Comments from ACCA to the Climate Disclosure Standards Board (CDSB)
9 December 2014
In summary, ACCA believes that:
ACCA recommends that:
1) Do you agree with the objectives of the CDSB Framework?
Yes. As the CDSB Framework (the framework) aims to provide a tool for companies to include environmental information in their mainstream reports, it is right for the framework to align with the objectives of financial reporting and for the audience (present and potential equity investors, lenders and other creditors is) to be consistent with that of financial reporting.
Much has been made about the need for clear, concise and comparable environmental reporting from companies, and for said information to be integrated into mainstream reports. For example, in 2013 ACCA (along with Eurosif) conducted a survey of investors on their use of non-financial (including environmental) information. 92% of respondents agreed or strongly agreed that financial information should be more integrated and that current reporting practices do not allow for sufficient comparison across companies. Having a reporting framework that helps companies include environmental information in their mainstream reports in clear, concise and comparable manner will be very valuable.
Having a framework that helps companies to report in a manner that enables investors to allocate capital to activity that supports environmental protection will be a major step forward in the shift to an environmentally sustainable economy. More and more investors are looking to incorporate environmental considerations into their investment decisions (as demonstrated by the growing numbers of investors supporting the CDP or signing up to the UNPRI) and good quality information is crucial for this process.
It is important that the objectives of the framework are achieved in the context of emerging regulation and requirements forthcoming in the area.
2) Do you agree with the scope of the CDSB Framework?
Yes. Expanding the framework to encompass environmental information more generally is certainly a good move by the CDSB, and is aligned with current initiatives (such as the Natural Capital Coalition) that are looking to provide tools for companies to better consider their impacts and dependencies on natural capital more broadly rather than just their climate change impacts.
Whilst there is still a long way to go regarding how companies report on the climate change, there are tried and tested methodologies for such reporting (as well as assurance standards for GHG emission statements). The same cannot be said for many other environmental aspects. Expanding the framework to encompass environmental information more generally will encourage companies to report on a broader set of environmental aspects, which will drive the development of better established reporting practices and methodologies.
Considering current environmental and demographic trends, resource constraints (for example around water) will increasingly become a limiting factor for business. As such, providing a framework that allows companies to report on a broader range of environmental aspects will help companies produce the necessary information for better environmental management. This information will also be beneficial to investors looking to factor environmental considerations into their investment decisions (see q1).
CDSB should plan for emerging issues and update the scope of the framework as necessary.
3) Do you agree with the principles?
Yes. In general, the principles of the framework are good and will meet the objectives of ensuring that environmental information in mainstream reports is useful to investors, is correct and complete. The final objective, of ensuring that environmental information is based on criteria that are suitable for conducting assurance activities, may be more complex and will require some more attention. Some specific comments regarding the principles are included below.
Principles 1 & 2: There seems to be some overlap between these two principles, so CDSB should make the differences between relevance and materiality clear, and explain how these concepts relate to the environmental disclosures of companies.
Principle 4: Ensuring the environmental information is connected to with other information is key, so it is good that this principle has been included. It would be useful to expand the narrative of this principle to explain a little more about how information can be connected (i.e. demonstrate how environmental information relates to value creation, could be linked to financial performance, relates to material risks etc.).
Principle 6 & 7: In relation disclosures being assurable, this may be difficult for certain kinds of information e.g. forward looking projections and easier for others e.g. historic performance data. It would be worth providing some additional information related to assurance, either as an appendix or supporting paper, to explain how assurance could be factored into a company’s environmental reporting practices.
4) Do you agree with the requirements?
Yes. In general, the reporting requirements meet their objectives of encouraging standardized disclosure of environmental information that complements and supplements other information in mainstream reports. Some specific comments regarding the requirements are included below.
Requirement 1: Aligning the organizational boundary for a company’s environmental disclosures with that of the company’s financial information makes sense in terms of ensuring a consistent approach to reporting, but this needs to be structured carefully, to ensure that companies do not omit material information regarding their environmental impacts. For example, Puma published an Environmental P&L in 2010 which showed that its direct impacts accounted for 6% of its environmental impacts, whilst the remaining 94% fell within its supply chain. Whilst this 94% is technically out of its direct control, the company can reduce these environmental impacts by influencing suppliers, sourcing inputs with environmental considerations in mind or changing production processes. Also, significant environmental risk can sit within company supply chains, so some disclosure related to this will be necessary to ensure that a company’s mainstream report includes all material issues.
Requirement 3: To ensure comparability, CDSB should consider requiring an alignment between the reporting periods of company financial and environmental information. This is a first step to true integration and necessary when looking to achieve objective 2. This will also ensure that any seasonal differences related to regular environmental impacts do not skew data / one off events are not omitted from the report either pre or post the reporting period.
Requirement 5: If companies choose to have their environmental information assured, it would be beneficial to make it clear what specifically has been audited. Assurance statements often cover this, but including notes within a report would also be helpful. It will also be useful to make it clear who has conducted the audit, what standards have been used and any management recommendations have come out of the audit.
Requirement 6: It would be useful to specify whose responsibility it is to ensure that disclosures conform to the CDSB framework i.e. is it a self-assessment, reviewed by the CDSB itself or reviewed by an independent third party. This would help investors and other creditors understand the level of rigour that has gone into the environmental disclosures.
Requirement 11: As the framework does not mandate particular methodologies regarding environmental disclosure, it is right that it requires companies to disclose what methods have been used. It would also be useful to require companies to disclosure (either in their mainstream reports or elsewhere but signposted in the mainstream report) sufficient environmental information for investors and other creditors to recreate metrics that are comparable across different companies.
5) Do you agree with the cross-references?
Yes. This is a very useful table that will help companies use existing disclosures (e/g from a sustainability report) to bring environmental information into their mainstream reports. This is such valuable information that it warrants a far more detailed paper / guidance document.
6) Do you agree with language, terminology and definitions used?
Yes. The draft framework is clearly communicated and the terminology / definitions are consistent with what is used by other organisations. With regards to sources of environmental impact, it would be worth noting in the definitions that the list included is not exhaustive and that each company will have different impacts depending on the nature and scope of their activities.
7) Any other comments?
In general, this draft of the framework is a significant improvement on the first and will be a very useful tool to companies looking to integrate environmental information into their mainstream reports. Noting that this is a live document regarding the topics covered by the framework (p19) is of particular importance. The guidance on data collection methodologies, risks & opportunities and cross-references table should be updated over time.