Sustainability remains a top priority for corporate boards this year as industries field growing demand from investors, consumers, and governments for more accountability, transparency, and responsiveness.
Major developments last year, such as the Securities and Exchange Commission’s proposed climate-risk disclosure rules, criticisms of ESG ratings metrics, and growing concerns about greenwashing, raised the bar for corporate sustainability practices. The following stand out as sustainability priorities for 2023.
Biodiversity
Biodiversity rises to the top of the corporate priority list—and for good reason. While the world has been focusing on rising global temperatures, it also has been losing biodiversity at an alarming rate. A 2022 World Wildlife Fund report indicates that wildlife populations have declined by 69% since 1970.
Habitat destruction, water scarcity, environmental pollution, invasive species, wildlife poaching, and over-exploitation are driving biodiversity loss. Companies from multiple sectors can help turn the tide by making informed decisions about land and water use, habitat preservation, waste stream management, and supply chain impacts, and by working cooperatively with local communities.
At the UN’s COP15 Biodiversity Conference in December, 190 countries approved a landmark agreement to protect 30% of the planet’s land and seas. The Biden administration separately announced its America the Beautiful plan to conserve at least 30% of US lands and water by 2030.
In the private sector, investors increasingly consider biodiversity assessments, and nonprofits rank companies according to biodiversity-impact metrics, such as the Ecogain Biodiversity Index.
Methane
Reducing carbon dioxide emissions is important, but methane has a relatively worse immediate impact on global warming. Methane traps about 80 times as much heat as carbon dioxide, on average, in the first 20 years in our atmosphere and contributes to at least one-quarter of today’s climate warming.
With this in mind, the Environmental Protection Agency’s recently proposed emission guidelines under the Clean Air Act seek to expand methane emissions reductions and monitoring. Technological advances are likewise raising global awareness of methane emissions.
New satellite-based monitoring spots otherwise invisible methane leaks and identifies significant emitters. MethaneSAT, set to launch later this year, will be even more advanced, locating and quantifying methane anywhere on earth.
It will join the new satellite-based Methane Alert Response System that the UN announced at COP27. The California Air Resources Board just proposed amendments to its oil and gas methane regulations, which include use of satellites to detect methane leaks from oil and gas facilities.
Carbon Offsets
Many net-zero pledges will be met through purchase of carbon offsets. In 2022, public concern about this practice focused on the additionality, leakage, and integrity of carbon offsets that are created through reforestation, land preservation, carbon capture and other projects.
Lack of standardization and government regulation has also increased uncertainty for all participants in carbon markets, creating risks for developers of credit-generating projects and offset purchasers. While expectations were high, COP27 did not produce new agreements to address these risks and uncertainties.
This year, demand for higher-quality offsets will value projects that were subjected to due diligence and rely upon reputable third-party verification. Companies on both sides of the credit transaction will likewise experience pressure to prove the objective environmental value of a project.
This pressure may include new regulatory requirements to disclose reliance on offsets, as suggested in the SEC’s proposed climate disclosure rules. Companies purchasing offsets generated by permanent and quantifiable projects will therefore be in the best position moving forward.
Supply Chains
Most companies have taken steps to manage compliance in the first level of their supply chain, but often have less visibility into activity throughout the broader network. Implementation of the Uyghur Forced Labor Prevention Act and Germany’s recent adoption of a supply chain due diligence law require organizations to dig deeper and provide greater transparency.
Companies face expectations to conduct more due diligence in their supply chains to ensure all links in the chain are consistent with stated environmental, social, and governance commitments—biodiversity included. A supplier code of conduct is a good start, but it should also be comprehensive and implemented downstream.
Climate Adaptation and Resilience
While many companies have pursued long-term mitigation and decarbonization solutions, natural disasters and extreme weather events continue to underscore the importance of investing in climate change preparedness, such as adaptation and resilience solutions.
The World Economic Forum’s Global Risks Report 2023 lists “failure of climate change adaptation” as the second-most severe long-term global risk, after “failure to mitigate climate change.”
The latest report from the Intergovernmental Panel on Climate Change highlights the key role of adaptation in reducing exposure and vulnerability to climate change. It identifies methods such as improved water-use efficiency, resilient power systems, and planned relocation resettlement for climate-vulnerable communities.
Similarly, the Global Commission on Adaptation estimates that investing $1.8 trillion from 2020 to 2030 could generate $7.1 trillion in total net benefits in early warning systems, climate-resilient infrastructure, improved dryland agriculture crop production, global mangrove protection, and more resilient water resources.
It is tempting to chase a seemingly endless array of “sustainable” practices and buzz words. Identifying the areas that are most relevant and impactful for each business is the key to long-term success.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
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Kevin Feldis is a partner at Perkins Coie with a global practice focused on government enforcement, internal investigations, crisis response, business disputes, white-collar cases, and ESG compliance.
Marcy Hupp is senior counsel at Perkins Coie where she advises clients on environmental compliance, litigation matters, and environmental compliance.
Angela Luh is an associate at Perkins Coie. Her environmental, energy, and natural resources practice spans litigation, regulatory, and transactional matters.
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