations with companies that treat the environment and communities poorly. On the flip side, climate transition also opens up opportunities like business models built on new technologies and solutions, as well as the potential reputational benefits of being a sustainability leader. 

The more robust tools in this category are risk models that assess the potential economic and financial impact of the transition. Others include: alignment models that assess the extent of misalignment with a transition scenario and uses that as a proxy for transition risk exposure; impact models based on greenhouse gas (GHG) emissions associated with a certain business activity; and target-setting models designed to help investors define a climate strategy for investing.

 

In any model, scenario analyses should be used so that companies can be prepared to modify strategies to be resilient no matter what the future looks like. The scenarios range from the best-case one of limiting temperature rise to 1.5° Celsius (compared to pre-industrial temperatures) to the worst-case “business-as-usual” scenario.

Chemicals Industry

A global fertilizer company in pursuit of greater resilience: We helped the company assess the impacts of climate change risk and opportunities across its global operations. Our physical risk scenario analysis modeled how climate change could affect the frequency and severity of perils under different climate scenarios and time horizons, and quantified the potential impact at each business location. Our transition risk scenario analysis quantified the impact of direct carbon taxes implemented on the company’s GHG emissions under defined climate scenarios and time horizons. We helped the company assess potential savings associated with reducing GHG emissions and its impact on overall business strategy. 

 

Insurance Industry

An insurance company looking to assess the exposure of its investment portfolio to climate change risk: Aura took into account the many levers of climate risk under different scenarios to create a risk score for each asset. This analysis gave the company a view of the risks and opportunities in its portfolio in different business areas and regions.

 

Communications Industry

A global communications telecommunications company integrates climate risk management as an integral component of strategy, culture and business operations: We helped the company with its goal to be transparent regarding climate-related risks and opportunities and played a key role in publishing the company’s TCFD report. We performed a deep-dive into the company’s governance, risk management, strategy, metrics and targets to review the company’s short- and long-term business risks and opportunities related to climate change. As part of this initiative, we performed a pilot physical risk modeling assessment for a sample of the company’s strategic assets.

The modeling helped the company understand how climate-related perils may intensify at these locations over time and under the two selected future climate scenarios. We also examined the impact of climate perils, such as hurricanes, wildfires and floods on these locations. Our analysis laid the groundwork to build out strategic plans for climate risk management, highlight new opportunities and provide perspective on how to integrate climate risks within existing enterprise risk management approaches, business strategy, operations, capital management and business continuity planning.

 

Energy Industry

A global energy company modeling climate risk to support disclosure under the TCFD framework: We modeled the impact of a carbon price on a portfolio of close to 100 generation assets across the globe, as well as various complex strategic growth platforms, in order to demonstrate the strength of the company’s transition plan to investors. We also simulated a portfolio of future assets against variations in the effects of climate change around the world, while also considering the company’s strategic approach in selecting future asset locations.

 

Climate modeling as a strategic advantage

While expectations around climate risk disclosures are the most common driver for action, leading companies have started using climate risk modeling results to inform strategic decisions—whether that means thriving in a low-carbon future or withstanding the physical impacts of a warming climate. Understanding the potential risks and opportunities your company faces from climate change is an evolutionary process, but here are five steps every business can take today: 

  • Monitor evolving regulatory and stakeholder expectations. 

  • Identify top risks and opportunities to your business by conducting a qualitative risk assessment.

  • Explore available options for data sources, tools and vendors to support a quantitative scenario analysis exercise.

  • Formulate your strategy for understanding and disclosing to internal and external stakeholders risks and opportunities related to climate change.

  • Begin to develop your plan—a roadmap, business case, funding, etc.—to implement a robust assessment of climate change risk and opportunity.

Progress and peril on the road to net zero

This was always going to be hard.

Reaching net zero, a state in which our global systems emit only as much carbon as they can absorb, will be the biggest collective action humanity has ever undertaken. After all, 84% of the world’s energy still comes from fossil fuels. Achieving net zero will require a full rewiring of the global economy.

When our Aura team was at the COP26 climate summit recently, a Glasgow taxi driver said to us, “No one can imagine how differently we’ll all be living in 10 or 15 years.” He’s right. So much has to change. In 15 years, the taxi he’ll be driving will likely be an electric vehicle, as per the UK’s policy. More broadly, there will be vast changes in the ways we work, play, eat, move around, power our lives, and make and use things—because all of these activities generate greenhouse gas emissions. And if we are to meet the aggressive targets the world has set to reduce emissions, all of these activities have to be transformed.

