Isobel Wild [00:00:07]:
This is the state of sustainability podcast brought to you by altruistic. Today we're going to get back to our usual format of talking about the market highlights. In this week, we're going to talk about SBTI's policy shift on carbon credits. We'll then go into a topic, deep dive and talk about the effective strategies for navigating and streamlining regulatory sustainability reporting, which sounds boring, but I promise listeners we will try and make it as exciting as possible. Saif. Hey.
Saif Hameed [00:00:38]:
Hey, Izzy. How are you doing?
Isobel Wild [00:00:40]:
I'm good. I wanted despite, you know, all the challenges that we faced this morning, be it a very early morning podcast, me having no coffee, I'm going to add another slightly sad point onto our list, which is what's going on with all the weather? Like, I'm just scrolling through the headlines and it's quite frankly, pretty depressing. It seems like we've got in Thailand, Laos, Vietnam, Cambodia and the Philippines, like punishing, punishing heat of in between 44 to 49 degrees. In Australia, there were headlines saying near unlivable extreme heat poses national security risk. And then on the flip side, you've got Kenya, whose flood toll rises. And, you know, roads, agriculture, homes, everything is being destroyed by floods. And also there are huge floods in southern China as well. So I don't know, Saif, if you've ever experienced climate anxiety, but at like a kind of melting point of what I'm feeling right now, I'm slightly crippling.
Isobel Wild [00:01:46]:
What are your thoughts?
Saif Hameed [00:01:47]:
Yeah, you know, actually, every now and then, I get asked whether I think the world is going to be okay in the end. And it's a weird question to get asked, and I'm surprised. I've been asked it more than once, and my answer is always no. I think this is all going to end horribly badly. But the way I think about it is that this can keep getting worse fast or it can keep getting worse slowly. And the latter is better. If you think about the actual impact of this, I think it's easy for one to get used to this as just the new normal. The analogy of the boiling frog, basically.
Saif Hameed [00:02:29]:
This is a horrible analogy, actually. It now seems totally out of sync with the times, but where you put a frog in the water and you keep raising the temperature to boil the frog, and the frog doesn't notice until you've reached boiling point. You see what I mean? Totally. The look on your face as he tells me that this analogy is from a different generation. But, you know, I think that we're raising a new generation of people that is just used to the idea of weather volatility, and it's a bit uncomfortable that that's the case. Speaking personally, you know, I think I mentioned this on previous episodes, Izzy, but my farming business that I shut down recently was a pretty serious victim of climate change, of volatile weather patterns. And I think it's a relevant example for many of our listeners who buy from similar companies or operate similar companies, where the challenge we faced was that in Pakistan, we would get these sort of intermittent heat waves and flooding. You'd basically get a heat wave.
Saif Hameed [00:03:28]:
There would be melting ice caps. The rivers would then overflow with the excess kind of water capacity that would just create this massive flooding. And if you think about an agricultural business, both of those are horrible. The crop cannot survive beyond a certain range of temperature. And then also, if you have this massive flooding, it also can't survive. And so we would be operating on something like maybe a 15% net margin or less, which is still reasonably high, I think, in agriculture. And then you'd get a massive loss of yield, 30% or 40% of your yield, getting taken off by the heat wave. And the year after year, you just can't sustain that.
Saif Hameed [00:04:10]:
And then you'd get these random events like, we had a massive invasion of locusts. You can't make this up. Yes, locusts as in the biblical plague. And the locusts had kind of migrated. This was a big topic at the time. A few years ago, the locusts had migrated away from their normal breeding ground, or whatever it was, and kind of ended up in our part of Pakistan. And you actually had people feasting on these locusts at some point as well, because it was like a new protein source that had arrived. But in the context of our farm, they just devoured all the flowers and there's all kinds of horrible stuff that is coming our way.
Saif Hameed [00:04:46]:
I think there's obviously agricultural yield being impacted, and business productivity, like I mentioned, there's the fact that you just can't have human beings living in 49 degrees celsius. So I think we're going to see some pretty serious migrations. You already have havoc being played out with real estate prices. Bangladesh, for example. If you kind of look at the price of real estate as a result of the rising water levels in some areas, it's just become ridiculously expensive. I think there's just so much to come that we are not prepared for. I'm not surprised that anyone has anxiety.
Isobel Wild [00:05:24]:
On the flip side, are there any exciting innovations or trends? Maybe in the interest of time? Can you pick one that can move us onto a bit of a higher optimistic note.
