Nature risk reporting lags far behind climate disclosures, CDP finds

Most companies that disclose data on their climate risks and dependencies are failing to report their impacts on nature, despite growing awareness of the deep links between the global biodiversity and climate crises.

That is the conclusion of a study released by the environmental disclosure platform CDP, which reveals a huge gulf between the level of climate risk data disclosed by companies, and the amount of information provided on nature impacts.

Environmental disclosures to CDP’s platform surged last year by almost a quarter — 24 percent — with 23,000 companies comprising two-thirds of global market capitalization submitting information to CDP’s platform.

However, most companies disclosing such data to CDP remain focused on climate risk, and are failing to measure and publicly disclose the impacts and dependencies of their business on water, forests and nature, the study suggests. Just 38 percent of companies that reported information to CDP in 2023 provided data beyond climate, it said.

That is despite environmental risk reporting offering significant business benefits, with 63 percent of firms disclosing climate data, 73 percent disclosing forest data and 50 percent disclosing water data reporting opportunities that hold potential for “substantive financial and strategic impact” within the organization, CDP said.

And across all three of these areas — climate, forest and water — the study found the cost to manage risks was lower than the potential financial impact of risks turning into reality.

“To truly address the environmental challenges, organizations must rapidly embrace a more comprehensive approach to environmental disclosure,” said Sue Armstrong-Brown, director of thought leadership and impact at CDP. “This includes going beyond only climate to robust disclosure on nature. With the launch of the Taskforce on Nature-related Financial Disclosure [TNFD] recommendations and more regulation expanding to include nature-related disclosure, companies not preparing are set to lose out.”

Elsewhere, meanwhile, CDP’s latest insights highlight an upward trend in companies reporting on their energy use, with 13,000 companies in total reporting on energy consumption in 2023.

However, 44 percent of companies that submitted data to CDP’s platform in 2023 are still not reporting on their energy use, despite this information being critical for investors to gain an understanding of corporate environmental impact and risk exposure, it said.

And of the companies that did disclose energy data, just 10 percent have a renewable energy target in place, while 31 percent said none of their energy consumption came from renewables.

The findings also reveal that, of 575 financial institutions that disclosed through CDP in 2023, half reported an estimated $9 trillion in their financial portfolios were linked to fossil fuels — a figure roughly equal to the combined GDP of Japan and Germany.

Armstrong-Brown said the disclosure data showed that “corporate ambition to phase out fossil fuel continues to fall short.”

“But COP28 is a new opportunity to accelerate the shift to renewable energy consumption,” she added. “We need to see the G20’s call for a tripling of renewable energy capacity reflected in demand-side targets for transition to renewables in order to support the phase-out of fossil fuel use.”

In related news, the International Sustainability Standards Board (ISSB) today revealed that hundreds of companies, stock exchanges and organizations have publicly endorsed its climate-related data reporting standards since they were published earlier this year.

Launched in June, the ISSB’s inaugural standards — IFRS S1 and IFRS 2 — have been publicly backed by a number of companies, jurisdictions and other market players, including the global body for international securities regulators, IOSCO.

The two standards aim provide a clear, holistic framework to enable corporate sustainability-related reporting to be used alongside annual statements and accounts at a global level in the same reporting package, according to the ISSB. More than 140 companies are already preparing public disclosures against the standards, while a number of governments — including the U.K.’s — have committed to aligning reporting regulations with the ISSB’s recommendations, the body said.

Today, moreover, close to 400 organizations from 64 jurisdictions have further committed to advancing the adoption or use of the reporting standards at a global level by signing a “declaration of support” for the standards published at the sidelines of the COP28 UN Climate Summit.

The signatories to today’s declaration include more than 40 professional accounting organizations, 25 stock exchanges and investor membership groups with more than $120 trillion of assets under management, according to the ISSB.

ISSB chair Emmanuel Faber, former CEO of Danone, said the strong support for the declaration was “a signal of the urgency behind our work and confirmation that the ISSB Standards can deliver a vital global solution in the need for better information about the risks posed by climate.”

“Market participants have consistently told us through consultation that they need global sustainability disclosure standards that are proportionate and scalable,” he said. “The ISSB Standards provide this and with the support of organizations around the world we will work to build the market infrastructure and capacity building necessary to implement the standards worldwide.”