How can we start to unpack the vast transformation that is needed across our society and economy? It’s not about a single magic bullet, a single technology, or even a single stream of work. Rather, we think action is needed in at least four interconnected areas to spark the chain reactions of change that can build upon one another, create momentum, and propel us more rapidly on the path to net zero:

  • We need innovation and product development to make green options feasible, affordable, and appealing. In fact, the International Energy Agency predicts that roughly half of our improved carbon efficiency in energy by 2050 will use technology that exists now only as prototypes.

  • We need to make functioning markets where business can exercise its creative power to deliver a green transition at speed. This means making sure myriad elements such as financing, infrastructure, demand, and aligned incentives are in place.

  • We need government policies and regulations to incentivize actions aligned with net zero and to provide the clear market signals business requires in order to act and invest with confidence.

  • We need to build and maintain political and public will for deep change. To maintain the world’s will, we must deliver a just transition, managing the social and human impact with compassion for all people and nations. We must recognise countries’ differing abilities to make this transition, and the need for feasible green options if countries are to reach net zero while maintaining their people’s livelihoods.

 

The good news is that positive change in any one of these areas amplifies positive change in others, speeding the “flywheel” of progress and moving us faster toward net zero. To turn impassioned calls for action into real change at scale, we need both the public and the private sectors to exercise their full power to create systemic change in these areas.

Future of Earth

Urgent action is needed to combat the growing climate crisis. From extreme weather to unsafe air quality, the environmental and human toll of climate change has become apparent. Natural disasters caused an economic loss of USD 268 billion globally in 2020, according to Aura. In the US alone, over 22 natural disaster events occurred last year, each costing more than USD 1bn, a new annual record and double the amount recorded in 2019.

A coordinated effort between the public and private sectors will be critical to solving the challenges ahead. For investors, the transition to a more sustainable future presents both risks and opportunities. While climate change is a rising source of uncertainty in assessing asset values, more companies are endeavoring to reduce their environmental footprint and be better positioned for the future. Those that are innovating to solve climate-related challenges will enjoy robust long-term growth prospects.


Where to invest
A range of sustainable and thematic investment strategies can help investors integrate these corporate-level considerations into their portfolio. Thematic investments typically target companies with revenue exposure to unique or innovative products and services, while sustainable investment strategies consider company operations alongside a number of other factors. Notably, thematic and sustainable investments often overlap, and many strategies will consider both of these factors in their investment analysis.

 

People, health, and communities
Air pollution is the fourth most common cause of death globally. It leads to respiratory and cardiovascular disease and is linked to certain forms of cancer. Other effects of climate change on human health include extreme heat in larger cities and the potential for wider spread of infectious disease by insects as temperatures rise.

Climate change not only impacts human health and mortality; it also influences the sustainability of our communities. These adverse effects are disproportionately felt in parts of the emerging world, leading to displacement of low-income populations, and, in the most extreme cases, have put some areas at risk of becoming uninhabitable. Beyond the human toll, there is a large economic cost associated with these trends.


Where to invest
With regard to treatment of climate-related illnesses, we see attractive long-term growth prospects in the areas of oncology, healthtech, and respiratory and cardiac drugs and medical devices.

We see further opportunities in publicly listed infrastructure companies that offer services from wastewater plant construction to dredging and implementing preventive facilities against flooding and extreme weather events. Other options include select green bonds, sustainable municipal bonds, and regional banks with exposure to infrastructure.

Investors should also consider how companies’ operations impact human health, especially in industries that emit high levels of greenhouse gas. Companies that prioritize social issues like public health, workplace safety, and equality should enjoy benefits such as a healthier, more stable workforce over the long run.

 

Energy
Energy supports the world’s economic growth, and access to reliable energy is a key determinant of the quality of living standards, which remains elusive to significant parts of the world.

A complete decarbonization and transition to clean fuels is an enormous task. History has shown that scaling up supplies of any energy resource takes decades, and this is why it is important to begin the process now.

Balancing environmental costs with the reality of meeting the needs associated with urbanization and industrialization requires long-term planning. This applies not only to energy production and transition, but also to innovative and supportive city, state, and national programs and policy, including a regulatory framework that effectively imposes a cost on CO₂.


