Climate reporting has been inadequate
Over the last few decades, there has been public pressure on business to reduce carbon emissions and other environmental impacts. Many businesses have responded by publishing information about their environmental performance. Some countries (Denmark, the UK, France, Germany, USA and India) have mandated Environmental, Social and Governance (ESG) reports for some businesses. However there has been little consistency in what is reported, and limited or no verification. This makes it difficult to assess how well an organisation is preparing for a low carbon world and to compare its performance with others in the industry sector.
This matters. Those investing in, lending to or insuring organisations are aware of the profound impacts that climate change will have on the economy and they want to minimise this damage. To help them do this, the financial sector needs a robust way of comparing environmental performances so that they understand which businesses are best placed to transition to a low carbon business model. Proper assessment of environmental impact is also a problem for the public and voluntary sectors, if they want to attract investment, loans or donations, or to reduce their environmental impacts.
Diversity in climate reporting
Climate reporting schemes have emerged from a variety of sources - the UN, industry groups, NGOs, governments and private sector consultancies. They can have one or more of the following functions:
Climate reporting schemes are aligning
There have been some attempts to make ESG reporting more robust and consistent, such as the GRI and the Global Compact (more information about these below). A few years ago the G20 took up the challenge, appointing the "Taskforce on Climate-related Financial Disclosure (TCFD)" to develop a methodology to improve reporting. The TCFD rejected the idea of having a single set of reporting measurements (metrics), as this approach would not capture the different ways in which businesses interact with the environment according to their business sector, size, geographical location and many other factors. Instead, it was decided to recommend a reporting framework that existing reporting schemes could comply with.
An increasing number of climate reporting schemes are now aligning with TCFD recommendations to make climate reporting more consistent and robust. The major climate polluters are being put under pressure to comply with TCFD recommendations through Climate Action 100+ and other investor initiatives. In November 2020, the UK became the first country to require certain companies to report in line with TCFD recommendations and there are increasing calls for this to be mandated worldwide.
Some industry groups or climate initiatives have sought to improve reporting, by specifying the particular climate reporting scheme a member should use. For example, organisations wishing to publish their climate commitments on the UN's Global Climate Action Portal need to use specified 'data providers' - see "Marrakech Partnership". Also, the "Climate Action 100+" group of investors specifies which reporting metrics companies should use and companies not complying will find their shares downgraded in terms of investment rating. In 2020, the most widely used accountancy standard, IFRS, announced its first official step towards setting a global ESG standard. This could potentially lead to a global mandatory environmental reporting standard, bringing together input from existing schemes.
See an overview of the most widely known schemes by clicking on the button below
Over the last few decades, there has been public pressure on business to reduce carbon emissions and other environmental impacts. Many businesses have responded by publishing information about their environmental performance. Some countries (Denmark, the UK, France, Germany, USA and India) have mandated Environmental, Social and Governance (ESG) reports for some businesses. However there has been little consistency in what is reported, and limited or no verification. This makes it difficult to assess how well an organisation is preparing for a low carbon world and to compare its performance with others in the industry sector.
This matters. Those investing in, lending to or insuring organisations are aware of the profound impacts that climate change will have on the economy and they want to minimise this damage. To help them do this, the financial sector needs a robust way of comparing environmental performances so that they understand which businesses are best placed to transition to a low carbon business model. Proper assessment of environmental impact is also a problem for the public and voluntary sectors, if they want to attract investment, loans or donations, or to reduce their environmental impacts.
Diversity in climate reporting
Climate reporting schemes have emerged from a variety of sources - the UN, industry groups, NGOs, governments and private sector consultancies. They can have one or more of the following functions:
- reporting on current climate impacts
- helping an organisation to put in place the right policies to transform to a low carbon future
- reporting on how an organisation is planning for a low carbon future
- helping an organisation to take up new opportunities e.g. renewables, the sharing economy
Climate reporting schemes are aligning
There have been some attempts to make ESG reporting more robust and consistent, such as the GRI and the Global Compact (more information about these below). A few years ago the G20 took up the challenge, appointing the "Taskforce on Climate-related Financial Disclosure (TCFD)" to develop a methodology to improve reporting. The TCFD rejected the idea of having a single set of reporting measurements (metrics), as this approach would not capture the different ways in which businesses interact with the environment according to their business sector, size, geographical location and many other factors. Instead, it was decided to recommend a reporting framework that existing reporting schemes could comply with.
An increasing number of climate reporting schemes are now aligning with TCFD recommendations to make climate reporting more consistent and robust. The major climate polluters are being put under pressure to comply with TCFD recommendations through Climate Action 100+ and other investor initiatives. In November 2020, the UK became the first country to require certain companies to report in line with TCFD recommendations and there are increasing calls for this to be mandated worldwide.
Some industry groups or climate initiatives have sought to improve reporting, by specifying the particular climate reporting scheme a member should use. For example, organisations wishing to publish their climate commitments on the UN's Global Climate Action Portal need to use specified 'data providers' - see "Marrakech Partnership". Also, the "Climate Action 100+" group of investors specifies which reporting metrics companies should use and companies not complying will find their shares downgraded in terms of investment rating. In 2020, the most widely used accountancy standard, IFRS, announced its first official step towards setting a global ESG standard. This could potentially lead to a global mandatory environmental reporting standard, bringing together input from existing schemes.
See an overview of the most widely known schemes by clicking on the button below
FURTHER INFORMATION
Industry Today
mandatory sustainability reporting
https://industrytoday.com/mandatory-sustainability-reporting/
IFRS
consultation on sustainability reporting
https://www.ifrs.org/news-and-events/2020/09/ifrs-foundation-trustees-consult-on-global-approach-to-sustainability-reporting/
overview of sustainability reporting, IFRS
https://www.ifrs.org/news-and-events/2020/05/sustainability-reporting-and-its-relevance-to-the-ifrs-foundation/
agreement by CDP, CDSB, GRI, IIRC and SASB
to develop a more comprehensive sustainability reporting system
https://29kjwb3armds2g3gi4lq2sx1-wpengine.netdna-ssl.com/wp-content/uploads/Press-release-Comprehensive-Corporate-Reporting-paper-11-Sep-20.pdf
Industry Today
mandatory sustainability reporting
https://industrytoday.com/mandatory-sustainability-reporting/
IFRS
consultation on sustainability reporting
https://www.ifrs.org/news-and-events/2020/09/ifrs-foundation-trustees-consult-on-global-approach-to-sustainability-reporting/
overview of sustainability reporting, IFRS
https://www.ifrs.org/news-and-events/2020/05/sustainability-reporting-and-its-relevance-to-the-ifrs-foundation/
agreement by CDP, CDSB, GRI, IIRC and SASB
to develop a more comprehensive sustainability reporting system
https://29kjwb3armds2g3gi4lq2sx1-wpengine.netdna-ssl.com/wp-content/uploads/Press-release-Comprehensive-Corporate-Reporting-paper-11-Sep-20.pdf