Saif Hameed [00:05:36]:
That's a really tough call. I think that if I was to really dig deep, I would say that with the energy transition, and I think that we're actually seeing a few big thematic transitions. There's an energy transition, which is obvious. It's to renewable energy storage, potentially hydrogen. But I know there are different schools of thought on that. There's a second transition, which is the food transition. So let's talk about regenerative agriculture, that kind of stuff. There's a packaging transition towards circular economy and reuse and recycling.
Saif Hameed [00:06:11]:
And I think that these three. And then, sorry, there's a mobility transition towards, again, electric transport, but also shared transport and so on. I think these four big transitions are really the defining transitions. Sustainability and our ability to execute them well is going to be highly correlated with our ability to, I wouldn't say get ourselves out of this mess, but let's just say moderate the impact of the mess that we've created. And I think what's exciting is that each of these four transitions also gives us an opportunity to invent something better, to invent something that is actually more efficient, more cost effective, more user friendly. And you can see this in each transition has its own way of playing this out. If you look at the energy transition, one of the big things I was excited by when I was an energy consultant back in the day was the transition to distributed energy systems, peer to peer energy systems. That's quite an exciting transition, where every home, every individual can become a prosumer, a producer and a consumer of power.
Saif Hameed [00:07:18]:
If you think about the packaging transition, there are all kinds of new services, new offerings that will come out of that. Like the idea of not buying a product in a one way transaction, but having almost like a license based relationship with a product where it's kind of returned, you get a refill or another dip at it. The food transition, I think, is going to be interesting to see and kind of how we interact with the natural environment in a more sustainable way. What that does for nature, what that does for the aesthetic value of nature, in addition to the, you know, let's say the infrastructure value, the mobility transition, we're already seeing it reshape how people experience transport. If you think about, you know, your use of shared transport, whether it's like an Uber or a lime bike or a zipcar, or any of these other sort of different formats that people are experimenting with, it's a different user experience that can be quite interesting. So I think that having this big catalyst of climate change can actually also result in some interesting new systems. So that would be my positive take for the morning.
Isobel Wild [00:08:22]:
Saif, you broke my rules. I gave you one and you took four.
Saif Hameed [00:08:26]:
Oh no. Oh no.
Isobel Wild [00:08:28]:
Oh no. Ok, I'll allow it. This time. Let's get on to the market. Highlights so what happened a few weeks ago, the science based targets initiatives announced a sudden policy shift on carbon credits for most of you. You know that previously SDTI called for emissions reductions only, allowing for residual and hard to abate emissions to be offset. But in like a kind of wild U turn, the SBTI board announced that carbon credits would be allowed to count as progress on net zero targets. This had immediate shockwaves and divided the climate community, but also SBTI itself, where the majority of staff penned an open letter in protest.
Isobel Wild [00:09:16]:
So I'm just going to run through the two sides of the debate, and then Saif would love to throw it back to you for some thoughts. But on one side, I think people are really disgruntled by this for two main reasons. It cuts climate ambition by buying carbon credits. Far easier than doing the hard work of value chain decarbonization. Another point is that it damages the trust of the system. The sudden announcement and bypassing of standard procedure within SVTI makes it much harder to trust as an organization. And Saif, I'd love to kind of put a pin in that, because I think you'd have thoughts on it. And then on the other side of the argument, some people actually quite like it, and they received this news well, and this is because it means more engagement with SBT.
Isobel Wild [00:10:03]:
So scope three is, as we all know, very difficult. This is struggling to achieve their near term targets or putting off setting sbts at all. Making the targets easier to achieve is helpful as it encourages more companies to act quickly. And another one is scaling up of the carbon market. So there are many worthy carbon credit projects. I know we've all probably seen the Guardian articles which have scathed a lot of the projects out there, and that might be right. But by having less carbon, the atmosphere is ultimately a good thing. I think the underlying thing there's to say is that actually nothing has happened at this point.
Isobel Wild [00:10:42]:
Credits are not yet counted towards progress. No changes have been made. And these changes will have to go through the usual routes of consultation and governments. But this has caused shockwaves. Saif, what are your thoughts on this? Like chaos?
