Taken from Diligent Market Intelligence’s ESG Engagements in 2024 report.
As climate-related disclosure requirements make their way into statute, a new frontier is rapidly emerging as investors, regulators and non-governmental organizations use the same playbook to drive nature-related issues up the agenda.
Amid the increased focus on corporate reporting, nature-related shareholder proposals are winning higher levels of support than their climate-related counterparts. The 10 nature proposals subject to a vote at S&P 500 constituents in 2023 averaged 24% support, compared to 65 climate change proposals securing 21% support.
“Concern over nature has been building for some time,” Andrew Shalit, shareholder advocate at Green Century Capital Management, told Diligent Market Intelligence (DMI). “It is a systemic risk, similar to climate change, but even more broad. Companies need to understand how they rely on nature and how they impact nature, and they need to share these assessments with the investment community.”
Putting the pressure on
As of April 30, five nature-related shareholder proposals have been subject to a vote this year globally, securing 16% average support, compared to 21 averaging 18.8% support throughout 2023, according to DMI’s Voting module.
Three proposals, seeking reporting on pesticide and/or water use, have won above 20% support.
Consumer defensive industries are bearing the brunt of demands for enhanced biodiversity reporting and commitments. In an interview with DMI, Patrick Fiorani, research and engagement specialist at Glass Lewis, noted that companies involved in commodities production often face calls “to enhance reporting around biodiversity, deforestation and labor rights, while ingredient and food manufacturers tends to face requests for supply chain reporting.”
Since the start of 2023, eight (44.4%) of the 18 nature proposals voted on globally have been directed toward the consumer defensive sector. 2024 proposals asking Dow to report on plastic use and Barrick Gold to commission a water impact report received 26.3% and 25% support, respectively.
Conscious of the growing demand for biodiversity disclosure among shareholders, more consumer defensive companies are proactively strengthening their reporting. In March, U.S. food giant Kellanova, formerly known as Kellogg, committed to report on its impacts on the natural world, while a month later ADM released a third-party assessment on deforestation, both following engagement with Green Century Capital Management.
A busy year for standard setters
While corporate nature-related disclosures are largely voluntarily and unstandardized, this is set to change, thanks to emerging reporting frameworks by well-established and trusted ESG reporting authorities. Both the Taskforce on Nature-related Financial Disclosures (TNFD, following the Taskforce on Climate-Related Financial Disclosures, or TCFD) and the Science Based Targets Network (SBTN) published recommendations for corporate biodiversity reporting in 2023, while the International Sustainability Standards Board (ISSB) revealed in April its intention to research and potentially develop establish biodiversity-related reporting standards.
“In areas such as biodiversity, distinguishing leaders from laggards can be challenging because there is not a consensus on how to measure related impacts,” Fiorani told DMI. “We expect to see a firming up of targets and disclosures soon, thanks to emerging frameworks like TNFD and SBTN.”
“The release of TNFD and SBTN are an important signal about the importance of comprehensive disclosure of nature impacts and dependencies,” Shalit said. “They help companies produce reports that are comprehensive and comparable to each other. It will take time for these reporting frameworks to evolve, and for companies and investors to best learn how to use them but companies can get started now.”
TNFD published its recommendations in September 2023, providing a risk management and disclosure framework for nature-related impacts, dependencies, risks and opportunities. Among other things, TNFD recommends companies disclose metrics and targets used to assess and manage material risks and disclose the effects of nature-related dependencies and impacts on business strategy and financial planning.
320 companies across 46 countries have committed to start making TNFD-aligned disclosures by 2025, including Bank of America, Moody’s and Standard Chartered.
In April, the International Sustainability Standards Board (ISSB) also revealed it is commencing research on nature-related risks and opportunities, with the view to establish a voluntary corporate reporting framework, drawing from TNFD guidance.
SBTN is also in the first stage of a multi-year plan to provide companies with science-based targets for nature. The guide provides insight on sector-level materiality assessments and target-setting, with additional guidance governing disclosures expected in 2025.
“I would recommend that companies begin with one portion of their supply chain. Use a framework that is close to what they are familiar with – so if they currently use TCFD, they could use TNFD for nature reporting – and apply that framework to one component of their supply chain,” Shalit told DMI. “Running pilots will help them understand the framework, and how to begin putting nature management into their company governance, operations and risk assessment.”
Rebecca Sherratt 