Organisations are backing up traditional financial reports with information concerning their sustainability performance. Sometimes by choice, but more often than not it’s due to internal or external pressure.
Within the realm of non-financial reporting, growing attention is being posed to corporate disclosure of climate-related information.
By that, we mean:
The publication of information concerning the business impacts on climate and vice versa.
- European Commission
Releasing information about one organisation’s impacts on climate is already part of wider ESG reporting frameworks. Such disclosure is requested within the following non-financial reporting standards:
However, in this article, we dedicate specific attention to reporting standards that focus on climate action.
This article explores the following climate-related disclosure standards:
CDP has developed a global disclosure system for organisations, cities and countries to disclose their impacts on:
The wide collection of environmental data managed by CDP is used by investors to:
Disclosing entities submit a questionnaire based on which they are then assigned a score ranging from A to F.
A-Score companies fully disclose their action on climate change, deforestation and water management. These companies lead the way and set in place best practices. On top of that, A-listed entities:
The company is managing its impacts on the environment. However, there is still a gap that separates it from leaders in action against climate change, deforestation and water security.
The company is aware of the mutual relationship between its operations and environmental impacts. The C or C- Score is based on the extent to which the organisation evaluates how sustainability issues affect the business.
Every question in the CDP questionnaire scores for disclosure. Yet, there is space for improvement in terms of the actions undertaken to tackle environmental issues. Hence, companies that score a D or D- are just at the beginning of their climate journey.
F Scores are attributed to companies that fail to report according to CDP.
Entities interested in disclosing according to CDP can submit the questionnaire from April to August. The final scores are released before the end of the year, in December.
2022 results just got published on the CDP website, where:
To get ready for submission, you can read the guidelines published by CDP here.
Finally, we can expect CDP to implement a few changes by 2025:
Task Force on Climate-related Financial Disclosure
The TCFD is an initiative created by the Financial Stability Board to improve transparency on climate-related financial information.
The ultimate goal of the TCFD is to provide clear and quality information to correctly price climate-related risks and opportunities.
Reporting organisations are recommended to report on four key areas:
Under the last point, reporting entities should disclose Scope 1, Scope 2, and if relevant Scope 3 GHG emissions.
Additionally, the TCFD defines seven principles for quality disclosure. Disclosed information should be:
Task Force on Nature-related Financial Disclosures
Like the TCFD, the TNFD is developing a framework to report on nature-related risks.
Once again, the goal is to provide the right information for financial resources to support nature-positive initiatives.
The framework is under development through an open innovation approach that involves science bodies and other relevant stakeholders.
A beta version of the framework is already available since November 2022. The full version ready for market adoption is expected in September 2023.
The disclosure recommendations developed in the latest beta version of the framework adopt the same structure as the TCFD framework. Therefore, reporting entities should disclose:
The TNFD framework is centred on the following principles:
Last March, the US Security and Exchange Commission (SEC) proposed a new rule mandating public companies to improve carbon disclosure.
If adopted, the SEC’s rule would request disclosure of:
If the rule comes into force, US large companies will have to report on 2023 data starting in 2024. For smaller companies the rule would apply with one year delay, starting in 2025.
As we see more and more carbon disclosure standards being developed, climate-related reporting is growing at a rapid pace.
The latest EY Global Climate Risk Barometer identifies an increase in climate disclosure by companies.
The growth in the disclosure can be attributed to the:
The 2022 TCFD Status Report finds that 80% of companies disclosed in line with the TCFD framework. However, there is still room for improvement concerning the level of detail of the disclosed information.
In fact, out of the 11 recommended disclosures of the TCFD framework, only 4% of surveyed organisations cover all of them.
If you're wondering why your organisation should disclose information on climate-related risks, here is a list of the main benefits:
Before closing this article, we want to cite some findings highlighted by the fourth EY Global Climate Risk Barometer.
Despite the growth in carbon disclosure, organisations are still lagging in translating their claims into practical strategies.
Additionally, organisations are reluctant to integrate climate reporting with their financial disclosure: only 29% of companies do so.
This can be attributed to a lack of knowledge in understanding climate-related risks across financial teams.
To conclude, carbon disclosure contributes to the decarbonisation process by tracking progress and keeping organisations accountable.
However, on top of that organisations need to: