First peek into climate indicators for companies to report under the European Sustainability Reporting Standards
Written by Frank Bold as part of the series of monthly articles on sustainability reporting in 2021.
In previous articles, we have analysed the most important changes included in the EU proposal for a Corporate Sustainability Reporting Directive (CSRD), and presented mounting evidence around the benefits of this reform for business, investors, policy-makers and civil society.
The most significant novelty is the development of mandatory standards that will accompany the legislation. These will provide clarity to companies on what and how to report and reduce administrative burden, ensure comparability and relevance of information while guaranteeing that investors and all users of sustainability data get the information they need. The European sustainability reporting standards will specify disclosure requirements for all environmental, social and governance (ESG) categories.
In this article, we first provide an overview of the process and timeline for the development of the European standards as a whole and then move on to explore the content of the first prototype standard published in October on climate reporting. We clarify which disclosure requirements are mandatory and which are flexible, and explain the connection to existing standards and the broader policy context. It is important to note that this prototype does not represent the final standard but informs of the current work in progress...
...In September, the EFRAG project task force made publicly available a working paper on a ‘Climate standard prototype’ which gives a first insight into the future European standards on this specific and crucial issue. The paper itself will undergo further extensive discussion within the project task force before opening to public consultation, but has already been made available as part of EFRAG’s commitment to transparency.
The prototype responds to the CSRD requirement to ensure transparency around the plans and capacity of reporting entities to adapt their business models and operations to the transition to a sustainable economy and limiting global warming to 1.5 °C.
Following the double materiality principle, the prototype outlines narrative disclosure requirements and specific indicators concerning:
- Climate change impacts and mitigation efforts, in particular as regards energy consumption and GHG emissions;
- The effect of climate-related risks and opportunities on a company’s financial position, financial performance and ability to create enterprise value over the short-, medium- and long-term, including indicators on financial exposure;
- Governance arrangements.
The scope of the prototype is strictly framed by the CSRD proposal and aligned with the KPIs needed by investors in line with the EU’s Sustainable Finance Disclosure Regulation and EU sustainable taxonomy. The proposal indicates how it is based on the existing standards, including in particular the Task Force on Climate-related Financial Disclosure (TCFD), Global Reporting Initiative (GRI) and CDP.