Why harmonising climate disclosure standards will be crucial in 2023
EXCLUSIVE: With ever more nations mandating increased corporate climate disclosures, and with voluntary nature disclosure frameworks set to launch in 2023, action must be taken now to ensure that companies are prepared.
That is according to CDP’s senior climate analyst Sylvester Bamkole, who spoke exclusively with edie this week ahead of his appearance at edie 23 this March (scroll down for details).
Bamkole reflected on the recent publication of CDP’s A Lists, which recognise the businesses leading global efforts to improve environmental disclosures.
CDP received 42% more corporate climate disclosures in 2022 than in 2021, or more than twice as many as it did in 2015. As well as an increase in the “sheer quantity” of disclosures, Bamkole confirmed that there has been an increase in quality – partly because CDP has been providing more guidance while also “regularly raising the bar” on what constitutes good climate disclosures.
Increased requirements are based on factors including the latest climate science, direct feedback from stakeholders such as investor collaborations, and inclusions in forthcoming regulation. For example, climate ‘A-Listers’ in 2022 had to produce climate transition plans aligned with a 1.5C temperature trajectory. 283 companies were named on CDP’s 2022 Climate A List.
Bamkole emphasised that it is important to consider the external factors acting as “catalysts” for increased climate disclosure – both in terms of numbers and quality. He said: “The first [factor] is increased pressure on companies from capital markets, through increased scrutiny from shareholders, investors and asset managers. They really want to understand how companies are taking action to reduce their emissions and navigate their journey towards broader environmental stewardship.
“We’re also seeing a lot of movement in the policy landscape. If we look at the draft proposals from the US Securities and Exchange Commission (SEC), plus movement in the EU and UK – such as the UK Transition Plan Taskforce – we know that regulation is catalysing climate-related disclosures.”
“Of course”, Bamkole added, there is also pressure from civil society. Pressures can come in the form of petitions from customers, or campaigns and even litigation from environmental or social campaign groups. He described the mix of emerging mix of pressures as a “melting pot” and argued that pressure from forthcoming regulation on improved climate-related disclosures “has been the most significant” so far.
Climate transition planning
It bears noting that, for all the growth in corporate climate reporting within this “melting pot”, many firms are still avoiding disclosures. Almost 30,000 large businesses, collectively worth around $25trn, did not answer CDP’s requests for information in 2022. These firms may well be unprepared for the forthcoming uptick in disclosure requirements.
And, requirements they will be. We are entering a new era for mandatory corporate climate disclosures.
In the UK, where edie is based, certain large businesses have been mandated to disclose their climate risks in line with the Taskforce on Climate-related Disclosures’ (TCFD) framework since last April. The framework enables businesses to assess risks and opportunities across a range of climate scenarios through its unique ‘scenario analysis’ lens.
Other G7 nations have committed to following in the UK’s footsteps in implementing a similar TCFD mandate. Mandatory TCFD disclosures are also in the works for New Zealand and Switzerland.
A global movement towards climate disclosures may also have been kick-started by the UK’s decision to mandate climate transition plans for large firms in high-emission sectors, first announced by then-Chancellor Rishi Sunak at COP26 in November 2021. The UK Government subsequently convened a new Transition Plan Task Force to shape a ‘gold standard’ for these plans, of which CDP is a member. These plans will see businesses setting out plans to invest to change business models, invest in low-carbon technologies, innovate their products and protect vulnerable staff and communities.
Bamkole said: “We know there is a disparity between companies’ climate plans.
“There are a lot of companies that have set verified science-based targets, but they haven’t set out any plans for achieving said targets. We’ve [Taskforce members] also seen the opposite – that there are many companies who have developed a credible plan, but there’s no target.
“The importance of regulation, in our opinion, is that it helps to bridge the gap in both cases.”
At COP27 in Egypt last November, the UK Transition Plan Taskforce unveiled its first draft disclosure framework and opened a consultation with the intention of fine-tuning it. The consultation will close in February and the aim is to finalise the framework and implementation guidance this summer. More detailed, sector-specific guidance will then follow in the second half of 2023.
So, how can businesses navigate the regulatory landscape on climate disclosures of the future, without expending excessive resources trying to tick boxes relating to numerous standards? This will be especially important if support for disclosures is to be created in the face of an impending global recession.
For Bamkole, the “key” is harmonising disclosure standards sooner rather than later.
He explained: “Something we often see in discussions with relevant stakeholders are questions around the right timings for new legislation and more regulation. But what we see as needed is more harmonisation – this really is the key. The legislation will keep coming and it is an incentive to act – but what’s really going to get environmental information synthesized, allowing relevant stakeholders to make sense of data, is better harmonisation.”
Bamkole argued the case for “not reinventing the wheel, but leveraging work already being done” by bodies including the TCFD and through frameworks including CDP. The creation and continued work of the International Sustainability Standards Board (ISSB), which is developing a global baseline for joined-up corporate sustainability disclosures that meet investor standards, is an opportunity to do this. The ISSB published its first ‘exposure draft’ for climate-related disclosures last July. CDP then, in November, confirmed plans to incorporate the ISSB’s standards into its climate platform.
On climate specifically, Bamkole sees transition plans as a potential “lynchpin that connects all parts of the disparate climate reporting system”. This is because they should include measurements of risks and opportunities; detail robust decarbonisation targets; set out plans for business transformation and consider the knock-on impacts of decarbonisation on other environmental factors and on social sustainability.
Bamkole confirmed that CDP will soon be publishing its second report assessing the state of play with climate transition plans. The report will assess disclosure quality in 2022 and whether this aligned with emerging best-practice standards. So, watch this space.
Don’t miss out: Register now to attend edie 23
Taking place in London on 1-2 March 2023, edie’s biggest annual event has undergone a major revamp to become edie 23, with a new name, new venue, multiple new content streams and myriad innovative event features and networking opportunities.
edie 23 will take place at the state-of-the-art 133 Houndsditch conference venue in central London. Held over two floors, the event will offer up two full days of keynotes, panels, best-practice case studies and audience-led discussions across three themed stages – Strategy, Net-Zero and Action.
Sylvester Bamkole from CDP will be appearing at 4.20pm on 1 March as part of a seminar on ‘how to create a winning sustainability report’, chaired by former International Integrated Reporting Council (IIRC) chief execurive Richard Howitt. The session will include information on developing a robust climate transition plan.
View the full list of edie 23 speakers here.
View the full edie 23 agenda and stage-by-stage content here.
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