In 2022, a record number of companies—over 18,700—disclosed environmental data to CDP, the world’s largest voluntary environmental disclosure platform. This figure represents a 38% increase in disclosures from the previous year and a 233% increase since the Paris Agreement was signed in 2015.

While growth in the number of disclosures is promising, it is also important to consider the quality of information provided. In fact, only one third (34%) of companies that disclosed in 2021 actually improved their scores in 2022 (excluding the 2021 A List). Furthermore, despite an increase of more than 3,000 companies scored by CDP in 2022, only an additional 61 companies made the A List. Finally, the number of companies awarded a Triple A score declined [from 14 in 2021] to 12 in 2022, which represents just 1.3% of the 900+ companies that were requested to disclose against all three questionnaires on climate change, forests, and water security.

The number of environmental disclosures is on the rise, but improvements in quality lag. Why might this be the case, and what does this disconnect signify?

• The good news: companies are feeling the pressure to report and are beginning to step up. In light of upcoming regulations for mandatory environmental disclosures across the world (e.g., the SEC’s proposed climate-related disclosure rule), 2022 became a record-breaking year for the number of organizations releasing environmental data. As companies prepare to meet new regulations, voluntary disclosure through CDP can help them “get ahead of regulation.” For example, in November of 2022, the Biden Administration announced that major federal suppliers will be required to disclose their environmental data through CDP. Companies that currently disclose through CDP are already complying with the new rule.
• CDP sets an ever-increasing standard for what it means to be an environmental leader. CDP frequently raises the bar for what qualifies as environmental leadership (an A score). For instance, in 2022, CDP followed more rigorous scoring on certain criteria, such as water data verification and climate transition planning. Additionally, CDP has not only modified but added questions, bringing the total across all questionnaires to 130 in 2022. This corresponds to an increase of 37 new questions (and removal of 17) from the previous year.
• Companies must anticipate and take action to meet these stricter standards. Although high standards are needed to hold organizations accountable and increase transparency, companies are not necessarily keeping up with the rising expectations set by CDP. While more companies than ever are disclosing environmental data, participation alone does not meet the criteria for environmental leadership.
• Companies are lacking a holistic approach. Across each of the three questionnaires, progress in 2022 was not uniform. For climate change, forests, and water security, the number of companies on the A List increased by 34%, increased by 4%, and decreased by 12.7%, This difference in progress across issues indicates that companies may not be taking a holistic approach to the management and measurement of environmental information. CDP and other disclosure frameworks should also consider ways to integrate questions across environmental issues.

CDP’s 2022 scores demonstrate that, while environmental disclosures are gaining momentum, there is significant room—and need—for improvement. Progress can be made by both parties. Not only must companies anticipate and prepare to meet stricter standards, but also, reporting platforms must improve integration across standards, taxonomies, and environmental issues to ease the disclosure process.

As sustainability leaders seek to advance their companies’ climate transitions and as executives face pressure to support these initiatives alongside business growth, both parties must stay informed on new developments that may influence their decisions. The results of COP27 are no exception to these forces.

To many sustainability leaders, the outcome of COP27 is likely unsurprising: a mix of successes and setbacks with an overall sense of uncertainty about the future of climate change and about how much governments will support the energy and economic transitions needed to adapt and mitigate. Key headlines have focused on the new “loss and damage” fund to support vulnerable countries being ravaged by disasters, stagnation in discussions to phase out fossil fuels, and the looming unlikelihood of our ability to limit warming to 1.5°C.

The coverage of COP27 has remained broad. But beyond the main headlines, several overlooked outcomes of COP27 will impact companies more directly. We highlight below six announcements and initiatives from COP27 that executives should know as their companies work to meet internal targets and external expectations.

1. Stakeholders to have improved access to climate transition data. The Climate Data Steering Committee (CDSC) announced at COP27 next steps for the Net-Zero Data Public Utility (NZDPU). The NZDPU is an open-data public utility that aims to draw on private sector climate commitments in order to provide centralized, accurate, and verifiable climate transition data. The CDSC—created by French President Emmanuel Macron and UN Special Envoy for Climate Ambition and Solutions Michael R. Bloomberg—called for the utility’s creation in September 2022. Two months later, on November 10, the CDSC outlined challenges and final recommendations, as well as a Request for Proposals to develop a pilot of the utility. The NZDPU will impact businesses by providing stakeholders (e.g., investors and civil society) with metrics that ease their ability to assess companies’ successes and shortfalls in the climate transition, ultimately influencing stakeholder decision-making.
2. Businesses are given guidance on ensuring integrity in net-zero commitments. In response to concerns over greenwashing, the UN High-Level Expert Group (HLEG) on the Net-Zero Emissions Commitments of Non-State Entities released the report “Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions.” The report includes ten detailed recommendations on how non-state actors can ensure accountable and credible net-zero commitments. Recommendations include publicly sharing net-zero pledges, seeking independent verification of progress, lobbying for positive climate action, and phasing out fossil fuels. This report is an excellent resource for net-zero committed companies and those considering setting their own net-zero targets, as regulators and governments begin examining targets and action plans more closely.
3. Global corporations are presented with a new carbon credit proposal. On November 9, U.S. Special Climate Envoy John Kerry announced the Energy Transition Accelerator, a public-private initiative to fund the clean energy transition in developing countries by enabling them to sell carbon credits to global corporations. To address concerns over offset quality, the initiative is only open to companies with science-based targets and 2050 net-zero commitments, and it excludes participation by fossil fuel companies. Furthermore, buyers must use credits as a supplement to—not a substitute for—other commitments. Despite these guardrails, critics remain skeptical of collapsing prices and greenwashing. As the initiative’s details are worked out, companies involved or interested in the carbon credit market should be aware of the new development. Interested sellers and buyers thus far include Chile and Nigeria, as well as Bank of America, Microsoft, PepsiCo, and Standard Chartered Bank, respectively.
4. Insurance sector empowered to lead climate risk reduction. On November 10, Race to Resilience introduced the Insurance Adaptation Acceleration Campaign to help scale the global insurance sector’s ability to advance meaningful climate risk reduction and adaptation. The campaign applies five insurance sector capabilities—risk financing and pricing, risk analytics and expertise, impact investment, strategic philanthropy, and stakeholder engagement—to outline how insurers can advance mitigation and adaptation efforts. The goal is to empower the sector to de-risk, finance, and accelerate climate risk reduction, which in turn impacts stakeholders through changes such as portfolio diversification and demand for data availability.
5. Consumer industries offered practical solutions for decarbonization. Launched by the Consumer Goods Forum, the Net Zero Playbook for Consumer Industries presents a set of practical solutions on how consumer companies can address challenges to decarbonization. The Playbook highlights interventions and case studies on supplier enablement, sustainable agriculture, consumer use, plastics and packaging, and transport and logistics. It answers common questions companies may have such as where to start, what technologies to use, and how to engage in pre-competitive, collective action.
6. Private sector to accelerate zero-emission passenger vehicle deployment. The U.S. announced the Zero Emission Vehicles Emerging Market Campaign (ZEV-EM-C) to advance the deployment of zero-emission passenger vehicles. Launched at COP27, the one-year initiative will emphasize private sector participation by encouraging private sector contributions and promoting dialogue between key companies and emerging markets. Further details have not yet been released, so companies looking to electrify their fleets should keep an eye out for future announcements.

COP27 sends a clear message that more work remains on the global and national scales to meet climate goals—yet the role of and impact on businesses is often unclear in this arena. Amidst the key headlines covering global climate progress (or lack thereof), it is important to cut through the noise and understand what developments will impact businesses throughout their sustainability journeys. The initiatives highlighted are just a few of the outcomes of COP27 that executives and sustainability leaders should be aware of in order to respond to stakeholder pressures and take advantage of resources and solutions. The impacts will continue to cascade down to the company level as countries take regulatory action to meet global and regional agreements and expectations.

Living Planet Report 2022

On October 12, the World Wildlife Fund (WWF) and the Zoological Society of London revealed in their 2022 Living Planet Report a staggering insight about the current state of biodiversity: from 1970 to 2018, the world’s wildlife populations plummeted by an average of 69%.

The study measured the average change in the relative abundance of 31,821 populations around the globe. Results varied by species and geographic region and included both increasing and decreasing growth trends; but the overwhelming pattern was a steep decline in biodiversity.

