Understand Voluntary Disclosure Frameworks
Environmental Defense Fund
Sustainability reporting has become standard for most major global companies with over 90% of Fortune 500 companies publishing sustainability data. Voluntary reporting and disclosure play a critical role in your company’s sustainability strategy and is crucial to meet the growing expectations of investors, regulators, and other stakeholders. The challenge for companies is to navigate the diverse range of frameworks, standards, questionnaires, or ratings to calculate and report sustainability data.
Climate change poses significant risks to companies, investors, markets, and all those that depend upon a stable financial system. To incorporate climate-related financial risks into decision-making, investors must be able to identify and measure such risks, which means they need important climate information from companies. Existing voluntary climate disclosure frameworks help to obtain comparable, specific, and decision-useful climate risk information from U.S. companies. Although climate risk disclosure is designed to meet the needs of investors, reporting also has important benefits for businesses such as better benchmarking and greater ability to communicate your company’s net zero progress.
Understand Voluntary Climate Disclosure Frameworks
Currently, there are a variety of voluntary climate reporting standards and systems for companies, including the Task Force on Climate-related Financial Disclosures (TCFD), CDP, Global Reporting Initiative (GRI), and the International Sustainability Standards Board (ISSB). Each address different environmental and ESG issues and have applications for different sectors.
- Task Force on Climate-related Financial Disclosures (TCFD): The TCFD was created to improve climate risk reporting and develop recommendations for investors, lenders, and insurers on risks related to climate change. It is a cross-sectoral framework covering governance, strategy, risk management as well as metrics and targets.
- CDP: Nonprofit CDP runs a global disclosure system for companies and other non-state actors to measure environmental impact. CDP has a sector-specific climate questionnaire that covers the TCFD framework as well as carbon pricing, emission methodology, and verification.
- Global Reporting Initiative (GRI): GRI is a cross-sectoral impact reporting framework covering a wide array of ESG topics, from emissions to workplace diversity to occupation health, and sets specific standards for oil, gas, and coal.
- International Sustainability Standards Board (ISSB): ISSB focuses on disclosures to meet the needs of investors. With the consolidation of the Value Reporting Foundation into IFRS, ISSB has committed to build on and evolve the Sustainable Accounting Standards Board (SASB) standards and will be releasing updated industry-specific disclosure standards. Until then IFRS has advised companies to continue disclosing using the relevant SASB standards.
Though these reporting frameworks allow companies to measure risks and opportunities, their non-standardized and voluntary nature limits utility for investors and the financial system more broadly in evaluating individual companies or comparing performance across an industry. That is why a new rule has been proposed by the SEC to enhance climate risk information and provide more accurate and standardized information to investors.