International Bodies Seek To Address Corporate Climate Data Demands

Two major corporate reporting standard setters have created a guide to help companies meet growing demand for more useful information about their exposure to climate-related financial risks and opportunities.

The Sustainability Accounting Standards Board (SASB) and the Climate Disclosure Standards Board (CDSB) developed the resource to help bridge the gap between the number of companies that have pledged support for the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD) and those who have been able to follow this up by providing such information.

Madelyn Antoncic, CEO of the SASB Foundation, said companies were showing strong interest in managing their exposure to climate-related risk by committing to the TCFD recommendations, but “few have a clear understanding of how to implement those recommendations”.

Mardi McBrien, managing director at CDSB, added that the guide would benefit companies as well as investors, as the latter could use the reported information “to allocate capital at the scale and pace required to accelerate the transition to a low carbon and climate resilient economy”.

The TCFD, a body established by the Financial Stability Board at the behest of the G20, released its final recommendations in June 2017. According to SASB and CDSB, as at March more than 600 organisations had been registered as “TCFD supporters”.

At the same time, in a status report in September last year the TCFD itself acknowledged that more work needed to be done to support follow-through to actual disclosure.

According to SASB and CDSB, many companies already disclosed some climate-related information, but “the financial implications are often not apparent, and the related performance and risk metrics are often not comparable”.

“Using the CDSB Framework and SASB tools to follow the TCFD recommendations, organisations can provide more effective climate-related disclosures that are comparable within industries and have clear links to material financial impacts,” the organisations said.

Talk to investors

According to the the standard setters’ guide, companies could solicit feedback from engaged investors about the information they needed.

“In recent years, the investor community has begun to call for higher-quality reporting of climate-related and other ESG information – particularly in mainstream reports – and to highlight the lack of comparability among the financially material sustainability information reported by peer companies,” the guide stated.

“These issues affect investors’ decision-making processes, and reflect on the relationship they create with companies. Engaging with investors will help make the disclosure process more useful for both parties, and will benefit shareholder relationships.”

Several large investors have been involved in a pilot project to develop methodologies to analyse their portfolios in line with the TCFD recommendations, and are expected to announce results of this work soon.

SASB and CDSB linked their collaboration to a two-year project to drive better alignment in corporate reporting, which they said was aimed at making it easier for companies to prepare “coherent disclosures that meet the needs of capital markets and society”.

The European Commission is expected to publish new guidelines on climate-related disclosures by companies by the end of June. The guidelines are intended as a supplement to existing EU rules on non-financial reporting by certain companies.

ESMA, the EU financial markets regulator, has encouraged the Commission to consider incorporating in the rules themselves some or all of the requirements currently included in the accompanying guidelines, given the need to improve the comparability and quality of reporting and address the apparent limited use of the guidelines by issuers.

The Principles for Responsible Investment recently announced it would require signatories to report how they have considered specific climate change risks in their portfolios from 2020, based on the framework developed by the TCFD.