New data released Wednesday by a climate disclosure organisation indicates that only 41% of those reporting track value chain emissions, and significantly fewer are aware of their impact on nature.

With wide-ranging rules likely to be enforced this decade, companies must assess the impact of their supply chains on nature and climate in order to be ready, CDP has urged, releasing a report evaluating 2022 responses.

Nearly 70% of companies that reported to CDP last year also said they did not assess the impact of their value chain on biodiversity, with the tracking of value-chain impact on nature lagging far behind that of climate disclosure.

This comes despite the landmark agreement made at the UN’s biodiversity summit COP15 in December that called on countries to encourage and enable large companies and financial institutions to assess and disclose their risks, impacts, and dependencies on biodiversity by 2030.

Corporate disclosure on nature has not yet been made mandatory, however, despite many calls prior to the summit for this to be enacted in Montreal.

MANDATORY DISCLOSURE

The supply chain report from CDP underscored that most companies are prioritising climate disclosure over nature.

Across the 18,500 firms disclosing to the organisation in 2022, over 7,000 companies reported that they engaged their suppliers on climate change, compared to less than 1,000 each on water and forests.

Even on climate, only one in every 10 companies include requirements in their contracts with suppliers, and most of these are not yet aligned with 1.5C climate science.

For example, under 1% (0.04%) of all companies required their suppliers to set science-based targets, the CDP found.

“This year’s report shows that environmental action is not happening at the speed, scale, and scope required to limit global temperature rises to 1.5C, with many companies still not acknowledging that their impact on the environment extends far beyond their operations and that of climate change,” said Sonya Bhonsle, global head of value chains at CDP.

At the same time, disclosure on Scope 3 emissions may soon be required in the EU via the the European Sustainability Reporting Standards, which covers both climate and nature.

Securities Exchange Commission (SEC) regulations in the US will imminently make disclosures mandatory, while under the the International Sustainability Standards Board (ISSB), a global baseline standard for climate-related financial disclosure is expected to be delivered in Q2 with the substance of its initial standards now fully agreed, it said in February.

“Emissions in a company’s supply chain (Scope 3) are on average 11 times higher than direct (Scope 1) emissions and reflect more than 70% of total emissions. As such, value chain decarbonisation represents one of the most significant opportunities for companies to play their part in reaching net-zero globally before 2050,” commented Elfrun Von Koeller, a managing director and partner at consultants BCG, which works with CDP on its annual reports.

NATURE CALLS

Overall, companies are not treating their impact on the environment as a whole, with most not engaging suppliers on climate and vital parts of nature, including water security, deforestation, and biodiversity.

CDP data showed senior management teams are not being incentivised at anywhere near the level needed to address key issues such as water security and deforestation in the supply chain.

The report found that 70% of companies’ top management positions will not be encouraged to act on deforestation before 2025, while only 3% of companies have water-related incentivisation in place for their chief procurement officer.

For climate, the picture is slightly different with 74% of companies reporting board-level oversight and 41% of the remaining companies planning to introduce it in the next two years, though the report also added that it was “very early days”.

What is clear, is that the tracking of nature impact lags well behind, according to CDP.

“COP15 couldn’t have been clearer in the call to action on corporate reporting on nature. If a company is not preparing for future regulations on nature in the supply chain, they are open to a wide range of risks and could also be missing out on the opportunities that safeguarding nature will bring,” Bhonsle said.

That said, the rate of engagement with supply chains is also much higher in companies disclosing on deforestation, with 69% engaging with suppliers on the issue, compared to the 39% of companies who disclosed on climate change engaging their suppliers on climate, and 23% on water.

By Roy Manuell – roy@carbon-pulse.com

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