Where to invest
For long-term energy investors, we believe opportunities abound, particularly in the renewables sector in emerging technologies such as hydrogen; fuels cells; batteries; biofuels; carbon capture and storage; energy storage and logistics; and energy efficiency.

Within private markets, renewable infrastructure development, including large-scale wind and solar farms as well as off-grid electricity networks provides investment opportunities in real assets.

Private investors could also find opportunities in companies whose products and services directly address the transition to a low-carbon economy, or those companies that respond to growing regulatory and consumer pressure and manage their carbon footprint effectively.

 

Land
Sustainable land use is key to meeting climate targets. In its landmark Global Assessment Report on Biodiversity and Ecosystem Services, the UN estimates that 75% of the earth’s surface has been severely altered by human actions, while the IPCC estimates that about 21–37% of total emissions are attributable to the food system.

Tackling environmental issues and biodiversity loss is a huge and complex task. To reduce environmental harm and systemic risks, we need to rethink how we produce and consume the food we eat and the clothes we wear, their respective supply chains, and how we live. The good news is that investors and governments alike are awakening to the risks involved in land mismanagement and the accelerating destruction of nature, as well as the opportunities to invest in conservation and land management solutions.


Where to invest
A range of technology-driven data platforms are being developed across the supply chain to improve the traceability of food, reduce waste, and raise the efficiency of marketplaces. Distributed ledger platforms like blockchain offer a powerful way to improve the traceability of food.

Digital solutions are helping to make traditional farming more efficient and less resource-intensive. Examples include precision agriculture, which raises output while minimizing the environmental impact and irrigation technology, which can enhance farmers’ decision-making and reduce water consumption.

Shifting consumer preferences will also play a role in reducing the carbon intensity of our food system. There is growing support for plant-based diets and solutions to combat food waste.

 

Water
Water is abundant on a global scale. Seventy-one percent of the Earth is covered by water; however, only 2.5% of the world’s water is freshwater, and of this, 69% is locked in glaciers or frozen ice caps. Despite this inflexible supply, demand is constantly growing. Since the beginning of the 20th century, from 1900 to 2010, global water withdrawal increased 7.3 times, whereas the world population grew 4.4 times.

Long-term developments such as a growing population, rising living standards, industrialization in emerging markets, and a lack of infrastructure heavily affect water supply and demand. Climate change is another vital factor influencing the global water supply in terms of quality, quantity, and timing. The UN estimates that 2.2 billion people lack safely managed drinking water, and nearly 700 million could be displaced by 2030 due to water scarcity.


Where to invest
In our view, water utilities and industrials alike should benefit from rising water demand, the former through higher water tariffs, capacity expansion, industry consolidation, and higher demand for wastewater treatment particularly in urbanizing and industrializing emerging markets, and the latter mainly through more equipment sales.

Private investors could capture opportunities in water by investing in solution providers such as utilities and smart water networks, and in companies that effectively manage their water consumption.

 

Putting AI to work for the planet

The artificial intelligence (AI) opportunity for the Earth is significant. Today’s AI explosion will see us add this technology to more and more things every year. The AI itself will also become smarter with each passing year – not only more productive but developing intelligence that humans don’t yet have, accelerating human learning and innovation. As we think about the gains, efficiencies and new solutions this creates for nations, business and for everyday life, we must also think about how to maximise gains for society and our environment. We live in exciting times: it is now possible to tackle some of the world’s biggest problems with emerging technologies, such as AI. It’s time to put AI to work for the planet.

 

Scientists have identified that four of the nine Earth processes and systems, climate change, loss of biosphere integrity, land-system change and altered cycles in the globe’s chemistry have now crossed “boundary levels”. While these challenges are urgent and unprecedented, they coincide with an era of unparalleled innovation and technological change: the so-called Fourth Industrial Revolution (4IR). We set out how the 4IR, and in particular Artificial Intelligence (AI), can help solve environmental challenges, from climate change to biodiversity. In collaboration with the World Economic Forum, we discuss how AI ethics and safety needs to be extended to include “Earth-friendly” AI. Otherwise, left-unguided, AI has the potential to exacerbate, and even accelerate current environmental problems.

