First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive
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Find out more at https://www.cdsb.net/NFRreview Following the first year of reporting under the EU Non-Financial Information Directive (2014/95/EU), CDSB and CDP conducted a review of corporate disclosure of climate change and environmental information across Europe.
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First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive
- 1. December 18 | Tweet @CDSBGlobal #NFRD First steps Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive
- 2. December 18 | Tweet @CDSBGlobal #NFRD To create the enabling conditions for material climate change and natural capital information to be integrated into mainstream reporting. Climate Disclosure Standards Board
- 3. December 18 | Tweet @CDSBGlobal #NFRD 3 The CDSB Framework is referenced in stock exchange guidelines: • London Stock Exchange & Borsa Italiana • Australian Securities Exchange • Egypt Stock Exchange • Santiago de Chile Stock Exchange • Singapore Stock Exchange European Union • Referenced in the EU Commission guidelines on non-financial reporting United Kingdom • CDSB Framework referenced in guidance to Companies Act reporting rquirements Canada • Referenced in Expert Panel on Sustainable Finance interim report First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive
- 4. December 18 | Tweet @CDSBGlobal #NFRD • 370+ Framework users • 32 countries worldwide • US$ 5.2 trillion market capitalisation • 10 sectors 4 cdsb.net/framework First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive CDSB Framework For reporting environmental information, natural capital and associated business impacts
- 5. December 18 | Tweet @CDSBGlobal #NFRD The Directive “The objective is to increase EU companies’ transparency and performance on environmental and social matters and, therefore, to contribute effectively to long-term economic growth and employment.” Non-Financial Reporting Directive 2014/95/EU (NFRD) on the disclosure of non- financial and diversity information First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive 5
- 6. December 18 | Tweet @CDSBGlobal #NFRD The Directive What? • business model; • policies pursued by the group, including due diligence processes implemented; • the outcome of those policies; • the principal risks linked to the group’s operations … which are likely to cause adverse impacts …, and how the group manages those risks; • non-financial KPIs. Requirements in practice First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive 6
- 7. December 18 | Tweet @CDSBGlobal #NFRD Task Force for Climate-related Financial Disclosures First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive www.fsb-tcfd.org 7
- 8. December 18 | Tweet @CDSBGlobal #NFRD Project overview • European Commission’s review of the Directive and Guidelines + European Commission fitness check review + Updated guidelines in line with the TCFD due in Q2, 2019 • Purpose of the review + Generate an evidence base of corporate reporting practices + Examine opportunities to incorporate aspects of the TCFD into the NFRD • Scope of the review: + 80 in depth – Core Sample. 500 high level – Control Sample + Environmental matters including climate change + Management reports only + 10 questions covering disclosure requirements of the NFR Directive and TCFD First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive 8
- 9. December 18 | Tweet @CDSBGlobal #NFRD Geography & sectors of Core Sample 9 Sector No. of companies Materials & Buildings 21 Banks 19 Agriculture, Food and Forest Product 13 Energy 11 Transportation 10 Insurance 4 Asset Owners 1 Asset Managers 1 First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive
- 10. December 18 | Tweet @CDSBGlobal #NFRD Geography & sectors of Control Sample First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive 10
- 11. December 18 | Tweet @CDSBGlobal #NFRD Business model • Elaborate the definition and content requirements of a business model, for example, by adopting or referencing definitions offered by the International Integrated Reporting Framework or OECD • Elaborate on the connection between business model descriptions and principal risk disclosures • No standardised approach to describing business models • 83% describe their business model • Only 44% do so with any reference to climate or environment Key findings Proposals for policymakers Core sample (80 companies) First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive 11
- 12. December 18 | Tweet @CDSBGlobal #NFRD Policies pursued and related due diligence Proposals for policymakers • Elaborate on ‘policies pursued in relation to environmental matters’ in the NFRD by listing which aspects of environmental and climate policy to be included • Require disclosure of the links between the financial impacts of material environmental and climate change matters, policies and risks Key findings Core sample (80 companies) First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive 12 • 70% have an environmental policy or strategy and 20% have a climate policy or strategy • Companies increasingly linking environmental policy with financial impacts: 76% disclose role of environment/climate change in their financing and investments
- 13. December 18 | Tweet @CDSBGlobal #NFRD Outcomes of policies • There are multiple approaches to disclosing outcomes of policies related to environment and climate-matters • Of the 65% of companies that disclose one or more non-financial targets, 17% do not report on progress against such target(s) • Majority of French (71%) and UK (69%) companies disclose, but only 38% of German companies report progress against non-financial KPIs Proposals for policymakers • Elaborate on what is meant by ‘outcomes’ – disclosures suggest that companies are interpreting this narrowly • Cross-refer to, or integrate, the metrics and targets from the TCFD into the Guidelines – example of how to explain the relationship between financial and non-financial outcomes Key findings Core sample (80 companies) First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive 13
- 14. December 18 | Tweet @CDSBGlobal #NFRD Principal risks • 79% identify at least one transition or physical risk, but only 28% identify at least one of both • Majority of companies do not state the expected time horizon for the identified risk – 87% • Only 4 companies (Unilever, Total, Shell and Diageo) specifically disclose definitions for short, medium and long term Proposals for policymakersKey findings Core sample (80 companies) • Require a time horizon to be specified when making principal risk disclosures • Better emphasise the links among policies, principal risks, KPIs and the associated time horizons • Elaborate on what is meant by principal risks in the Guidelines Control sample (500 companies) • While 31% of companies identify climate change as a risk, only 2% consider it a principal risk. First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive 14
- 15. December 18 | Tweet @CDSBGlobal #NFRD Non-financial Key Performance Indicators Proposals for policymakersKey findings Core sample (80 companies) • Define what information should be disclosed for “non-financial KPIs” and that this should include details on timeframe, baseline, progress and outcomes • Consider amending the Directive to also oblige companies to disclose GHG emissions, Science- Based Targets, carbon prices • 48% report at least one target with details of the timeframe, baseline and progress • 81% disclose GHG emissions, but only 41% state emissions targets First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive 15
- 16. December 18 | Tweet @CDSBGlobal #NFRD Insights into TCFD adoption • Significant momentum is driving the uptake of the TCFD recommendations, with over 500 companies globally supporting them • 30 referred to the TCFD in their management report See on cdsb.net/NFRreview First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive Core elements of TCFD 16
- 17. December 18 | Tweet @CDSBGlobal #NFRD TCFD Governance First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive Proposals for policymakersKey findings Core sample (80 companies) • Include the TCFD recommended governance disclosures a) and b) in an amendment to the ‘corporate governance statement’ in Article 20 of the Accounting Directive • Make a clear distinction between the reporting requirements on board oversight and management’s role in the Guidelines • 75% disclose board oversight of environmental or climate-related matters • 31% UK companies & 21% French companies disclose within their management report board oversight of climate-related issues. • No German companies used the management report for disclosing such information 17
- 18. December 18 | Tweet @CDSBGlobal #NFRD TCFD Scenario analysis • Only one company (Unilever) conducted scenario analysis and disclosed details within their management report • 4 companies (Galp, BP, Total and Shell) reported that they have conducted scenario analysis, but they do not provide details on assumptions of their analysis or impact • 7 companies reported that they are conducting or planning to conduct scenario analysis Proposals for policymakersKey findings Core sample (80 companies) • Include the strategy TCFD core element recommended disclosure c) in the NFRD • Provide further guidance on resilience in the Guidelines • Provide some specificity on the scenarios a company could adopt in the Guidelines + 2°C + 1.5°C First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive 18
- 19. ALLIANCE FOR CORPORATE TRANSPARENCY 19 A three-year research project bringing together leading civil society organisations and experts on corporate transparency with the aim of: 1. Identifying what concrete, material information companies should report 2. Analysing non-financial statements of the 1000 largest European companies 3. Improving EU legislation and standardising corporate disclosure
- 20. TIMELINE 20 Scale up full application • Consultations • Calibration • Assessment of 1000 companies Design phase • Design assessment tool • Consultations • Testing with corporate partners • Calibration Initial application • Assessment of 100 companies • Analysis of results • Presentation (4th of February tbc) Presentation of results Presentation of results June – September 2018 October 2018 – February 2019 March 2019 – December 2020
