What to expect in 2022?
BRODIE’s outlook on the six key sustainability trends we are seeing and where we expect growth in the year ahead.
1. Climate action not rhetoric
Capitalising on momentum from COP26 in Glasgow last year, the race against climate change is accelerating. It is time for companies and countries to move from talking about net zero and emissions reductions targets to demonstrating the real, measurable efforts they are making to meet them.
There is a long way to go, with less than one-third of UK businesses having a net zero strategy in place. However, companies without demonstrable net zero action plans will risk accusations of greenwashing from NGOs, consumers and even investors, who are expecting more from companies by way of climate pledges. For instance, Aviva Investors recently wrote to the 1500 companies it invests in calling for net zero goals to be underpinned by Science Based Targets and supported by accurate and rigorous resources and disclosure.
The WEF 2022 Global Risks Report ranks “climate change inaction” top among short-, medium- and long-term risks. In fact, “climate action failure” and “extreme weather” have been among the top three risks in the last four WEF annual risks reports. In the next few months, the IPCC will publish its next two major reviews of climate science, which will reiterate the urgency of moving beyond words to climate action.
The scale of Scope 3 emissions (those from the entire value chain) is becoming increasingly apparent and will become a key focus area for companies looking to reduce their impact and deliver on climate goals. To do so, businesses will need to engage more deeply with suppliers. Early examples of this include Amazon’s Climate Pledge and Walmart’s new sustainability finance platform, which offers funding to suppliers on the condition they cut GHG emissions. Strategic supply chain partnerships will also become more commonplace as businesses strive to deliver systemic carbon reductions across thousands of suppliers. Walmart and HSBC’s financing partnership and Starbucks and Arla UK’s dairy farming partnership are two recent examples.
2. Demand for Disclosure
There is an increasing demand for transparency around sustainability goals and companies will have to provide more evidence, to multiple stakeholders, that they are planning for and delivering on these commitments.
New global climate disclosure regulations will force companies to demonstrate genuine progress towards decarbonisation. Mandatory Task Force on Climate-related Financial Disclosure (TCFD) reporting will be enforced in the UK from April 2022, and other countries such as Japan are likely to follow suit. In the U.S. the American Securities and Exchange Commission is likely to introduce rules demanding that firms disclose how climate change, and efforts to fight it, will affect their business. Elsewhere, mandatory reporting rules are coming into effect in India, China, and Singapore, with other regulatory bodies, including those within the European Union, mulling more stringent rules on disclosure.
The demand for disclosure and transparency is also rising in supply chain due diligence, particularly relating to human rights and deforestation. Companies are facing increasing pressure to adapt supply chain practices to comply with new legislation. For instance, the EU intends to mandate human rights due diligence for all large companies operating in the bloc, in addition to due diligence requirements on commodities linked to deforestation such as beef, palm and soy.
In combination with regulatory changes, the formation of the ISSB (Internal Sustainability Standards Board) and the VRF (Value Reporting Foundation) last year, and the consolidating of the latter and CDP (Carbon Disclosure Project) by ISSB this year, demonstrates a convergence in ESG standards. This will likely result in more simplified, comparable and comprehensive company disclosures.
These changes all signal a push for better data, increased transparency, and greater responsibility for organisations to provide assurance on their sustainability objectives – and exposure for those making empty promises.
3. Waking up to our impact on nature and biodiversity
Companies are finally registering how dependent their operations and supply chains are on the natural environment. Approximately half of all economic activity - $44 trillion of global GDP – is estimated to rely on nature, in at least a moderate capacity.
The focus on biodiversity loss is intensifying and, with it, understanding of its links with climate crisis and natural systems loss. The resulting impact on society and the economy is also being recognised, so businesses and governments will increasingly pursue nature-positive action, reduced deforestation, and regenerative agriculture practices.
Regenerative agriculture is the latest buzzword in the food and agriculture sectors, where companies are most at risk from nature loss and so are actively seeking solutions. Recent announcements of corporate commitments, NGO partnerships, and government funding target programs which support the rapid scaling of regenerative farming practices, such as paying farmers to improve soil health, training on best-practice and investing in innovation of sustainable crop practices.
With reports last year showing that deforestation of Brazil's Amazon rainforest has hit its highest level in over 15 years, coupled with deforestation pledges at COP26 from world leaders and the major agricultural commodity traders, we expect to see companies scaling up their efforts on eliminating deforestation in supply chains. If they don’t, they risk reputational damage if they are called out by NGOs and the media.
