Understanding the context for the new Non-Financial Reporting Directive

In the last few months there have been a number of headlines which have made me feel slightly uneasy about the apparent waning political response to climate change, despite the world experiencing a second, successive, record annual rise in carbon dioxide concentrations.

  1. Last week documents belonging to a senior British civil servant at the Department for International Trade were photographed by a passenger on a train which stated that “Some economic security-related work like climate change and illegal wildlife trade will be scaled down” in effort to help secure post-Brexit trade.
  2. Finance ministers from the G20 have dropped from a joint statement any mention of financing action on climate change, reportedly following pressure from the US and Saudi Arabia.
  3. President Trump signed an executive order last week to undo Obama’s climate change efforts, telling the coal industry workers who joined him, “You’re going back to work.”

The Grantham Institute at London School of Economics 2016 update of The Global Climate Legislation Study showed that the annual number of legislative and executive actions have both dropped since their 2010 peak, when 93 new laws and executive acts were passed (compared to 11 in 2016). The study suggests that this decline could point to a shift towards implementation, but it could also mean that the political drive to strengthen climate ambitions has stalled.

The number of laws and policies being passed annually is falling

UN’s Ban Ki-moon: Climate change action is ‘unstoppable’

But despite these disheartening back tracks in the political world, many believe that climate change action is “unstoppable”, and, significantly, this is something the investor community is championing.

For example, in February this year, sixteen investors and insurers with more than USD 2.8 trillion in assets under management (more than the annual GDP of the UK) joined a call urging the G20 to end fossil fuel subsidies by 2020, highlighting the risk this continued government support for fossil fuels creates for the financial sector.

In 2016 the growing realisation that climate change represents systemic financial risk led to the G20 Finance Ministers and Central Bank Governors asking the Financial Stability Board to review how the financial sector can take account of climate-related issues. As part of its review, the Financial Stability Board established an industry-led task force – the Task Force on Climate-related Financial Disclosures (TCFD) – to develop voluntary, consistent climate-related financial disclosures that would be useful to investors, lenders, and insurance underwriters in understanding material risks. For more information see the TCFD’s full report.

The TCFD recommendations were published in December 2016 and the public consultation, which Carbon Credentials responded to, closed in February. The TCFD will deliver an updated report following the consultation to the FSB in June.

See the Climate Disclosure Standards Board’s handy blog on how to prepare for the TCFD recommendations.

What does this mean for business?

Mandatory and voluntary frameworks for disclosure on climate change are evolving and companies need to be prepared.

Mandatory reporting

Stock exchanges across the world are introducing requirements for their registrants to disclose material sustainability information, including Toronto, Malaysia, Johannesburg, Korea and Bombay exchanges. See the Sustainable Stock Exchange Initiative for more info.

In the EU, the new Non-Financial Reporting Directive means that qualifying companies will have to include a new Non-Financial Information Statement (NFIS) within their mainstream financial filings, which should include business specific disclosures on environmental matters, as well as other sustainability information such as employee, social and community, respect for human rights, and anti-corruption and bribery matters. See my colleague Alison’s Mungall’s blog for more on the Non-Financial Reporting Directive.

Voluntary reporting

In addition to the development of new voluntary reporting, such as those recommended by the TCFD, existing reporting frameworks are evolving too. Most notably, CDP is currently consulting on its Reimagining Disclosure Initiative, which sets out potential changes to the CDP questionnaires for 2018 to incorporate recommendations from the TCFD and move towards sector-based questionnaires and scoring.

CDP’s briefing document can be found here, asks that stakeholders provide comments through the feedback form by the 28th April deadline.

How can Carbon Credentials help?

Carbon Credentials provides guidance for clients navigating the evolving sustainability reporting landscape – mandatory and voluntary, as well as end-to-end solutions for risk and compliance, data management services and energy performance optimisation.

Next week, on 26th April 2017, Carbon Credentials will be hosting ‘Non-Financial Reporting Directive 2017’ an invitation-only event, which comes in response to the buzz, and some early action, around the Non-Financial Reporting Directive, the FSB’s Taskforce on Climate-related Financial Disclosure, and other sustainability reporting initiatives such as the London Stock Exchange’s reporting guidance and the Energy Transition Law in France.

The key objectives for this event will be:

  • To clarify whether your organisation qualifies for NFRD, the scope and implications of it, and how it aligns with other reporting frameworks
  • To assess the additional burden the NFRD imposes and the potential value from the reporting process
  • To learn what other organisations are doing in response to compliance to NFRD and discuss best practice

To help explore these themes, leaders in sustainability reporting will give presentations alongside our experts and join you for roundtable discussions. The confirmed speakers are:

  • Mark Evans, ESG Analyst, Jupiter Fund Management PLC.
  • Olivia Jamison, Partner at the international law firm CMS Cameron McKenna.
  • Michael Zimonyi, Policy & External Affairs Manager, Climate Disclosure Standards Board (CDSB).

Please contact us at here if you’d be interested in attending, or if you ,would be interested to set up an informal discussion about the implications of the Non-Financial Reporting Directive or other sustainability reporting frameworks for you organisation.

 

Scarlett Benson

Senior Sustainability Consultant