Released in 2017, the recommendations of the TCFD have been extensively adopted by the private sector, becoming a widely accepted international reporting framework and the basis of a wave of voluntary and mandatory disclosure requirements that is currently expanding across several G20 countries and beyond.
CDP has identified a set of five main principles, in addition to TCFD recommendations, that should be applied to mandatory disclosure regimes.
CDP’s Recommendations for High-Quality Mandatory Environmental Disclosure
1- Aim at environmental integrity, addressing sustainability-related financial disclosures as well as impact on people and planet, with an holistic environmental approach.
The policy should be designed to advance the environmental agenda and to lead to real change that positively impacts people and planet. It is not possible to tackle climate without a holistic approach to the environment. The TCFD recommendations’ provide a good starting point for evaluating climate-related financial risks but the low-carbon transition requires a broader focus. Further data is needed, on a much wider range of environmental topics and with a view towards incorporating impacts on people and planet.
2- Ensure compatibility of disclosure standards required or recommended.
If not based on, the policy needs to be aligned with existing internationally agreed standards. If national standards are developed, they need to be compatible with international standards. Policymakers should rely on existing standards and reporting practices, enter into dialogue with other jurisdictions to agree on a common baseline and raise ambition at the national level with their own requirements to align with their Paris Agreement commitments and 2030 SDG targets.
3- Provide an enforcement system.
The policy implementation should be monitored by the relevant government authority, and effective measures for non-compliance should be in place. First and foremost, it is essential for policymakers to ensure that climate change is treated as intrinsically material at the company level and highlight that non-disclosure is not permitted under any circumstance.
4- Adhere to technical quality and content of the reporting process.
To meet this criterion, reporting should not only focus on risks but also strategy, impact, sector focus, comparability of disclosures, reliability, and accuracy. It should require forward-looking information to support the low-carbon transition. Companies should be required to fully integrate environmental factors at board level, both in terms of board composition and executive compensation. This would provide companies with the expertise at the top level to push for the development and disclosure of climate transition plans. These plans should include short-, medium- and long-term targets to ensure a response to climate change with the required urgency and scale. They should also include robust, quantitative and accredited science-based targets outlining how companies will transition to the 1.5°C-aligned business model, and shareholders should be given the opportunity to vote on them at companies’ AGMs.
5- Allow space for innovation and more mature disclosure.
The regulation should not form a ceiling and create a tick box exercise but serve as a floor/minimum requirement that stimulates even more ambitious, broader, and deeper disclosure and action.
Please click here for CDP’s full report.