Saif Hameed [00:10:58]:
Yeah, many thoughts, Izzy. Many thoughts. I guess the first thing, maybe just to clarify, is SBTI has been very specific in saying that this is not a policy shift. If you look at the kind of the different layers of statements or the different stages of statements. The first was a statement issued by the board of trustees, and then very shortly after, there are clarifications made by SBTI as an organization that there has not been a policy shift yet. And so what you have is you have some sort of an indication of leaning or position by the governing body, and behind that you have a process for, let's say, policy shift that has not yet been completed by SBTI. And so we're expecting more news on this over the summer. SBTI has a sort of a structured process to go through before they actually make policy shifts.
Saif Hameed [00:11:54]:
And so, you know, just to clarify, this is not yet a policy shift. I think there's a few things to unpack here. You know, let's say one is whether or not this is in fact going to be the position of SBTI and whether there will be a policy shift. That's like the first level of thing to discuss. I think there's a second which is, let's call it the moral argument or the right or wrong aspect of it, whether this policy shift is merited or a good thing. And I think there's a third piece, which is how SBTI managed itself through this affair and whether they've acted in the right way or the wrong way. And kind of SPTI as an organization, I think there are these three aspects of it. On the first one, right now, it looks like there isn't a policy shift.
Saif Hameed [00:12:38]:
And so right now the jury is out. Let's see what happens. So that's kind of a quick step forward there on the second piece, which is whether this is the right decision or the wrong decision. Like, frankly, I think you could make a compelling argument either way. If you look at the argument for, and I think the argument for has probably been best made by. There's a recent article published in Reuters. I think one of the co authors is the CEO of the we mean Business Coalition. This article makes, I think, an eloquent case for the new SPTI, let's say proposal or suggestion or indication.
Saif Hameed [00:13:16]:
So an argument in favor of more extensive use of credits. And the argument, basically, if you synthesize it, goes along the lines of saying not enough money is moving into climate change, we need more money moving in. We know this, we need radically larger sums. And actually we're getting a bit moving into climate change versus what we need. The majority of companies are struggling to set targets, measure their emissions, even do the basics, let alone put meaningful capital behind changing their profile of their emissions. And given that you have, therefore, this big delta between what we need and where we are, it doesn't make sense for us to keep the bar super high such that people get discouraged. And it does make sense then also for us to try and make it easier to put money into play to fighting climate change. And this is like, I think, I hope the authors will forgive me if I've done them injustice, but this is my synthesis of the argument, and I think it's a good argument.
Saif Hameed [00:14:19]:
I do think all these things are true. And if you look at the carbon markets and the carbon markets today are basically seen as the carbon markets used to be seen as two component parts. One is the involuntary offset market, and the other is the voluntary offset market. In recent times, we've more or less stopped talking about the involuntary market, which is interesting, because the involuntary market still is, I think, much larger, which is cap and trade schemes in California, Europe, etcetera. And we talk much more about the voluntary market. And so if you look at this sort of voluntary carbon market, this has definitely been one of the more interesting innovations in sustainability over the last ten years, where you can actually put sizable amounts of capital to play. It's messy. There are a lot of different intermediaries, there's a lot of certification hell, etcetera.
Saif Hameed [00:15:08]:
But it is a market mechanism to put capital to work in fighting climate change. It doesn't work all the time, but I think it works much of the time, let's say. And there are a lot of projects that are good projects that benefit from capital coming to them that would not otherwise get off the ground. I have previously myself co founded, maybe this is is full disclosure or whatever. I've previously co founded a nonprofit that also operates in the carbon markets and that acts as a project developer, sort of a project advisor, and in some ways also a broker. And so my nonprofit, I make no money from it. No one makes any profit from it. It is a full nonprofit.
Saif Hameed [00:15:49]:
And the purpose is to restore ecosystems that have been destroyed by things like flooding and other natural disasters. And so the revenue streams that offsets and credits provide helps create a lot of good work. And so when I look at that project, I notice that that project would just not be viable, it would not get off the ground without carbon markets, and the voluntary markets in particular. So I think there is definitely this argument. At the same time, there is an argument on the other side, coming from many different stakeholders. And I think that the most vocal stakeholders I'm seeing are suppliers in the supply chain, those material and ingredient and input suppliers are saying, look, we are actually waiting to start channeling finance towards decarbonization in the value chain. We are positioning ourselves to be able to capture that opportunity. We are positioning ourselves to be able to pitch more sustainable product into our value chains to our customers.
