Top 5 Sustainability Trends in 2022
2021 was a breakthrough year for sustainability and climate action, and 2022 promises to hold much in store for organization´s progress on sustainability.
Record numbers of companies set decarbonization targets, including more than 2,200 companies taking action via the Science Based Targets Initiative (SBTi). In November, COP26 brought together global leaders and policymakers to make some big commitments to net-zero and solidified the business community’s role in driving the net-zero transformation and in achieving the 1.5 degree Celsius warming threshold. Finally, the SBTi’s issued a newest guidance for setting science-based goals, catalyzing both near-term and long-term efforts to reach net-zero emissions by 2050.
While there is much to celebrate from the past 12 months, 2021 also served as a stark reminder that the work is nowhere near done. Extreme weather ravaged communities around the world and scientists dictated in no uncertain terms that these are exacerbated by climate change in the IPCC Sixth Assessment Report on climate change.
We remain optimistic that the year ahead will continue, or even accelerate, the momentum of corporate climate action needed to reach this goal. To prepare your organization to ride the 2022 sustainability wave, we’ve listed our 5 Top sustainability trends for industry professionals to think about as you build your sustainability strategies.
TREND #1 Addressing Scope 3 through supply chain collaboration
Scope 3 emissions are the largest category of emissions for most companies. These indirect emissions, which occur because of a company’s upstream and downstream value chain, come from activities such as the sourcing and production of raw materials and the transportation and distribution of goods.
Scope 3 emissions are notoriously difficult to address. However, one of the most impactful ways a company can take Scope 3 action is by engaging their suppliers on decarbonization. Investors are increasingly interested in the resilience and carbon footprint of a company’s supply chain. Bringing suppliers along on the decarbonization journey by encouraging their adoption of sustainable practices can be a means to make progress on both supply chain resilience and decarbonization.
Companies engaging their supply chains receive the dual benefit of reducing their own Scope 3 emissions and gaining confidence that suppliers are implementing measures to ensure resilient operations, resulting in better long-term business partnerships. We expect to see more collaborative supply chain decarbonization programs emerging in 2022, as organizations across a wide range of industries begin to tackle the Scope 3 challenge.
TREND #2 Net-zero commitment clarity
The need to achieve global net-zero emissions by 2050 has been made clear by climate science, but the exact meaning of a net-zero commitment is still unclear. What emission scopes should a net-zero goal cover? What is the appropriate level of absolute emissions reductions before an organization uses neutralizing mechanisms like carbon offsets? And how fast should decarbonization take place?
Net-zero emissions commitments are often conflated with carbon neutrality commitments. The lack of consensus on how to define net-zero has made commitments difficult to compare, fueling confusion and accusations of greenwashing. However, with the release of the SBTi’s official Corporate Net-Zero Standard, these and many more questions have been clarified, providing organizations with a robust set of criteria to follow.
Beginning in January 2022, the SBTi will begin validating net-zero commitments, heralding a new era of corporate climate action and raising the bar on the level of ambition required to lead in the corporate sustainability space. There are already seven companies that have set their net-zero targets under the new guidance, and more than 700 have committed to set net-zero targets in the next two years.
The SBTi Corporate Net-Zero Standard brings structure and consistency to net-zero emissions goals, both for companies that have already stated their net-zero ambition and for those that are looking to do so in the future.
TREND #3 The cry for standardized ESG reporting
As investors and other stakeholders get more savvy about ESG impacts and how these are being addressed, we’re seeing a wave of ‘survey fatigue’ sweep across our clients. Companies around the world are trying to be more transparent about their ESG risks and opportunities by reporting their progress, but the competing standards for disclosure of ESG data can be confusing and time-consuming. From global standards & schemes like SASB, CDP, and GRI, to frameworks like IIRC and TCFD, to industry-specific standards like GRESB and SFDR, and various regional schemes, the ‘acronym soup’ of ESG reporting can get overwhelming. When companies are left to voluntarily decide which standards or frameworks to report to, an investor’s ability to assess and compare ESG performance across platforms is restricted. Regulatory developments like the EU’s proposal for a Corporate Sustainability Reporting Directive (CSRD), or Japan’s and the UK’s mandatory rules for TCFD implementation add additional complexity.
The solution to this problem seems straightforward, in theory: a universal ESG reporting mechanism that each rater, ranker, and framework plugs into for access to the relevant corporate data. However, in practice, it is much more complicated. There’s debate around whether a universal reporting solution is practical or feasible, if ESG reporting should be mandatory, and if so, how it should be implemented.
The International Sustainability Standards Board (ISSB), launched at COP26, aims to bring the world a step closer to this universal disclosure standard. ISSB was created to help investors find quality, transparent, reliable, and comparable company ESG data in one place, merging various ESG standards into one global baseline. In the second half of 2022, the ISSB is expected to deliver a comprehensive set of global sustainability reporting protocols. Given the pace at which regulations are unfolding and the scope of their influence, the private sector is likely to be impacted – exactly how remains to be seen. What we do know today is that any mandatory reporting scheme will likely align with the dominant global standards or frameworks in place today, particularly those which place an emphasis on communicating financially material sustainability information, which are SASB and TCFD.
Trend #4 Financial institutions fueling the race to net-zero
Year over year, investment in low-carbon projects and technologies shatters previous records. As corporations and financial institutions come under increasing pressure to improve their performance on ESG matters and meet emissions reduction goals, more and more funds are being poured into solutions for the climate crisis. According to a survey by the Climate Bonds Initiative, investors expect global green bond investment to double by the end of 2022, reaching $1 trillion for the first time in a single year.
Financial institutions are taking a primary role in driving the net-zero transformation. Climate negotiations at COP26 in Glasgow brought sustainable finance into the spotlight with a coalition of finance firms worth $130 trillion pledging to accelerate climate change mitigation under the Glasgow Financial Alliance for Net Zero (GFANZ). The SBTi also launched a framework for financial institutions and the first tailored guidance for the private equity sector to support target-setting and potential decarbonization strategies.
The world’s leading investors are taking note. In January 2021, Blackstone announced an emissions reduction program aimed at reducing the Scope 1 and Scope 2 emissions of the investments in its large global portfolio, which represents $731 billion in assets under management. These indicators in late 2021 mean that 2022 is sure to be a big year for finance and climate action.
TREND #5 The growing role of regulations globally
Corporate climate action has been largely voluntary, motivated by drivers like the Paris Agreement and the adoption of the Task Force on Climate-Related Financial Disclosures (TCFD) framework. However, recent developments signal a move toward greater government oversight and legislation of sustainability in the private sector.
The EU has been a leader in this trend. For example, with its recent institutionalization of the Green Taxonomy, the EU is creating a classification system to establish a common definition of which economic activities will be considered environmentally sustainable. Europe has also paved the way with its Sustainable Finance Disclosure Regulation (SFDR), Corporate Sustainability Reporting Directive (CSRD), and the European Sustainability Reporting Standards (ESRS), among more than 20 other proposals for new legislation that will make Europe the first climate neutral continent.