- 21. Level 2: Salient ESG issues Environmental Climate Use of natural resources Pollution Waste Biodiversity and conservation Social Workforce data Human rights risks Supply chains Indigenous people Conflict resources Land acquisition Digital rights Civil & political rights 21 Anti-corruption Anti-corruption programme Corporate (group) structure Governance Board matters ESG integration Political engagement Taxes
- 22. Initial application (2018) 100 companies from the following sectors: Energy ICT Healthcare 22
- 23. PRELIMINARY RESULTS – CLIMATE CHANGE 23 Connected to the EU NFRD requirements Scope beyond NFRD Policy 71 % Targets 57 % Alignment with Paris targets (self-declared) 38 % Scenarios 26 % GHG emissions 93 % Impact of products 26 % Out of 4 CEE lare coal mining and utilities companies analysed so far 2 have policies and 1 has set targets
- 24. PRELIMINARY RESULTS – HUMAN RIGHTS 24 Connected to the EU NFRD requirements Scope beyond NFRD Policy 83 % (only in 56 % of cases the policy is concrete) Outcomes 54 % (only in 27% are the outcomes linked to policy goals) Statement of salient risks 23%; additional 46% define risks vaguely; 27% not at all Including business partners 54% Human rights due diligence 38%
- 25. 25 Filip Gregor Head of Responsible Companies Section Frank Bold filip.gregor@frankbold.org +420 775 154 083 www.allianceforcorporatetransparency.org Contact us
- 26. December 18 | Tweet @CDSBGlobal #NFRD Recommendations 1. Make disclosure of climate-related information explicit in the Accounting Directive 2. Remove the exception in the Directive allowing for material non-financial information to be reported outside the management report 3. Incorporate TCFD recommended disclosures, eg: + Corporate governance statement in Article 20 of the Accounting Directive + Scenario analysis 4. Ensure Member State competent authorities supervise reporting First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive 26
- 27. December 18 | Tweet @CDSBGlobal #NFRD 27 CDSB Framework • 7 guiding principles • 12 reporting requirements • Aligned with NFR Directive, CDP, GRI, SASB, etc… • Aligned with the TCFD recommendations For reporting environmental information, natural capital and associated business impacts cdsb.net/Framework First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive
- 28. December 18 | Tweet @CDSBGlobal #NFRD EU environmental reporting handbook What could environmental reporting in line with the Non-Financial Reporting Directive look like? v1.0 , September 20 16 www.cdsb.net/ NFR NFR Handbook First steps – Corporate Climate and Environmental Disclosure Under the EU Non-Financial Reporting Directive 28 cdsb.net/NFRhandbook • Includes examples designed to help companies develop their reporting practice in line with the expectations of the NFR Directive. • However, local implementation of the Directive might introduce variations at national level. Companies must comply with applicable legislation
- 29. December 18 | Tweet @CDSBGlobal #NFRD 29
- 30. December 18 | Tweet @CDSBGlobal #NFRD Thank you Mardi McBrien Managing Director, CDSB Mardi@cdsb.net +44 (0) 7792 180 043 Michael Zimonyi Policy & External Affairs Manager, CDSB michael.zimonyi@cdsb.net +49 (0)176 830 26594 Mirjam Wolfrum Director Policy & Reporting, CDP mirjam.wolfrum@cdp.net +32 (0) 2 893 92 21
Editor's Notes
- The Climate Disclosure Standards Board is an international consortium of businesses and environmental NGOs. A list of our board members organisations are shown here. CDSB’s Mission is to create the enabling conditions for material climate change and natural capital information to be integrated into mainstream reporting. What this means in practice is that we work with companies, investors and regulators to translate sustainability information into financial information. We help companies report climate and environmental information in their mainstream reports through our Framework, and this helps companies provide decision useful information to the market and investors.
- The Framework is already being used around the world, across industries.
- The objective of the Non-Financial Reporting Directive is aligned with CDSB’s mission and in accordance with a statement by the European Commission is “To increase EU companies’ transparency and performance on environmental and social matters and, therefore, to contribute effectively to long-term economic growth and employment.”
- What The Directive requires “Information to the extent necessary for an understanding of the group’s development, performance, position and impact of its activity, relating to, as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters, including: (a) a brief description of the group’s business model; (b) a description of the policies pursued by the group in relation to those matters, including due diligence processes implemented; (c) the outcome of those policies; (d) the principal risks related to those matters linked to the group’s operations including, where relevant and proportionate, its business relationships, products or services which are likely to cause adverse impacts in those areas, and how the group manages those risks; (e) non- financial key performance indicators relevant to the particular business. Where the group does not pursue policies in relation to one or more of those matters, the consolidated non- financial statement shall provide a clear and reasoned explanation for not doing so.”