Saif Hameed [00:16:47]:
All of a sudden, the powers that be are reducing the barriers to that sort of capital, exiting the value chain altogether and going towards potentially very ambiguous purposes for which there is no proper way to judge effectiveness. And I think there's been a lot of noise created by companies going out and buying the cheapest offsets. There are some companies out there, and I won't name them, that are known for buying the cheapest chips, offsets at scale, like the five dollar offset at a million times over, which has very poor quality verification, very uncertain impact. And you have all these suppliers in the value chain saying, well, actually we need to start with capital moving here. And if the argument is that not enough money is moving into emerging markets, those suppliers are also sitting in emerging markets, actually. And the money that they deploy into the value chain would also be deployed in cotton farming, in agriculture, in other interventions in those emerging markets. So I think those two arguments are both quite potent, frankly.
Isobel Wild [00:17:47]:
Yeah, well, I feel like there's actually quite a bit to pick up on there. And we have done previous episodes on insets and surfaced the points around how whilst the standardization around insetting and accounting for reductions, isn't there, there's a bit of a paralysis going on about where people should invest money, where people shouldn't. If we look at it quite simplistically and say insets versus offsets, I think previously, I don't want to put words in your mouth, we've said that insets is actually a much better route to go down. But off the back of this U turn, has your opinions changed on that and perhaps we get to hear why?
Saif Hameed [00:18:30]:
Personally, no. So my opinion is that there is a role for offsets. My opinion is that the priority for offsets should be manifest lower than the priority for in value chain reductions. And I have a few reasons for that. Primarily, my reason is around. If you look at the offset market as a whole, I don't think history has any parallel for what we're trying to create here. We're trying to basically create a parallel process of taxation on business. And the proceeds for that taxation will be collected and deployed by non state actors.
Saif Hameed [00:19:13]:
And that's like a fairly unique setup. Effectively, it is a tax. Carbon offsets are a tax. You're basically saying the business is going to commit to a target and then it's going to pay a tithe every year against that target. So it is a tax. It functions economically as a tax. It is not going to be collected by governments. It is instead going to be collected by brokers, middlemen, etcetera.
Saif Hameed [00:19:35]:
It's not going to be verified by governments. It's going to be verified by intermediaries, again, non state actors, nonprofits, certification bodies. And the money is then going to be deployed, in many cases completely abstract of the actual value chain and commercial relationship that the business that is paying that tax normally has with any other party. And I'm sure that we can make it work. Human beings are ingenious creatures. We can definitely make this work. It's not really a technology problem. So I was going to say we have the technology, but it's not a technology problem.
Saif Hameed [00:20:09]:
It's more like a legal and contracting problem and a verification and certification problem. And we can solve these things. But if you look at getting in value chain reductions to work at scale, that is going to be just much easier. And we haven't done it at any reasonable scale in any robust way. But if we can set up the systems to do it, those systems are going to be more reliable because there is a parallel for those systems, which is supply chain finance, and there is existing infrastructure to leverage, which is the commercial contract between a company and its supplier. You have a lot of the basic stuff already in place to build something much bigger on that. Thats why I think it should have priority. I do think theres a role for offsets because maybe theres going to be a transition period.
Saif Hameed [00:20:56]:
Theres not so much money you can channel in all at once into invalid chain reductions. There is certainly great projects that need offset financing. So I do think there's a role. I just think that the priority needs to be very clearly established and appropriate quotas, let's say, apply.
Isobel Wild [00:21:11]:
So the resounding message is, hold strong. Don't change your strategy because of this news eruption, because things will settle out.
Saif Hameed [00:21:20]:
No, I think companies should not pursue a strategy for purely ideological reasons. If SPTI does end up changing stance, then my advice would definitely be to effectively modify your strategy accordingly. I say that because there's only one alternative to that, which is that we bifurcate the sustainability movement and we end up saying, look, there's the SVTI camp and there's going to be something else, which is basically saying, look, frankly, we don't buy this new logic. We're going to keep going in. In the direction that we're going. Obviously, you can still go for invalid chain reductions, but if we're taking momentum away from figuring out the certification challenges of things like insets, and if we're taking that momentum away by making it easier to go for offsets, then I think that companies will be taking a very hard path if they choose to ignore that. So the sad truth is that if this is where SBTI lands, then I think that many companies will adjust their strategy, whether they do it entirely or slightly or somewhat. But I think they will move in that direction.