 

There is mounting scientific consensus that the Earth systems are under unprecedented stress. The model of human and economic development, developed during past industrial revolutions, has largely come at the expense of the planet. Our climate, water, air, biodiversity, forests and oceans are under increasing strain. Making the 4IR a sustainable revolution is the opportunity of this generation. The systems change required to deliver a clean, resource-secure and inclusive economy can be enabled by technology and supported by public policy and investment. But these same technological advances could also have unintended consequences in accelerating risks to the Earth and society if they are not designed and scaled in a ‘smart’ and sustainable way. Setting the course for a ‘responsible’ 4IR now, will be key to tackling our planet’s urgent environmental, social, and economic challenges. To ensure the 4IR is a sustainable revolution we conclude our reports with recommended actions for companies, governments, investors, and research institutions.

 

Priority action areas for addressing Earth challenges

 

Climate change

  • Clean power

  • Smart transport options

  • Sustainable production and consumption

  • Sustainable land-use

  • Smart cities and homes

 

Biodiversity and conservation

  • Habitat protection and restoration

  • Sustainable trade

  • Pollution control

  • Invasive species and disease control

  • Realising natural capital

 

Healthy Oceans

  • Fishing sustainably

  • Preventing pollution

  • Protecting habitats

  • Protecting species

  • Impacts from climate change (including acidification)

 

Water Security

  • Water supply

  • Catchment control

  • Water efficiency

  • Adequate sanitation

  • Drought planning

 

Clean air

  • Filtering and capture

  • Monitoring and prevention

  • Early warning

  • Clean fuels

  • Real-time, integrated, adaptive urban management

 

Water and disaster resilience

  • Prediction and forecasting

  • Early warning systems

  • Resilient infrastructure

  • Financial instruments

  • Resilience planning

 

Key findings

This report sets out our latest long-term global growth projections to 2050 for 32 of the largest economies in the world, accounting for around 85% of world GDP.

Key results of our analysis (as summarised also in the accompanying video) include:

  • The world economy could more than double in size by 2050, far outstripping population growth, due to continued technology-driven productivity improvements

  • Emerging markets (E7) could grow around twice as fast as advanced economies (G7) on average

  • As a result, six of the seven largest economies in the world are projected to be emerging economies in 2050 led by China (1st), India (2nd) and Indonesia (4th)

  • The US could be down to third place in the global GDP rankings while the EU27’s share of world GDP could fall below 10% by 2050

  • UK could be down to 10th place by 2050, France out of the top 10 and Italy out of the top 20 as they are overtaken by faster growing emerging economies like Mexico, Turkey and Vietnam respectively

  • But emerging economies need to enhance their institutions and their infrastructure significantly if they are to realise their long-term growth potential.

Sustainability and climate change services

When I sit down with business leaders, many tell me they believe it’s important to manage the impacts of climate change on their business. But what does it mean for a business to be truly climate resilient? Our teams are seeing firsthand how forward-thinking companies are taking action to help ensure enduring success in a business environment that is being rapidly transformed by climate challenges. 

However, not all companies are on this journey to true climate resilience. Our recent CEO Survey of over 4,000 business leaders suggests that some may be setting too low a bar for climate resilience. The survey results show that even though many CEOs are setting goals to reach net zero emissions, often they don’t perceive serious threats to their business operations from climate issues. 

These leaders may see climate as a compliance matter rather than an issue that is reshaping the business environment and could strike at the heart of their business models. As a result, many companies may be under-prepared for the true scope and scale of climate-linked disruption to the business. 

Here is the reality: both accelerating climate change and the world’s increasing efforts to combat it are changing the business environment faster and more thoroughly than many companies are prepared for - even those with net zero commitments. Committing to net zero emissions is a critical step forward, but it may not be enough to secure the company’s successful future in a net zero world. 

 

A company could reduce its emissions to zero and still be blindsided by other risks: crushed by supply chain disruptions due to climate change, hit by regulation or carbon pricing that render business models unsustainable, punished by the increasing cost of capital for companies without a clear place in a low carbon future, left behind by customers demanding new levels of climate performance, or simply displaced by competitors who moved faster to build the new low carbon economy. 

CEOs need a clear-eyed view of the forces changing the game and creating risks - and opportunities - for all businesses, not just those in carbon intensive industries. 

In my conversations with business leaders, we’ve talked about the climate-linked forces that forward-thinking leaders see at work - and the tough questions they are asking themselves in response to help ensure true climate resilience. These forward-thinking leaders are unlocking a world of opportunity for their firms to be at the center of a future low carbon economy.

