What climate-related information to disclose? It’s a moving target these days.
It seems like every major country jurisdiction is fiddling with what and how to disclose environmental and social information. There is also a great deal of corporate reporting consolidation globally. Often the disclosure priorities are those that either (or both) have a substantial impact on the company or its stakeholders or are considered material information by a well-known standard setting board (SEC, SASB, GRI etc. see more here).
Contrary to the historical variety and scope of the various standard setters, a great deal of consolidation has happened in the last few years. And, notably, among the largest standard setting body. The International Financial Reporting Standards (IFRS), covering some 140 country jurisdictions, requires disclosures about physical risks, transition risks and climate-related opportunities. It fully incorporates the Task Force on Climate-Related Financial Disclosures (TCFD) and includes the Sustainability Accounting Standards Board’s climate-related industry based requirements. The TCFD recommendations on climate-related financial disclosures are designed to solicit decision-useful, forward-looking information that can be included in mainstream financial filings. The recommendations are structured around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics/targets. SASB provides individual standards, by industry that identify sustainability factors most likely to have material financial impacts on a company to inform investors. And, in November 2021 during COP26, IFRS announced the formation of a new International Sustainability Standards Board (ISSB) as yet another unifying attempt.
Recently, some executives raised questions on how the ISSB’s rules would interact with the U.S. Securities and Exchange Commission’s (SEC) proposal to require companies to report on greenhouse-gas emissions and climate risks. Included in the SEC’s proposal are disclosure of the processes and frequency by which boards committees discuss climate-related risks and how they consider these exposures in relation to the registrant’s business strategy, risk management and financial oversight. Also potentially required is disclosure about whether and how the board sets climate-related targets or goals and how members oversee progress toward achieving these aims would also be required. The disclosures are modeled in part on the TCFD disclosure framework, signifying the future coalescing around this framework as the standard.
There have also been other recent calls for mandated environmental and social reporting. In April 2022, Canada released its budget to include mandated reporting of climate-related financial risks (based on TCFD) for federally-regulated financial institutions. In December 2021, the Singapore Exchange mandated that all issuers must provide climate reporting in their sustainability reports. And in October 2021, the UK government brought in rules requiring UK based companies to disclose climate-related financial information in the form of the Corporate Sustainability Reporting Directive or CSRD. The first set of standards by CSRD will be in place by October 2022.
Still, despite these welcome attempts at consolidation, some companies will find themselves putting together three reports – one for the SEC, one for the ISSB and one in the EU via the CSRD.