What began as a small and voluntary movement now involves many of the world’s largest companies. For example, more than 150 U.S. companies have stated their commitment to the American Business Act on Climate Pledge, agreeing to lower emissions, reduce energy use, and create sustainable supply chains. Over 120 investors, representing $10 trillion in assets, have signed The Montreal Pledge, agreeing to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis. And each year CDP, formerly the Carbon Disclosure Project, gathers data about environmental impacts on over 2,000 publically listed companies.
These companies choose to report because it’s good for business, and increasingly, investors demand it. For example:
- CalPERS, the California Public Employees’ Retirement System and the largest state pension fund in the U.S., recently announced that it will require all of its managers to identify and articulate environmental, social, and governance information (ESG) in their investment processes
- ExxonMobil shareholders filed a proposal recently asking how the 2 degree temperature limit agreed at the Paris Climate Accords will affect the company
- Larry Fink, the CEO of Blackrock, the world’s largest investment organization, sent a letter last week to the CEOs of the S&P 500 and large European companies asking that they include environmental, social, and governance in their core business considerations
While more and more companies will disclose their own environmental impacts to align with investor expectations, many companies remain blind to their supply chains. Trucost analyzed 19 industry sectors and found that, for most, nearly all of the environmental impacts occur outside company operations. The chart below shows that for some industries like mining and utilities, most of the impacts occur in direct operations (i.e. within their plants and sites). However, for nearly every other industry, the majority of the impacts occur upstream from their own business activities. Whether it’s from the manufacturing of drugs delivered to patients in hospitals, or the plastics made to go into a laptop, businesses do not directly see most of the impacts.
Companies can now use tools to navigate their complicated value chains, both upstream and downstream from their operations. Trucost helps companies model their impacts, understand primary data, and engage with suppliers to begin implementing positive changes.
Additionally, Trucost found that relatively few companies report on their exposure to water risks – 23 percent of the largest 500 U.S. companies and just 16 percent of the largest companies globally, up from 12 percent and 10 percent respectively in 2010. With so much attention paid to water crises in California, Sao Paolo, and the Middle East, these numbers are far too low. Companies can begin their water disclosure journey by identifying sites and revenues at risk with the Water Risk Monetizer, a free online tool developed by Ecolab and Trucost.
Lastly, seasoned reporters and those just getting started should pay attention to the quality of data collected and analyzed. Trucost analyzed the disclosures of over 6,000 publically-listed companies and found inconsistencies in data reported, non-adherence to standards, and incomplete information that did not allow for any analysis or insights. For example, the MSCI Emerging Markets index had the lowest quality of greenhouse gases disclosure with 64% from direct operations (Scope 1) and 71% from purchased electricity (Scope 2) data either not disclosed or of insufficient quality.
As you begin responding to the requests for environmental information or write the first draft of your reports, know that you are not alone. Investors and supply chain managers will continue to push for further disclosures and the community of reporters will continue to grow. Understand what matters most to your organization, identify the risks embedded in your operations and supply chains, and remember the growing importance of water. Make 2016 the year of more comprehensive and accurate disclosures of your environmental impacts and align them with investor expectations.