- The review also explores synergies between the NFR Directive’s obligations pertaining to environmental matters and the recommendations of the Task Force on Climate-related Financial Disclosures or TCFD, and whether/how companies are preparing disclosures to respond to both. The TCFD recommendations offer a voluntary means of increasing the level and enhancing the scope and quality of disclosure on climate-related matters through disclosures in the mainstream report. Although it is voluntary and the NFRD is a mandatory mechanism, these schemes share some common characteristics. For example both schemes seek to improve transparency and disclosure in relation to environmental information and both seek to support a sustainable, stable global economy by combining long-term profitability with environmental protection. The TCFD published its report in June 2017, establishing recommendations for disclosing clear, comparable and consistent information about the financial risks and opportunities presented by climate change in the mainstream report across four thematic areas shown on this slide: Governance: The Task Force encourages all organizations to disclose their governance around climate-related risks and opportunities Strategy: the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy and financial planning, where such information is material Risk Management: how the organization identifies, assesses and manages climate-related risks Metrics & Targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities, where such information is material
- Review of the Directive and Guidelines The release of the First Steps report comes at an opportune time as in response to the EU Higher Level Expert Groups recommendations at the beginning of 2018 to “upgrade Europe’s disclosure rules to make climate change risks and opportunities fully transparent” and endorsed the TCFD recommendations, the European Commission is undertaking a review of the Directive and its related guidance as part of a fitness check of the current corporate reporting framework in Europe. The fitness checks findings are expected in summer 2019, while the European Commissions Action Plan on Financing Sustainable Growth determined that the Commission will revise the non-binding guidelines by the second quarter of 2019, to provide further guidance to companies on how to disclose climate-related information, in line with the TCFD. Purpose of the review Both the NFRD and TCFD recommendations require environmental and climate-related reporting through the mainstream financial reporting model and therefore are aligned with CDSB’s mission. With this in mind the purpose of the review was to explore how companies are responding to the requirements and recommendations of both the NFR Directive and TCFD, including: To generate an evidence base of corporate reporting practices on environmental matters in the first year of reporting under the NFRD, with the additional aim to act as a baseline for measuring changes in reporting practices and in future assessments on the state of European corporate reporting of non-financial information; To examine opportunities for incorporating relevant aspects of the TCFD’s recommendations into the NFRD and associated guidance so that reporting practices that serve both sets of requirements are consolidated. Scope of the review The review examined disclosures in company management reports relating to environmental matters of the highest 80 European listed companies by market capitalisation – described in the report as the Core Sample, and where possible was tested against a review of 500 company reports described as the Control Sample. The companies were identified based on the Directive’s requirements and assessing the majority of Member States’ transpositions with the following selection criteria: Publicly-listed companies only; Companies with over 500 employees Balance sheet total over EUR 20 million OR net turnover over EUR 40 million; and The company belongs to one of the 8 industry groups listed by the TCFD. The core sample of 80 companies represented a market capitalisation of 3.75 Tn EUROS. The research was conducted through 10 research questions covering the disclosure requirements on environmental matters of the Directive and the TCFD recommended disclosures, particularly relating to governance and scenario analysis. In formulating the questions, the NFRD was referred to in the first instance. Where insufficient detail existed in the Directive, elements of the Guidelines were used, coupled with additional information drawn from the TCFD recommended disclosures. Data collection The information was collected manually using qualitative research software and we focused on environmental and climate change matters, which were differentiated and categorised separately.
- This map shows a breakdown of the Core Sample in depth by member state with the majority derived from France, the UK and Germany based on selecting companies with the highest market capital. The table shows the breakdown of companies by sectors
- And here's an overview of both the Geographic & Sector scope of the Control Sample, again based on selecting companies by the highest market capital
- So to start with looking at how companies have disclosed information on their business model, it was found: No standardised approach existed despite four in five companies (83%) describing their business model in their management report. Less than half of the companies (44%) in the Core Sample disclosed how their business models were affected by environmental or climate-related matters. Put another way, over half of companies either neglected to disclose information in their business model disclosure, or they concluded that environment or climate-related information was not material to their business. For each content category, we have highlighted a few key recommendations for policy makers. These are points that could also be incorporated by companies: In the case of business model we have recommended to: Elaborate the definition and content requirements of a business model, for example, by adopting or referencing definitions offered by the International Integrated Reporting Framework or OECD Elaborate on the connection between business model descriptions and principal risk disclosures.