2022 promises to put biodiversity firmly on government and corporate agendas. It will be brought to the forefront with the second part of the UN Biodiversity Conference (COP15) in May and the continued development of the Taskforce on Nature-related Financial Disclosures (TNFD), released for consultation in early this year (although the final framework is not expected until 2023). COP15 is expected to result in a Post-2020 Biodiversity Framework, which will include 21 targets to put the world on the path to “living in harmony with nature” by 2050. The TNFD will support assessment and disclosure of nature-related risks and should, theoretically, move investments away from nature-negative outcomes.
These new frameworks will be welcome guidance in helping companies understand their dependence on nature and identify opportunities to reduce their biodiversity impacts.
4. Businesses signposting sustainability for consumers
Evolving consumer demographics are generating more demand for sustainable products and services. Two-thirds of Millennials and more than 70% of Gen-Z say they want to lead healthier, more environmentally friendly lifestyles.
As a result, there is a growing expectation that companies will support and guide consumers to make more sustainable decisions, by providing transparent information on carbon footprint and sustainability credentials of their products. For instance, a traffic light system to indicate the carbon footprint of food products is currently being piloted in the UK. In 2021 we saw “eco-label’ announcements from companies including Lidl, Unilever and Compass Group. Other examples include Walmart’s ‘Build for Better’ platform, and Google’s implementation of climate considerations in user-facing applications, for example when booking flights, travelling by car, and shopping online.
We expect to see more companies following suit and engaging consumers on the impact of their choices, whether that is through ‘eco-labelling’, or using tools such as brand activation and marketing to attract consumer attention and drive engagement.
5. COVID continues to disrupt supply chains
The pandemic has exposed the fragility of many global supply chains. According to research conducted by Accenture, 94% of Fortune 1000 companies are seeing ongoing supply chain disruptions owing to COVID-19, and it may be some time until we see a return to ‘normal’.
To mitigate any further risk, buying teams may want – or need - to diversify supplier portfolios, possibly resorting to working with suppliers outside their risk assessment procedures. However, to build greater true resilience and security of supply, we will see a growing emphasis on strategic relationship with longer-term suppliers, particularly within the food sector. The strengthening of these relationships creates added benefits and opportunities to drive improvements on environmental and social issues.
Companies will seek to build resilient supply chains in other ways, too, such as with AI and automation technology - enabling simplification and minimising trade disruptions. Research from Gartner shows that market growth for real-time transportation visibility platforms will be rapid, with half of “global product-centric enterprises” investing in the tech by 2023. One example of this is Portcast, a logistics start-up company which gathers shipping data from numerous sources to predict container arrival times and forecast cargo demand.
The rise of more sophisticated, technology-enabled tools in this space will help to minimise the impact of pandemic-related issues on supply chains. However, we are learning to expect the unexpected and as a result will likely see continually evolving and increasingly creative supply chain solutions.
6. Face-off: Sustainability ambitions vs. Business fundamentals
The poster-child of sustainable business, Unilever, neatly illustrates an emerging, perhaps existential, challenge between shareholders who feel that ESG is a ‘woke’ distraction from the business of making money and others who feel their companies are still not doing enough to become sustainable.
Unilever’s recent problems, and resulting share price slide, signal a tension emerging between words and fundamentals. At the heart of this face-off is a desire to surface a quantifiable business case, not just for investors but for senior business leaders too, that proves the short, medium and long term value of pursuing and transitioning to more sustainable business.
At the same time, we are seeing the emergence of a small but vocal and potentially influential group of people determined to undermine the shift to a more sustainable way of doing business, like a UK body called Net Zero Watch which is committed to showing the ‘true costs of net zero’. These groups are unlikely to stop the shift but they will make the journey more complex and costly.
In 2022, we expect to see further commentary and challenge over the transition for companies and governments to operating ‘sustainably’, with much more focus on demonstrating the business case.
Get in touch
Do get in touch if you have any thoughts, you think we’ve missed something, or you’d like to discuss how we can help you with your sustainability goals.
BRODIE develops sustainability trends and market insights for a number of leading companies. We have also developed a breadth of sustainability strategies and action plans, including executive and stakeholder engagement and communications as well as business analysis and planning.
Email us at hello@brodiepartners.com