Stockholm (NordSIP) – Corporate disclosures on nature-related risks remain insufficient and the little data that is reported highlights potentially damaging exposures. This is the conclusion of the latest analysis of Principal Adverse Impacts (PAI) reporting via CDP, the global non-profit that runs the world’s environmental disclosure system for companies, cities, states and regions. The new report, published by CDP today 6 March 2024 under the title Below the Surface, highlights a persistent data gap when it comes to nature related impacts.
More than 23,200 companies disclosed through CDP in 2023, however only 140 of these reported on all adverse impact indicators recommended by the European Union’s (EU) Sustainable Finance Disclosure Regulation (SFDR). These cover greenhouse gas (GHG) emissions, energy consumption as well as water-related and biodiversity metrics and will be incorporated within the European Sustainability Reporting Standards (ESRS) that are due to be implemented in 2025. The indicators have been designed to be largely interoperable with the recommendations of the Global Reporting Initiative (GRI) and the Taskforce on Nature-related Financial Disclosures (TNFD).
The CDP analysis reveals 1,100 companies having reported business activities within or near biodiversity-sensitive areas, particularly relating to the manufacturing, infrastructure, and materials sectors. Just over half of the locations of concern were deemed to have potential negative impacts on biodiversity, although CDP reports that mitigation measures appeared to have been implemented in most cases. Almost 4,000 reporting companies had taken no steps to assess the impact of their operations on nature, demonstrating that there remains much to be done to address this data gap.
The growing risk of water stress
Global freshwater withdrawals for agriculture, industry, and municipal uses have been on a sharp upward curve since the 1950s, leading to a spread of water-stressed areas. More than a third of reporting companies were found by CDP to be drawing water from such areas, compounding the risks to local communities. In many instances, the companies’ water use represented by far the largest share of the water available to local consumers. Moreover, 400 companies were found to be sourcing more than 50% of their water from water-stressed areas.
The data regarding energy consumption provides some positive news in the form of a 74% increase in the share of renewable energy since 2019. The reporting companies’ overall steam, heat, electricity, cooling (SHEC) energy consumption remained relatively stable over the last three years. The International Energy Agency’s (IEA) net-zero 2050 scenario requires energy consumption to decrease. The 2023 reporting also reveals that the Scope 1 GHG emissions of those companies that report them have decreased by 4.3% since 2019. More concerningly, the rate of decrease in the high-emitting materials and power generation sectors was only 0.5% and 1.5% respectively, far short of the annual 7% reduction advocated by the IEA.
Evidence of the benefits of target setting
The importance of companies setting explicit medium-term GHG emissions reduction targets to support their long-term net-zero commitments is reflected in the Scope 1 reduction data. The 29% of companies that had set mid-term targets in 2020 outperformed their peers in both absolute and relative reduction rates.
Although disclosure rates are increasing, the data presented by CDP highlights the need for companies to work towards filling persistent data gaps, particularly regarding nature-related risks and exposures. The CDP analysis should also serve to better inform institutional investor engagement efforts to accelerate the transition of high-emitting investee companies. According to CDP, the existing framework should support the implementation of mandatory disclosure mechanisms by policymakers and financial market regulators.