The significant downward trend is attributed primarily to land-use changes, such as deforestation, that destroy or fragment natural habitats. The report further indicates that climate change may soon pass land-use changes as the leading contributor to biodiversity loss, if global warming is not kept below 1.5°C. Anthropogenic activities that trigger rising temperatures are increasingly altering natural ecosystems and driving mass mortality events.

WWF has published the biennial Living Planet Report since 1998. The rate of wildlife population decline observed in the most recent report is consistent with that of previous findings, indicating a serious lack of global progress to conserve and restore biodiversity. In fact, of the twenty Aichi Biodiversity Targets for 2020—which were adopted by 196 countries in 2010 under the UN’s Convention on Biological Diversity—none were met in full, and some even reported negative progress. Furthermore, we are not on track to meet the Paris target to limit warming to 2°C.

Falling short on these targets not only puts wildlife populations at risk but also threatens the well-being of current and future human generations. Biodiversity loss has larger implications for the economy, public health, and social stability—including businesses.

Biodiversity loss: implications for businesses

So, why should businesses care about a 69% decline in the world’s wildlife population? What does this finding mean for corporate responsibility and subsequent action? Companies should act on biodiversity in order to secure their operations, retain investor interest, comply with reporting requirements, and play a role in agenda setting.

• Disruptions to business growth and operations: Biodiversity loss presents a direct threat to business operations, due to a dependence on scarce and variable resources. These risks may materialize in the form of decreased production, disrupted supply chains, and higher costs. For example, a 2022 report by Planet Tracker suggested that the sales of the most overfished species typically generate the lowest profit.
• Increasing investor interest: As investors recognize the risks associated with climate change, they are placing a growing pressure on companies to measure, manage, and report their environmental impact—including biodiversity. UBS, for instance, states that “biodiversity is part of our overall integration of ESG considerations into the investment process.” Investors taking steps to minimize their exposure to stranded assets will be more inclined to direct capital to those demonstrating lower risk via a commitment to sustainability. As a result, businesses that fail to demonstrate and minimize biodiversity impacts may face difficulties accessing capital.
• Emerging and existing reporting requirements: At present, corporate disclosure requirements on biodiversity are lacking…but gaining traction. Existing and upcoming biodiversity disclosure measures include:
  • Taskforce on Nature-related Financial Disclosures (TNFD): includes recommendations for environmental risks including biodiversity loss
  • CDP Climate Change Questionnaire: as of 2022, includes biodiversity questions developed in alignment with IUCN’s Corporate Reporting on Biodiversity Guidelines
  • Science Based Targets Network (SBTN): currently developing science-based targets for biodiversity
  • Global Reporting Initiative (GRI): currently updating the Biodiversity Standard (GRI 304) to reflect the global best practice for biodiversity reporting
  • Corporate Sustainability Reporting Directive (CSRD): will require biodiversity targets and potential financial implications of biodiversity impacts, risks, and opportunities

Although many of these initiatives fall under voluntary frameworks, they help participating companies demonstrate their environmental—and biodiversity—impacts to key stakeholders, including investors. Companies using these standards should be aware of upcoming changes and be prepared to meet biodiversity disclosure measures. CSRD, on the other hand, stands out as a mandatory corporate sustainability reporting directive. Beginning in 2023, all large companies in the EU will be required to disclose their sustainability performance, including information on biodiversity. While the directive only applies to the EU, the legislation may inspire other regions to adopt a similar approach—a future that companies should be prepared to satisfy.

• Upcoming role in COP 15: In December 2022 in Montreal, Canada, countries of the Convention on Biological Diversity (CBD) will convene for the UN Biodiversity Conference (COP 15). At the event, countries are expected to agree on and adopt a new set of goals for the post-2020 global biodiversity framework. Beyond its symbolic value, the outcome of COP 15 will influence government policies and ultimately, businesses. Companies will be expected, if not required, to play a role in the development, implementation, and success of the framework.

Many companies are responding proactively to biodiversity loss by taking steps to reduce operational and reputational risks and, in turn, attracting investors and new growth opportunities. However, as risks to operations grow, new [mandatory] standards emerge, and governments face pressure to set aggressive biodiversity targets and policies, businesses must be prepared to act accordingly. As the 2022 Living Planet Report states, businesses, governments, financial institutions, and the public have an “unmissable opportunity” to not only halt but reverse nature loss.