Create scenarios and set measurable targets - INTERMEDIATE

Cost
LOW
Cost
MEDIUM
Cost
HIGH
EFFORT
low
EFFORT
medium
EFFORT
HIGH
IMPACT
low
IMPACT
MEDIUM
IMPACT
HIGH

Integrating sustainability considerations into your financial planning processes starts with setting goals:

- Baseline - You need a starting point for comparisons. Sometimes it is difficult to go back in time to gather historical data, and the baseline will be the year you start measuring. It is recommended to choose from the last 2 years or the current year.

- Setting targets - Once you have a good understanding of your environmental performance, you should consider your business objectives such as growth plans, expansion and other strategic decisions that will impact on your sustainability goals when setting targets.

It is also important that the targets are science-based and ambitious enough to meet external expectations. Science Based Targets is the go-to source for insights on how to set climate-related targets. For smaller companies at the beginning of their sustainability journey, a logical approach to selecting achievable milestones is a good start.

Taking into account the business outlook as well as the scientific guidelines and milestones, you will have ambitious but realistic goals. To be credible, targets should include both long-term and interim goals. Overly ambitious long-term commitments based on techniques that are at an early stage of development will not be well received.

- Scenario building - With the selected materiality topics and targets in place, your organisation is in a position to apply scenarios that may impact your results.

Mandatory sustainability reporting standards such as IFRS S2 and ESRS 2, require listed companies to disclose climate-related scenario analysis. There are many external factors outside the company’s control that can affect your P&L, and management needs to be aware of them. If you have already carried out a Risk & Opportunity Assessment, the analysis should be linked to your business objectives to gain insight into their financial impact and the potential cost of inaction.  (see the section "strategic analysis" for the mandatory requirements and the Risk & Opportunity Assessment)

Create business scenarios based on increased water, waste and electricity costs and potential taxes as well as opportunities such as market access, branding, grants, and green loans.

20%

of the companies who report their carbon targets do not disclose any link to an external target (such as a 1.5˚C scenario)
(KPMG)