COP27 must deliver results that improve transparency, tracking and accountability mechanisms, which are essential to ensuring that governments and non-state actors actually deliver on their net-zero commitments.
Environmental disclosure is one of these critical mechanisms. Clear and regular disclosure allows companies, financial institutions, cities, states and regions, to show stakeholders they are upholding their commitments. With over 90% of global emissions now covered by climate targets, it has never been more important to ensure that action is being taken to ensure progress towards meeting these targets.
Measuring and managing environmental risks through disclosure on climate, deforestation and water security, also helps companies to build resilience and plan for the future. 2022 has been a year of extreme weather across the world: from record breaking heatwaves in Europe and the US to devastating flooding in Pakistan. This, alongside IPCC’s Sixth Assessment Report, has made even clearer the need for companies to increase their accounting for risk and adaptation measures. Adaptation costs must be a central component of sustainable, resilient finance.
Financial institutions must also disclose the impact of their financing activities. CDP research shows that portfolio emissions of global financial institutions are on average over 700x larger than direct emissions. However only 25% of financial institutions disclosing through CDP are currently reporting portfolio emissions – a critical data gap.
Soon, many companies and financial institutions will be required to disclose environmental data under mandatory disclosure regulation. Since COP26, even more countries have announced their intention to mandate disclosure, including a landmark moment in the US this year, when the Securities and Exchange Commission (SEC) published its proposed climate disclosure rule.
As encouraging as the wave of support for mandatory disclosure is, CDP is urging governments strive for high-quality mandatory disclosure regulation as set out in our policy brief. A majority of existing and incoming regulation requires companies disclose on climate only. This is an important first step, but it must be built upon to include a wider range of environmental issues, including forests and water.
The world is facing a water crisis which is growing with each passing year. To deliver the benefits of disclosure at the scale needed, we need governments globally to implement a set of national policies to mandate disclosure on water for all companies and financial institutions. Where water disclosure is already implemented, governments should ensure the metrics used are comprehensive to support high-quality disclosure that drives action. Mandatory disclosure should also require companies to disclose information wider than value creation, or the impact on the firm, but on impacts on people and planet.
The Global Stocktake (GST), which kicked off at COP26, is also set to be seminal and has the potential to do more than just track progress: if undertaken effectively, it can play a constructive role in identifying gaps and increasing ambition. It is therefore critical that the GST is purpose-driven, inclusive, coherent, and evidence-focused, non-state actors being an integral part of this process.
To ensure that non-state actor action and data are adequately fed into the GST, there needs to be clear processes for all non-Party stakeholders, including businesses, cities, states, and regions, as well as think tanks and NGOs, to showcase evidence and data. CDP has found that currently, many are unaware of how to engage with the stocktake, how their progress can be accounted for and how they contribute to achieving Nationally Determined Contributions (NDCs).
So, it is critical that this is addressed at COP27, and a clear mechanism for incorporating this data into the global stocktake is created, which can help to promote both transparency and accountability. This can be done in two ways: by ensuring non-state action is integrated through NDCs and Biennial Transparency Reports, alongside direct submissions to the global stocktake. A streamlined process for direct submissions to the GST should make use of existing initiatives, such as the UN Global Climate Action Portal. CDP has laid out our proposal in more detail in our recent policy brief ‘The Paris Agreement’s Global Stocktake’.