Climate-related reporting frameworks highly aligned

With rising interest in climate change and its impact on businesses, organisations globally have been examining sustainability reporting standards and frameworks that will best articulate their climate-related risks and strategies to stakeholders.

However, a nagging question remains: Which is the best standard or framework to use?

A recent report by the Corporate Reporting Dialogue (CRD) provides some answers. Part of a two-year study called the Better Alignment Project, the report found stronger-than-expected alignment between the Task Force on Climate-Related Financial Disclosures’s (TCFD’s) recommendations and global bodies’ sustainability reporting standards and frameworks.

The report involved five participants — CDP, the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC), and the Sustainability Accounting Standards Board (SASB).

The report’s technical mapping found that:

• The participants’ standards and frameworks are harmonious and complementary with the TCFD’s seven principles for effective disclosures;
• The TCFD’s 11 recommended disclosures — on governance, strategy, risk management, and metrics and targets — are comprehensively covered by the participants’ standards and frameworks;
• CDP, GRI, and SASB indicators fully or reasonably cover 80% of the TCFD’s 50 metrics; and
• Of all CDP, GRI, and SASB climate-related indicators, 70% show no substantive difference with the TCFD’s 50 metrics.

Ian Mackintosh, the CRD’s chair, said in an interview with FM that the study compared the participants’ frameworks against the TCFD’s recommendations because the task force has been gaining significant traction and many organisations are interested in presenting the recommended metrics in their corporate reporting.

“TCFD has been quite successful,” said Mackintosh, who is a former vice-chairman of the International Accounting Standards Board (IASB).

The objective of the report is singular — to address market confusion. In the same report, a survey found that the vast majority of corporate report users and preparers are unclear how sustainability reporting frameworks and standards in the market complement or differ from one another — whether on comparability, materiality, definitions of terminologies, or the metrics used.

“We’re being told continuously by preparers and investors and funders and regulators that it would be much [more] preferable to have one set of standards which everybody could understand and use and would be comparable across companies and industries and countries,” Mackintosh said.

Considering such high levels of alignment, which standard or framework should organisations use? Mackintosh suggested three areas to look at — a framework’s comparability with other frameworks, what is material to the organisation, and the organisation’s goal in climate-related disclosures.

“But I don’t think there’s a straight answer to the question,” he said, adding that the CRD report’s Q&A section gives some answers. “But they’re not cut and dry — start here, move there, do this next — there’s still a lot of crossover and potential for confusion.”

Going forward, the CRD aims to bring greater alignment between global standards and frameworks not just on climate-related reporting, but on sustainability reporting more broadly, which includes environmental, social, and governance (ESG) matters. However, in response to market demands, the CRD’s initial year focused on climate-related reporting.

The more difficult task is to meet the demand by report users and preparers for one climate-related reporting framework. Is the task even possible?

“It’s going to take a lot of thinking and a lot of heroism to move from the existing situation to what people tell us would be a more satisfactory one,” Mackintosh said. “All of them (standard-setters and framework providers) have spent a lot of time and effort … building their frameworks and standards and each of them from a particular point of view. So, there’s vested interest.”

However, he is confident that there is sufficient market pressure for a solution to be found.

“If the CRD can’t find the solution, I think somebody else will or … at least attempt to find a solution,” he said.

What’s next: In the second year of the Better Alignment Project, the CRD aims to increase complementarity between indicators used by the TCFD and the participants’ standards and frameworks to 90% alignment from the current 70%, Mackintosh said.

— Alexis See Tho is an FM magazine associate editor. To comment on this article or to suggest an idea for another article, contact her at Alexis.SeeTho@aicpa-cima.com.

Related resources

AICPA/SASB event

Driving Value Through ESG Reporting (free event), 4 December, register by 27 November

FM podcast

“Climate-Related Reporting’s Ability to Effect Change,” FM magazine, 11 September 2019

CIMA report

Natural Capital Accounting: Revisiting the Elephant in the Boardroom