Saif Hameed [00:22:28]:
And that's why this is a big issue. I think that just to come on to, the final piece that I was talking about is, I think there's this third piece around whether SPTI has left itself weaker or stronger as a result of this, let's call it policy debacle. And I don't see anyone making the case to say that SPTI is not weaker. And let me rephrase that. I think everyone I speak with acknowledges that SBTI has handled this in a suboptimal way and has left itself weaker as a result. And I think the conclusion I'm seeing is that, like, this statement by the board trustees was pretty unnecessary in the way that it was made. They could have just allowed the process to take shape. There could have been proper consultation, proper vetting of the new direction, and it could have kind of come out in the normal way.
Saif Hameed [00:23:19]:
The way in which it was done was pretty unnecessary. The retraction then further confused things, and now we're kind of all left in this lacuna or this, like, ambiguous territory. And I think that weakens all of us, actually, like SBTI. It is in the interest of the sustainability movement for SPTI to be above reproach, really. As in for SBTI to be considered to be. Yeah, above reproach. There's no other way to say it. And being sucked into this drama doesn't help.
Isobel Wild [00:23:49]:
Yeah, I agree. And the vacuum that SBTI would leave would not be beneficial for ambition or movement. So, yeah, we'll have to keep a note on the news. And as if carbon offsets do gain more momentum, we'll definitely be doing some podcasts on how to kind of navigate that murky, murky area. Let's get on to the topic. Deep dive navigating the regulatory reporting, and I phrased it shark soup. As promised, we've got to keep this exciting. So, steph, I hope that your responses are bring us out of the kind of depth of regulatory fine print.
Isobel Wild [00:24:29]:
But I think everyone can agree that at the moment, it's just like a soup of acronyms, paperwork. And it comes with a huge number of challenges along the lines of data quality and collaboration. So gathering reliable data from different departments is frankly, really tough. Even when the data is collected, there's big question mark over its accuracy and also completeness. Another key challenge with reporting is how to actually meet all the different reporting standards. Especially if you're a global company working across many markets. How can you operate to comply with multiple reporting standards, each standard having different requirements, which make it very complex to kind of consolidate your data and ensure consistent reporting. Another cost or challenge, maybe you can frame it as is like auditing.
Isobel Wild [00:25:21]:
So some regulations mandate audits or assurance for sustainability reports. This is just like another layer of cost and complexity on top of the reporting challenge. And I think the last challenge I want to flag is how to keep up with all the changing regulatory requirements. I mean, even what we just spoke about there, Steph, about the SBCI U turn, will that go forward? Will that not? It's a full time job in itself to keep on track of all of these things. I mean, look at EPR in the UK and to be honest, the list of challenges goes on. I've probably missed out a few key ones. But Saif, are there any of these challenges that you perhaps want to pick up on?
Saif Hameed [00:26:01]:
I mean, I think this is kind of all the same challenge, really, which is how do businesses stay on top of all the regulatory reporting that is becoming necessary? And obviously, I have skin in the game here in that we're a company, candidly, that benefits at altruistic. We benefit from additional regulatory requirements. And also, let's say from a mission perspective, we think that sustainability, most sustainability challenges are externalities. And most externalities are effectively like a regulatory gap. So regulation has an important role to play here. At the same time, what I think is one problem is the general rise in regulatory requirements. Another is fragmentation. And I think that fragmentation really helps no one.
Saif Hameed [00:26:50]:
And so if you look at, for example, the US, you have just this whole plethora of state level ring in as well. I had one company recently telling me that there's some particle requirements in a particular regulation in California. And when they need to have the product tested for that, they actually have to take the product out of California and have it tested somewhere else, because the air in California has a higher concentration of those particles than the requirement from regulation. And so they actually just kind of tested within California itself. So there is this sort of challenge, I think, that companies are struggling with increasingly. And what I'm seeing now is that the big global players are hiring large regulatory management teams spread across different geographies, because regulation is becoming not just enlightened, but also so localized. Within the EU, for example, you have european regulation, but also national regulation within member countries as well. All of which can have slight variations.
Isobel Wild [00:27:48]:
And where are those teams sitting? Are they mainly sitting in the light legal team or sustainability team?
Saif Hameed [00:27:54]:
Yeah, it's an interesting trend. I think right now you're seeing a bit of both. The new kid on the block is definitely finance, and I think that the new european regulation in particular has triggered this. I think that also as the penalties start to look more and more like financial fraud and financial penalties. So prison terms for directors, hefty fines for businesses, individual action as well for individuals involved, again, directors in those in senior positions. I think that businesses start to say, hey, this looks a lot like what we have to deal with from an audit and compliance perspective on the financial side of our business. And actually, the finance team has the systems and controls to do this well. And so that team should take this over.
