Shifting goalposts: Most businesses unprepared for 'demands of climate reporting', IR veteran warns

The TCFD framework – the now disbanded reporting system whose role was taken over by the International Sustainability Standards Board – became a UK requirement in 2022. And Trustpilot, which had gone public in London during the pandemic, was immediately out of compliance. It wasn’t ready to report on TCFD the next year, either. By the time the firm was compliant, TCFD was almost out, and new rules and regulations were in. 

Although Trustpilot was working toward TCFD compliance, with a post-IPO double-materiality assessment proving particularly useful to that process, recent research suggests some firms find the prospect of a Corporate Sustainability Reporting Directive (CSRD) non-compliance fine easier than being ready for the mammoth EU regulation.

Derek Brown, former head of IR at Trustpilot, talks to IR Magazine about what it took to get the firm over the TCFD threshold, why Scope 3 was the firm’s real pain point and why IR isn’t the natural seat for ESG. 

‘Based on my last eight months at Trustpilot, I probably spent more than 60 percent of my time on TCFD and climate-related reporting,’ says Brown, who left the firm in April this year, having helped take it through its IPO and well into its life as a public company. 

This statement points to the increasing role IR is playing in the ESG arena, with the IR Magazine Global IR Salary & Careers Report showing that almost half (49 percent) of IROs globally are also responsible for ESG/sustainability. At 45 percent, this figure is lowest among North America-based IR professionals but rises to 58 percent and 61 percent in Europe and Asia, respectively.  

The weight of regulation

Brown has been in IR for 14 years and says the profession is changing. ‘[IR] today is hugely demanding in ways we could never have foreseen,’ he says. ‘Mainly as a result of extra disclosure regulations and requirements, but also because the role has developed into a much more strategic position within the business.’

Brown didn’t take ‘ownership’ of the ESG role at Trustpilot – he spearheaded the environmental column – but the workload was still significant. 

‘We’ve got these new accounting standards coming in: IFRS S1 and IFRS S2 climate reporting, CSRD and the related double-materiality requirements, transition planning, and so on,’ he says. ‘It is certainly interesting doing all the climate risks and opportunities work but I don’t really consider it to be part of the core IR role over the longer term: IR should be talking to investors and crafting the investment case.’

He adds that at smaller firms in particular, it can be difficult to petition for the additional resources required. He also notes that many companies – again pointing to smaller firms in particular – are struggling to adjust to or even understand what’s required of them under shifting reporting standards and regulations. 

‘I think most businesses, particularly small companies, are not prepared for the demands of climate reporting and transition planning,’ he says. ‘Many don’t understand that it’s now the law that businesses have to have a credible plan showing how they can transition to a net-zero carbon economy [in the UK].’

Tackling Scope 3

Brown explains that Trustpilot had conducted a double-materiality assessment when it completed its IPO, something that was hugely helpful going forward. That process ‘spurred us to take action,’ he says, with the firm implementing a system that allowed it to track emissions. 

‘We used a platform called Watershed, where you upload your carbon data into the system, and it gives you a dashboard readout that helps you understand your carbon footprint and where your pain points are,’ details Brown. ‘With that as a starting point, we were able to see that if we were going to reduce our carbon footprint meaningfully, it had to be through reducing Scope 3 emissions.’

And as great as it might be to know you don’t have a huge Scope 1 footprint to bring down, this presented its own hurdles in both internal buy-in and the practicalities of actually bringing down those tricky emissions. 

‘It was sometimes a challenge to get the team to understand that this isn’t about whether we burn a lot of fuel or whether we are manufacturing things and shipping them around the world, creating a big carbon footprint,’ explains Brown. ‘For an internet business like Trustpilot, around 80 percent or 90 percent of carbon emissions are Scope 3, which is really hard to deal with because it becomes about changing suppliers, how you travel for business, employee commuting habits. These things are really tough for any business to change.’

Laptops and hotel picks

Armed with data that showed where Trustpilot needed to make changes, Brown took a granular approach. He went to the finance team to talk about how business travel is booked, for example – and whether it could have a sustainability filter on it. 

‘Usually travel-booking systems are configured to show you the cheapest cost option,’ he explains. ‘But what we’ve got to do is move to a world where it’s showing you those cheaper options while also highlighting the most sustainable choices – for example, hotels that may not be the cheapest but that use green energy or don’t wash towels every day.’

He also spoke with the head of IT and operations who is ‘the guy who selects the vendor when we buy laptops.’ Brown needed to find out whether sustainability was part of that decision-making process? ‘Because it ought to be,’ he says. 

There are also difficult conversations to be had. Brown points out, for example, that traveling business class produces three times more CO2 than flying economy. ‘So we should be asking our employees at every level to minimize travel and conduct meetings via Zoom, where possible – or [saying that] if travel is absolutely necessary, it needs to be economy class, for example,’ he says.

Beyond the scope of IR

Even as investor relations takes on the ESG role – or has that role thrust upon it – Brown says: ‘What I’m describing goes well beyond IR, it goes well beyond finance. It goes into the very heart of the operations of a business.’

And he doesn’t feel IR is the natural ‘owner’ of ESG. Instead, his opinion is that ‘the IR person needs to be involved with and knowledgeable about the ESG strategy – ideally ensuring it’s all co-ordinated properly, and maybe have responsibility for a piece of it.’

He says the Trustpilot approach was largely a success: the firm set up a climate risk and opportunity steering group, which reported into the audit committee, with board oversight. The head of risk became responsible for ESG strategy, with three pillars under him: Brown had responsibility for environment, the company secretary was responsible for governance and the head of people and culture was responsible for the social side of it.

What’s crucial, says Brown after his months-long immersion in ESG, is that the assessment of your climate risks and opportunities fits within your existing enterprise-risk framework.

‘In your annual report, you’re already describing the risks and opportunities you face as a business,’ he notes. ‘Within the existing scoring matrix of that framework, you have to then fit in the climate risks and opportunities. So your risk team needs to be all over that. Then it’s about the financial impact, so your finance team needs to be involved. Then it’s about board oversight, because this isn’t done in a little bubble in IR. The board has to be seen to be really taking a hands-on role, taking accountability for this.’