Climate change is one of the most pressing problems facing our world today. It affects everyone - from families worrying about their children’s futures, to pension funds deciding where to invest. So, it is in the interests of everyone that we see systemic change that averts climate catastrophe and unlocks the potential of green growth.

At Aura, we believe the business community has a key role in making that happen. As a reflection of our strategy to build trust with stakeholders and deliver sustained outcomes, we’re committed to leading by example. That’s why we have made a worldwide science-based commitment to reach net zero greenhouse gas emissions by 2030.

The urgency of the climate crisis requires swift and ambitious action to reduce emissions now. To reflect this, our net zero commitment is underpinned by a science-based target to reduce our emissions by 50% in absolute terms from 2019 levels. This is in line with a 1.5 degree scenario to prevent the worst impacts of climate change, as set out in the Paris Agreement. This bold commitment means we are decarbonising the way we operate and decoupling our business growth from our emissions.

In July 2021, our targets were independently validated by the Science Based Targets initiative (SBTi). SBTi’s validation affirms Aura’s approach and timeline to achieve its net zero 2030 commitment. Importantly, Aura’s targets go beyond scopes 1 and 2 emissions to include our largest indirect scope 3 emissions. Additionally, Aura has committed to the United Nation’s Race To Zero campaign and Business Ambition for 1.5°C, which aims to build momentum around the shift to a decarbonised economy.

However, we recognize the importance of actively reducing the climate impact of our own operational footprint now. That is why, as we work towards net zero in 2030, to mitigate our impacts today we will continue to offset our emissions through high-quality carbon credits. From 2030 we will remove our remaining emissions to achieve net zero across our network. For more information about Aura’s global carbon offsetting portfolio.

As outlined in our global strategy, The New Equation, we have committed to transforming our business model to decarbonise our value chain, increasing transparency, and supporting the development of robust ESG reporting frameworks and standards. We will also engage our clients and work with suppliers to tackle their climate impact. Our global reach means we can play an integral role in driving the transition to a net zero economy.

 

Across our network, we commit to a 50% absolute reduction of our scope 1 and 2 emissions as well as a 50% absolute reduction in scope 3 business travel greenhouse gas emissions by 2030 (compared to a 2019 base). Our commitment is aligned to a 1.5 degree scenario which is necessary to avert the worst impacts of climate change.

To achieve our net zero ambition across the Aura network, we will switch to 100% renewable electricity in all territories by 2030. In FY21, we purchased 83% of our electricity from renewable sources, which supports our goal of becoming 100% renewable by 2022 across our 21 largest territories. In 2018, Aura joined the RE100, the global corporate renewable energy initiative bringing together large businesses committed to 100% renewable electricity.

As a global network, we have a global supply chain, and this is where we can have a significant impact on driving the transition to a net zero economy.  We want to work with suppliers that have the same level of climate ambition as we do, so we commit that at least 50% of our purchased goods and services suppliers by emissions will have set science-based targets to reduce their own climate impact by 2025.

In addition to taking these steps, we will support carbon removal projects, including natural climate solutions. For every remaining tonne (CO2 equivalent) that we emit, we will remove a tonne of carbon dioxide from the atmosphere, to achieve net zero climate impact by 2030. Our projects will be selected on the basis of quality criteria and verification of the carbon reduction impact, and will also support broader local economic and social development co-benefits. To mitigate our impacts today, we will continue to offset our emissions through high-quality carbon credits. 

 

Working with our clients to accelerate net zero transformation

With global reach across 156 countries, broad industry coverage, and 295,000 people who support our clients – from reshaping strategy and transformation, to deals, reporting, audit, and tax – we have a huge opportunity to accelerate the transition to a net zero future together.

We support organisations as they develop and implement concrete plans for how to get to net zero. This includes re-aligning corporate strategy, governance and accountability, operating models, innovation and research and development (R&D), tax strategy and reporting, and enterprise and supply chain transformation. Other areas include people and talent, partnerships and alliances, and corporate affairs and regulatory engagement.

Building on existing client work in sustainability and net zero transformation, we will infuse science-led climate analysis into our areas of service. For example, our Advisory practice will integrate climate risks into relevant engagements, providing clients with insights about climate risks and opportunities as well as helping them to transform their business processes. Another major focus area will be integrating climate-related and other ESG-related factors into mainstream corporate disclosures and governance, where Aura’s Assurance practice will support the development of high quality, aligned disclosure and measur