This article was produced in partnership with Zurich
Mandatory Climate Disclosure reporting in Australia could usher in a step change in how businesses assess the supply chain when the scheme comes into effect as early as 1 January 2025 for some large entities.
With transport accounting for 21% of Australia’s carbon emissions, one group of companies likely to feel the impact sooner rather than later will be firms with motor fleets.
Peter Johansson, principal risk engineer at Zurich Resilience Solutions (ZRS), believes the introduction of detailed sustainability and assurance standards for climate-related financial risks and opportunities will be comparable in effect to when nutritional criteria markers first appeared on supermarket food 25 years ago.
“It's all going to be about differentiating your value-add in a sustainable world manner,” he said.
Like supermarket shoppers looking for healthier choices in the 1980s, companies today contracting the services of firms with motor fleets are largely in the dark about how sustainable a firm’s practices might be on everything from fuel efficiency to low risk driving.
Even if a company is not in scope for climate reporting, they may need to provide data as part of the supply chain of in-scope businesses.
The range of criteria that can be factored into what is a climate related risk is large, but Johansson knows that people are looking for practical and actionable advice given that annual reporting periods for large entities begin from next year.
“The UN has 17 Sustainable Development Goals (SDGs) adopted by all UN member states in 2015. And then the environmental, social and governance (ESG) framework has many factors under each pillar of E, S & G– now, there's a lot of elements in there. You're not going to be able to tackle them all at once,” he explained.
There are many questions about how the disclosure scheme will work, including such important details as how carbon footprint measurement and calculation will be qualified and assured. Johansson admits that it is still a bit uncertain in terms of objective criteria but that internal assessments are a good place to start for most firms with motor fleets.
“Determine your organization's risk tolerance – set what you will and won't tolerate, then do your risk assessment on your business ESG aspects… then determine your threats and opportunities against these company values and visions,” he said.
It is also important to clock up some early wins.
“I would suggest picking three to six ESG factors to work on and those that are going to have the biggest bang for their buck… gather the low hanging fruit first, get some momentum, prove you can do something.”
There is no single formula for how a company within the supply chain, transport or logistics industry might tackle climate change risk, and achieving a perfect outcome will almost always be out of reach.
“[You can get those initial] ones to mature, but you'll never get them completed. Once you get into them, and they mature, then reevaluate and pick the next ones.”
Johansson believes that a tipping point will come when firms everywhere suddenly start to take notice of the reporting and build it into their decision-making criteria.
The foundation of the ZRS motor fleet risk assessment is Zurich Risk Grading covering more than twenty individual risk factors that influence fleet risk performance over seven categories – from recruitment of drivers, training, and assessment, through to vehicle maintenance, as well as management systems and processes.
ZRS objectively assess, report and advise on motor fleet risk and provide brokers and underwriters with a tool to guide fleet operators away from risk prone practices. With many elements of climate risk (and the greater ESG) reporting yet to be standardised, ZRS is in an advantageous position to assist fleet operators as almost all of their grading risk factors align with the pillars of the ESG framework.
Having access to related data that can be communicated in a clear and impartial manner with benchmarks gives Zurich a massive head start on understanding the practicalities of any formal climate disclosure and ESG reporting scheme.
Johansson sees many aspects of mandatory disclosure for commercial motor dovetailing with eco-safe driving, a style of strategic, tactical and operational fleet management championed by the National Road Safety Partnership Program (NRSPP) which reduces cost for fleets, promotes safety, and is sustainable for the environment.
Using eco-safe driving techniques, such as considering lifetime costs in vehicle procurement, route selection and smooth driving, all help to reduce fuel consumption, one of top three costs that a logistics business will carry.
Zurich is a founding partner of the NRSPP, and eco-safe driving is inherently covered in ZRS motor fleet risk assessments.
“If you look at it cohesively and collectively, from a motor fleet perspective [climate disclosure reporting] should be business as usual for those that are already in the eco-safe driving space,” said Johansson.
While Mandatory Climate Disclosure reporting will help business managers quantify what aspects of fleet emissions they are responsible for, ESG elements and their reporting will be the underlying engine of change that pushes operators towards eco-safe driving and long-term sustainability.
ZRS is well established to support in this space, with its own dedicated team of climate resilience experts who support organisations to tackle climate change risk and better understand how it might affect their operations, strategy, and financial position.
There is no shortage of data when it comes to assessing risk in commercial motor, a fact that often overwhelms clients trying to improve metrics. There is either so much information that it can’t be rendered useful or there are so many action points that organisations get stuck plugging just a few holes in the dyke and never reach the others.
Johansson says it is easy to get distracted by implementing quick patches for isolated parts of the value chain and becoming trapped in a silo.
Telematics and fleet management are two examples. Neither of these systems by themselves will adequately get you started on mandatory disclosure or ESG reporting. A key part of managing climate-related risk in commercial motor is meaningful business intelligence dashboards that integrate information across multiple systems.
“Telematics and fleet management are crucial, but a lot of telematics and fleet management systems don't talk to each other.”
Organising data in a meaningful way to make information useful will be a key part in meeting disclosure requirements.
“The single biggest challenge for most transport companies is to bring together their different platforms and streams of data into comprehensive dashboards. The way of the new world will be very much about what we call ‘data janitors’ and ‘data plumbers’ – the people who clean and connect to give you meaningful data.”
Environmentally friendly products often come at a premium. But studies show that people are willing to pay between 8-37% more for a green product depending on culture.
Johansson uses another food analogy to illustrate how the change will play out.
Most of the major fast-food chains have increased their meal prices over the last 20 years due to consumer pressure to improve nutritional value. Nowadays there is much less difference between the price of these fast-food chains and the neighbourhood takeaway restaurant, so much so that many people have started to opt for a local player more often.
“It is not until consumer or consignor pressure is applied that the ESG underperformers are really incentivised to lift their game.”
Climate disclosure reporting will similarly empower more people to make different choices, forcing the laggard firms to also change.
“I'm an optimist in this space… if it's sustainable in the long term and we can see it actually delivering into the future and perpetuating itself, and not just depleting the world of its resources, it's got to be a good thing,” said Johansson.
Zurich Australian Insurance Limited is the local general insurance arm of Zurich Insurance Group – a leading multi-line insurer that serves global and local markets. For 100 years, Zurich has combined global expertise with local care to provide leading wealth and insurance solutions. Zurich’s local general insurance business is built around a fully intermediated broker advice business. This focus is paired with a state and regional presence, empowering local teams to make local decisions on the ground. We are passionate about our purpose to ‘create a brighter future together’ and use our resources to contribute to communities through disaster resilience, community partnerships and sustainability.