Saif Hameed [00:28:42]:
We've been talking about similar stuff for a while, Izzy, where we've kind of said, look like the finance side of the business has a setup also with financial controllers, audit processes, these sorts of things. And so finance is very well set up to take the lead on this sort of stuff. I'm seeing two variations on this. I'm seeing a lot of european businesses that say ESG reporting sits in finance, and that is the reporting layer on top, which is what do we put in the form? What do we put out there? What do we submit? And then let's say environmental accounting or carbon accounting sits within sustainability, because there it's not just the aggregation layer, it's a very deep quantitative layer and PMo to get change, process management change to actually move the needle on sustainability. And so that can often end up sitting within the sustainability team.
Isobel Wild [00:29:35]:
And when you are interfacing with the finance team, do you have any advice? So I can imagine it's actually quite a big shift, especially, for instance, I don't know if you have a ESG or a sustainability data management platform. The finance team have their financial platforms that they use for data to sort everything out. That is a huge change management shift in itself. And that's just one example. How would you go about actually bringing finance on board and making sure that you tackle reporting together? Because also I can imagine that you don't want to have the sustainability team holding carbon accounting and then actually not feeding through in an accurate or reliable way to the finance team, and then the reports are a bit skewed. So, yeah, what's your take on that?
Saif Hameed [00:30:22]:
I think this will play out differently, Izzy, in a, let's say, small or mid sized business versus a very large business. And so I'd say, like in a mid sized business where you would historically have had one, Max, two people working on sustainability, let's say, last year, then next year, those one or two people will probably have a dotted line into finance. And so in some situations, they are just part of the finance team. I think that's still a little more rare. In more situations, they have a dotted line into finance and maybe the hard line into operations or directly into the CEO a little more rarely, or into procurement. But a dotted line into finance means that they have a relationship with finance. And finance is a customer of the data that they are putting together. Finance is a user of that data, of that output.
Saif Hameed [00:31:10]:
And so they need to make sure that that data is packaged in a way that finance can then use it as needed. And there may be other components, other feeders into that reporting layer. So if you look at, let's say, deni de and I may or may not sit with that sustainability team, it may sit with the talent or people team, for example. And then finance has to pull that together from the people team and make sure that they can manage the aggregation layer on top. I think that's one setup that's likely to play out in small and mid sized businesses. I think that in larger businesses, you are probably going to see a parallel user or a parallel individual or team set up within finance, or leaning into finance, or more likely, frankly, leading into compliance and regulatory affairs or something like that. And that individual or that team will just basically be responsible for ESG reporting. So a role that we're seeing crop up more and more is the ESG reporting manager or the sustainability reporting manager.
Saif Hameed [00:32:12]:
And this role is different to, let's say, the sustainability data analyst or the sustainability program manager. And actually, at some point, maybe we should just talk about all the different role types coming up, but that ESG reporting manager is then responsible for, let's say, using the workiva or whatever platform they're using for ESG reporting and bringing everything together, making sure it's neatly packaged, and they have really no other mandate other than to just make sure that reporting happens seamlessly, smoothly. I think it's also an interesting question about to what extent maybe at some point, AI starts to play a disruptive role in that, given that it is not the most exciting task and it is a somewhat repetitive task, and with proper structured data systems, this can be made a lot easier. But that's maybe a topic for another day.
Isobel Wild [00:33:03]:
And what's your take on setting up your data system or data infrastructure to make sure that it can work with other department systems?
Saif Hameed [00:33:16]:
Yeah, I think it depends on kind of what you're trying to do. And so I expect that we're going to see a lot of interesting activity in the application layer. And what I mean by that is if you see sort of more and more companies moving towards centralized data lakes of some sort, where they're trying to get all of the data across the business into one place, and this trend has been happening for several years, it's likely to continue for several years before it's anywhere close to dominant across business data. But if you look at the trend towards then centralizing all the data into a data lake, most companies are then trying to build, let's say, application layers on top of that, where something is going to be done with that data, that data is going to be exported to an application, users are going to use that application for solving some day to day problems, and then maybe even output data gets exported back to that data lake. I think what's exciting is to say how do you start unbundling multipurpose applications towards something more specific? So ESG reporting is a good example. Ten years ago, there would have been one application you'd use for all your ESG reporting. And it's very broad, but very shallow. It doesn't go very deep into carbon.