- Findings: Companies have different approaches to presenting information about policies: 70% have an environmental policy or strategy and 20% have a climate policy or strategy We have suggested a number of policy proposals on polices, here are some selected key recommendations including to Elaborate on ‘policies pursued in relation to environmental matters’ in the NFRD by listing which aspects of environmental and climate policy should be included. Provide illustrative examples in the Guidelines of good practice in linking companies’ policies and other non-financial information, such as policy outcomes, business model, principal risks and non-financial KPIs Require disclosure of the links between the financial impacts of material environmental and climate change matters, policies and risks, to help to facilitate enhanced disclosures of how companies identify, assess and manage climate-related risks and natural capital
- We found multiple approaches to disclosing outcomes of policies related to environment and climate-matters Of the 65% of companies that disclose one or more non-financial targets, 17% do not report on progress against such target(s). The majority of French (71%) and UK (69%) companies disclose, but only 38% of German companies disclose progress against non-financial KPIs. We suggest to Elaborate on what is meant by ‘outcomes’ as the disclosures suggest that companies are interpreting this narrowly as reporting on progress against their non-financial targets. This could include expanding on the linkages amongst indicators, targets and policy outcomes sought Cross-refer to, or integrate, the metrics and targets from the TCFD into the Guidelines. This could serve as an example of how to explain the relationship between financial and non-financial outcomes as suggested by the Guidelines.
- For this question we did not search for the term principal risks in the core sample as the term is not consistently used. Instead specific disclosures on principal risks were examined using the list of climate-related transition and physical risks identified by the TCFD, supplemented with consideration of other natural capital risks. 79% of the Core Sample identified at least one transition or one physical risk, however only 28% identified both More companies identify physical risks (56%) compared to transition risks (41%) The most common physical risks were natural disasters (31%) followed by water resources (24%) Most common transition risk: regulation & policy risk (34%) Most companies do not state the expected time horizon for the identified risk – 87% don’t do this. Only 4 companies (Unilever, Total, Shell and Diageo) specifically disclose definitions for short, medium and long term Analysis of the control sample shows: While 31% of companies identify climate change as a risk, only 2% consider it a principal risk. And only 5% disclose a time horizon which correlates with the core sample findings. We have recommended here to: Elaborate on what is meant by principal risks in the Guidelines given variances in the use of the term In addition recommendations we recommend companies Require a time horizon to be specified when making principal risk disclosures Better emphasise the links among policies, principal risks, KPIs and the associated time horizons.
- Disclosure of non-financial KPIs increases with higher market capitalisation of companies; 65% of Core Sample companies disclose at least one non-financial target Not all companies presenting targets provided a baseline or disclosed progress over time relative to previous years 48% report at least one target with details of the timeframe, baseline and progress Not all companies disclosing GHG emissions report targets associated with these 81% disclose GHG emissions, but only 41% state emissions targets. After GHG emissions, water consumption (29%) was the second most disclosed non-financial target; We have proposed that policy makers should: Define what information should be disclosed for “non-financial KPIs” and that this should include details on timeframe, baseline, progress and outcomes; Consider making amendments to the Guidelines to clarify the relationship between indicators, targets and outcomes; Consider amending the Directive to also oblige companies to disclose GHG emissions within their management report, as well as setting Science Based Targets to reduce emissions and setting internal carbon prices in order to account for current and the potential future costs of carbon taxes and increasing energy prices.
