By: Julie Nash, Ph.D, Senior Program Director – Food and Forests, Ceres
The U.S. Securities and Exchange Commission just released its long-awaited proposal for a mandatory climate risk disclosure rule – spurring the business community to take a closer look at why standardized climate risk disclosure is so critical. While corporate disclosure of total greenhouse gas emissions is taking center stage in these discussions, the SEC proposal also underscores the importance of disclosing the progress that companies are making towards achieving emission reduction targets and goals.
As more major companies begin considering the ins and outs of climate risk disclosure, there are several lessons that they can learn from investor engagements with companies on deforestation commitments. Companies began making commitments to eliminate deforestation in the early 2010s and investors have been engaging with these companies on tackling and disclosing their deforestation footprints since then. Ceres’ analysis of these investor engagements has given insight into three key elements that investors will be looking for when they engage with companies on their climate commitments.
1. Companies that make commitments need to disclose concrete action plans to meet them.
Establishing concrete action plans that lay out steps to take along the way to achieve a commitment—and disclosing those plans—creates targets that internal and external stakeholders can track and assess. When major deforestation initiatives launched in the early 2010s to encourage companies to remove deforestation from supply chains, companies often made these commitments without disclosing concrete action plans for meeting their targets. For example, the New York Declaration of Forests was adopted in 2014 by nearly 200 companies seeking to end tropical forest deforestation by 2020. However, five years later, the NYDF itself concluded that “there is little evidence that its goals are on track and achieving the 2020 NYDF targets is likely impossible.” Though these early initiatives were aspirational by nature, the lack of concrete action plans disincentivized the type of follow-through companies will need to show in their decarbonization process.
2. Companies that make commitments need to disclose regular progress on action plans and commitments.
Without regular disclosure of progress, commitments can become dormant or lapsed. New research by Forest Trends found that while influential companies with forested supply chains set many time-bound commitments, one in five companies allowed at least one of their commitments to go dormant — meaning no quantitative or qualitative progress was reported in the last two years. And as CDP outlined in its latest report, few companies that are exposed to significant deforestation risks have disclosed quantitative progress toward eliminating tropical forest loss from their supply chains. These two pieces of data together paint a stark picture of stalled progress without consistent disclosure of program success over the years.
3. Companies that make commitments need to disclose outcomes, not just actions.
The marker of a high-quality disclosure is a measurement of the end state. For a deforestation commitment, this end state is the creation of a product verified as deforestation and conversion free. Companies that do report progress usually focus on actions completed, such as enhanced supplier policies, rather than quantitative progress, such as the percent of supply chain that is verified as deforestation and conversion free. For clear guidance on how to disclose progress, companies should refer to the Accountability Framework initiative, which provides a consensus-based guide on what high-quality disclosures look like.
Thanks to the lessons learned from deforestation initiatives, investors are now looking to engage with companies on not only their targets and commitments, but also action plans and disclosure of progress. Without these key elements, companies may face tough questions from investors seeking to minimize their climate risk – as well as hit obstacles in achieving their own climate action plans. By following this guidance, companies can avoid the lapsed commitments that characterize deforestation and show real progress in meeting their climate goals.
Julie Nash, Ph.D., is the senior program director of food and forests at the sustainability nonprofit Ceres.