Saif Hameed [00:34:35]:
It doesn't go very deep into water or land use. It's like just really there for tabulation and reporting. And now, of course, you have specialized tools, like there are tools like us that do environmental accounting and product carbon footprints and supply chain engagement, but then we ourselves, there's an unbundling there where there are tools that just do water accounting or just do product carbon footprints. And I think that there's potentially a big shift towards more and more specialized, more and more narrow applications for specific user types within sustainability to get their day to day job done. I think that will move faster or slower in line with the evolution of role types in this space. So as you start to have more water managers, let's say in businesses, those water managers might want something specialized just for them that they can use on a day to day basis versus something that aggregates other use cases as, as.
Isobel Wild [00:35:28]:
Well, yeah, I spoke with Victoria Morehouse from Kingfisher the other day on how she was disclosing at Kingfisher. And they have set up a climate disclosure steer committee, which slightly speaks to what you were just saying there about bringing in all the different impact metrics and being able to kind of see not just from a data system point of view, but also from like a regulatory point of view, like all the different viewpoints. Get everyone bought in very early on and make sure the work is representative across the board versus just being narrowed in on one role in one impact metric. So not just carbon, but you've also got nature, you've got water. But this group also has other representation from finance, risk audit, other responsible business functions, as well as kind of vertically across the company, as well from like C suite level down to kind of like employee on the kind of shop floor. And I thought that was a really great way of being able to bring everybody together into, into a metaphorical room, because I think it's probably online just like problem solve it, get accountability, get ownership, and get alignment behind, like, what data they're collecting when they need it and for when. Do you have any companies that you've seen actually have really hit the nail on the head with reporting?
Saif Hameed [00:36:49]:
I think that it's hard to say because a lot of the requirements have just started to kick in. And so I think that next year and the year after, we're really going to see how that plays out. I see a lot of companies gearing up right now. I don't necessarily see anyone that is right now has perfectly set up to manage this for next year. I see a fair bit of chaos right now, to be honest. In the largest companies, I think there's a challenge where one senior stakeholder at a big business was telling me the other day that he sees people popping up all the time who are notionally either reporting to him or should be, or in his broader function, but he's never heard of them, he's never heard of the role, and suddenly they're in the business and he just comes across them on LinkedIn. And you kind of see a lot of this in the larger companies where different regions start going their own way, hiring someone in to manage this problem. And I think there's a risk that this kind of gets a little out of control in the near term before it gets under control, basically.
Saif Hameed [00:37:52]:
And I think that's because everyone is still coming to terms with the fragmentation of the regulatory environment where each region is now trying to solve for something quite local. And so more and more of those sort of steering committees, Izzy, that you mentioned, to just bring everything together and try and structure things and base things will be helpful, but let's see how that plays out.
Isobel Wild [00:38:10]:
I think that makes a lot of sense, becoming quite siloed whilst. And it comes back to the, like, paralysis point that we were speaking about earlier. You know, until you're kind of confident in what you're doing and what you're reporting on and what your numbers are, you're probably not too inclined to go up to the CEO and be like, hey, this is this. Which is a flaw in itself. So I think, as you said, working groups, being collaborative, having collaborative ownership and reporting upwards and downwards is very important. Saif, are there any other thoughts that you want to speak about or highlight before we close up for today?
Saif Hameed [00:38:45]:
No, I think it's been an eventful five or six months. Speaking from our experience, there has not really been a busier time, to be honest. Things are busy, companies are doing stuff, teams are being set up, software is being procured, which is obviously a great thing for us. And software is being used, which is actually much more exciting. Like, we're starting to see user engagement at a much higher level than we would have seen this time last year. And I think that's really exciting. So, yeah, positive notes to end on.
Isobel Wild [00:39:23]:
Yeah. To caveat, listeners, every week before Steph and I log on, we have a quick debrief. I'm like, Steph, how are you? It's a busy week, but there's a light at the end of the tunnel. Next week will not be as busy, and every week it's a busy week, but it's only for the good. Awesome. Well, thank you, everybody, for listening, and thank you, Saif, for sharing your two cs on regulatory reporting.
Saif Hameed [00:39:46]:
Thanks, Izzy. Goodbye.