- While 2018 was the first year of reporting by companies across Europe under the NFRD, it was also an opportunity for companies to consider their initial responses the Task Force for Climate-related Financial Disclosures. The report suggests there are clear synergies in subject matter and complementary outcomes of both the NFRD and TCFD. Both seek to improve transparency and disclosure in relation to environmental information and both seek to support a sustainable, stable global economy, combining economic stability with environmental protection. While climate change is not explicitly stated in the Directive, it is clear from the Guidelines that the intention is to cover both climate and environmental matters in the Directive. This could be enhanced by more targeted alignment activity beyond “taking into account the TCFD’s work”. Both the NFRD and the TCFD recommend disclosure through mainstream reports and that the company’s established governance processes should be used where appropriate. Significant momentum is driving the uptake of the TCFD recommendations, with over 500 companies globally supporting them. Alongside the companies supporting the recommendations, CDSB coordinates a group of 20 leading companies who have committed to implement the TCFD recommendations as practicably as possible within three years through CDSB’s TCFD commitment programme. The three-year time frame in the commitment acknowledges that reporting practices and disclosures will take time to become embedded in business as usual and to gain more widespread adoption. The review found 38% of companies in the Core Sample have referred to the TCFD in their management report, demonstrating that companies are already taking first steps towards making the connection between the NFRD and TCFD in their management reports We have included selected highlights of these disclosures in the report, with detailed analysis for how companies in the Core Sample have disclosed information on both the TCFD and NFRD available at cdsb.net/NFRreview In our review we looked at two of core elements of TCFD: Governance and strategy, specifically use of scenario analysis
- We reviewed how companies disclosing information on TCFD aspects not currently required in the Directive on board and managements responsibilities. We found.. Companies made some disclosures of board oversight of climate-related or environmental matters, even though this is not a NFRD obligation Three-quarters (75%) of companies disclose board oversight of environmental or climate-related matters. Approximately half (49%) of the companies in the Core Sample disclosed both board oversight and management’s role in environmental or climate-related matters. Far more companies disclose board oversight of environmental matters (60%) than climate-related issues (15%). This also matched findings in managements role with a similar gap. For our proposals for policymakers on governance, we have recommended to… Include the TCFD recommended governance disclosures a) and b) in an amendment to the ‘corporate governance statement’ in Article 20 of the Accounting Directive, and in the accompanying Guidelines Make a clear distinction between the reporting requirements on board oversight and management’s role in the Guidelines to enhance disclosures in this area.
- We also looked at how companies are disclosing information on scenario analysis. As expected we found limited disclosures on scenario analysis in the review Only one company - Unilever in the Core sample has conducted scenario analysis and disclosed details within their management report Four companies, Galp, BP, Total and Shell stated in their management report that they have conducted scenario analysis, however they do not provide details on assumptions of their analysis or impact A further seven companies in the Core Sample (9%), five of which are banks, reported that they are conducting or have expressed their intentions to conduct scenario analysis. We have recommended: To Include the strategy TCFD core element recommended disclosure c) in the NFRD Provide further guidance on resilience in the Guidelines Provide some specificity on the scenarios a company could adopt in the Guidelines – TCFD recommendations stipulate that at least two different scenarios with one 2°C or lower should be used. Given the recent IPCC report, it would be prudent to use a 1.5°C scenario
- All 7 recommendations from the report: Make disclosure of climate-related information explicit in the Accounting Directive. Remove the exception in the Directive allowing for material information required for the non-financial statement to be reported outside the management report. Align corporate governance disclosure requirements in the NFRD and the TCFD recommendations, exploring how conformance with one could be treated as satisfying the requirements of the other. Incorporate the TCFD strategy core element’s recommended disclosure on resilience and scenario analysis in the Accounting Directive; and require use of a 1.5°C scenario based on the science presented by the UN Intergovernmental Panel on Climate Change. Ensure Member State competent authorities supervise reporting on environment and climate-related matters, thereby generating the feedback necessary for enhancing corporate disclosures on climate-related and environmental information. Consider how to promote greater use of the information contained in the guidance to the Directive, exploring means for better assimilation of the Commission’s guidelines into national corporate reporting frameworks. Incorporate all 11 TCFD recommended disclosures and consider how better linkages between financial and non-financial information can be made in the Directive, drawing on the essential approach of the TCFD.
- In the First Steps report we have drawn attention to specific areas the CDSB Framework can be used by companies for each of the Directive’s requirements and TCFD recommendations. A map of alignment between the Framework and TCFD recommendations is also available on our website.
- The report also includes examples of reporting practice companies and preparers can refer to when disclosing against the NFR Directive and TCFD recommendations. We also have a dedicated handbook available on our website, which Includes further examples designed to help companies develop their reporting practice in line with the expectations of the NFR Directive. However, as always when using the handbook we advise to check local implementation of the Directive, as there may be variations at national level and companies must comply with applicable legislation.
- To further support companies with implementing the TCFD recommendations we have developed an online platform dedicated to the resources related to the TCFD which has been endorsed by the TCFD This contains Over 400 resources including, guidance, tools, research and standards; Structured and easily searchable by country and industry; Break-down of the recommendations; New case studies and events pages