Corporate sustainability reporting is gradually becoming mandatory across the globe.
But what do companies need to include in their climate disclosures?
To be effective, companies need to be reporting in a consistent manner, so that comparisons can be made across companies in different countries and industries.
Investors are particularly pushing for this, calling for high-quality, transparent, reliable, and comparable reporting by companies on environmental matters.
So, this is why there are various bodies working on defining global standards for corporate climate disclosure – frameworks governing what companies should be including in their reporting. The most notable of these, currently, is the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations.
Even if sustainability reporting isn’t mandatory for your business yet, it’s highly likely that it will be in the next few years. And it’s also likely that your government will use standards like the TCFD to build their own legislation and regulations on corporate sustainability reporting – so it’s worth understanding what’s expected within these standards to know how this will impact your current corporate reporting cycle. Some companies are also choosing to adopt these standards voluntarily, to gain competitive advantage as investors, customers, and stakeholders increasingly demand climate disclosure.
So, in this article we’ll cover:
For an overview of current and upcoming corporate climate disclosure regulations across the world, head to our legislation overview blog – we keep it up to date with all the latest on sustainability-related legislation for businesses.
The Task Force on Climate-Related Financial Disclosures (TCFD) was set up by the Financial Stability Board (FSB) to develop ‘a comprehensive global baseline of high-quality sustainability disclosure standards’.
In 2020 they published their recommendations for effective climate disclosure.
The recommendations have had a big influence on global disclosure recommendations and requirements since then.
And many influential investment firms have also adopted the framework in their evaluation of investments, including BNP Paribas, BlackRock, and Aviva.
In terms of what should be included in sustainability reporting, the TCFD recommends 4 key areas of climate disclosure:
Within these 4 areas, the TCFD recommends 11 disclosures:
Metrics and targets:
And the TCFD also outline 7 principles for effective, high-quality disclosure:
The International Sustainability Standards Board (ISSB) was determined as a need during COP26 in 2021 – an international standard-setting board for climate disclosure and reporting. It has since been developed by the International Financial Reporting Standards (IFRS).
Its aim is to create a comprehensive global baseline of high-quality sustainability disclosure standards, building on the work of the TCFD.
Essentially, the group acknowledged that there are currently several sustainability standards, frameworks, and metrics out there which is causing confusion both for companies trying to report on sustainability, and for those trying to interpret the reports.
And, importantly, one of their core aims is to bring sustainability reporting within the normal financial reporting cycle of a business – so that sustainability reporting is not a standalone activity, but becomes part of a company’s core reporting and governance processes.
If successful, the newly created ISSB standard will become the core globally accepted standard for corporate climate disclosure.
In March 2022 the Board released the drafts of two Standards for public consultation. These were:
This draft standard focuses on the disclosure of information on sustainability-related risks and opportunities.
A few key points to note within the draft are:
This draft standard focuses on reporting standards for identifying, measuring, and reporting the climate impact of a business.
A few key points to note within the draft are:
The ISSB is now revising these based on feedback from the consultation period, with a planned release date for Q2 2023 – and more to follow.
Once any final standard is released we’ll update this post with the details – and you can sign up to our monthly newsletter to be notified.
We mentioned earlier that the landscape on standards and frameworks for effective sustainability reporting is a broad one – and it is. There are many legacy frameworks and initiatives out there, some of which remain influential.
We’d recommend focusing on the TCFD and ISSB as they’re the standards that are currently creating the path forward for global standards.
But, to give a flavour of what’s out there, some of the other standards include:
If you’re interested in exploring the whole landscape of different standards, frameworks, and guidance for corporate sustainability reporting, then take a look at the ‘climate disclosure microsite’ by Chapter Zero and The Hughes Hall Centre for Climate Engagement. It visually summarises the key players within climate disclosure standards.
Even if your company isn’t yet included in those required to fulfil mandatory climate disclosure requirements in the countries you operate in, it’s a good idea to get ahead of the game. Requirements are highly likely to continue being rolled out to encompass all sizes of businesses – plus if you want to take advantage of the commercial opportunity we’ve outlined above, you need to act quickly to stay ahead of your competition.
There are plenty of actions to get started with to put you in good stead for the changes:
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Legislation requiring companies to report on sustainability – their environmental impact and the risks and opportunities facing the business – is upcoming across the globe, from the EU Corporate Sustainability Reporting Directive to the US proposed SEC climate disclosure rule.