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Integrating climate reporting is key to effective risk management

By Charles Tilley

climate change crisis, integrated climate reporting

As we approach the UN climate conference, COP25, in Madrid, the urgency of tackling climate change is greater than ever. As more businesses become aware of the need to act and report on climate risk, it is the task of corporate reporting framework providers to give them the tools to do so.

That’s why the International Integrated Reporting Council (IIRC) collaborated with the world’s major sustainability-related reporting frameworks this year to assess our alignment on the basis of the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations.

During Climate Week NYC in September the Corporate Reporting Dialogue, an initiative convened by the IIRC, launched an interactive online report, Driving Alignment in Climate-related Reporting, explaining how the frameworks align on the TCFD recommendations.

As part of the Corporate Reporting Dialogue’s Better Alignment Project, CDP, the Climate Disclosure Standards Board, the Global Reporting Initiative, the IIRC and the Sustainability Accounting Standards Board collaborated intensively to assess alignment on the TCFD’s disclosure principles, recommended disclosures and illustrative example metrics.

Effective disclosure

We know there is frustration among businesses and investors with confusion in the reporting landscape, especially surrounding climate change. Our global multi-stakeholder consultation earlier this year, as part of the Better Alignment Project, revealed that, to the majority of report preparers surveyed, it was unclear how the participant frameworks could be used in a complementary manner with the TCFD’s recommendations. According to the consultation respondents, this somewhat affected their ability to effectively disclose against all four TCFD core elements—governance, strategy, risk management, and metrics and targets.

Driving Alignment in Climate-related Reporting aims to dispel this confusion by providing a practical guide to assist organisations in understanding and implementing the TCFD recommendations when using the participants’ well-established and globally applicable frameworks and standards.

The technical mapping showed strong alignment between the participants’ frameworks and the TCFD recommendations, specifically:

  • The TCFD’s seven Principles for Effective Disclosures are harmonious and complementary with those of the participants’ frameworks and standards, with the mapping showing no sources of conflict.
  • The participants are well-aligned with the TCFD’s 11 recommended disclosures, each of which is comprehensively covered by the frameworks and standards.
  • Overall, 80% of the TCFD’s 50 illustrative metrics are fully or reasonably covered by CDP, GRI and SASB indicators.
  • There are high levels of alignment between CDP, GRI and SASB for the TCFD’s illustrative example metrics, with 70% of the TCFD’s 50 metrics showing no substantive difference between the participants’ indicators. For the remaining 15 indicators, substantive differences are limited.
  • This is encouraging news, which confirms that the global frameworks can be used successfully in conjunction with each other to report against the TCFD recommendations.

Strategic information

However, as action, rather than reporting, is the end goal, the real task ahead for companies is to take the next step, beyond TCFD reporting. The IIRC’s Integrated Reporting Framework enables companies to fully integrate climate disclosures, including TCFD reporting, within a multi-capital mainstream report. This is a useful catalyst for climate action on two fronts.

Firstly, it encourages companies to develop and then communicate their strategies for long-term sustainable value creation to investors, with respect to climate risk. Investors are increasingly asking for this strategic information, particularly those with longer-term time horizons.

Investors need systemic risks to be reflected in their valuation models and incorporated into engagement with company executives and board members

This was documented in October last year, with the publication of the Investor Agenda for Corporate ESG Reporting. Collectively produced by investor bodies on environmental, social and governance (ESG) reporting, this paper set out how investors need systemic risks to be reflected in their valuation models and incorporated into engagement with company executives and board members.

Secondly, integrating climate reporting can help businesses start to connect thinking on climate risk and opportunity at every level of the company, including the board and C-suite.

Embedding climate-related data into business operations and strategy is key to tackling the climate crisis from within. As what gets measured gets managed, integrating climate-related disclosures soon guides decisions at all points of the business model, from procurement to product and process design to product and service delivery. In this way, emissions intensity and adaptation start to permeate all facets of business thinking.

As this thinking evolves, so too does internal reporting. This internal reporting then becomes a natural stepping-stone to enhanced external reporting, driving a positive cycle for climate action within the business.

Integrated thinking

Integrated reporting and thinking allow business to drive connectivity across the value chain. By measuring how climate change affects multiple capitals—environmental, human, social, manufactured, intellectual and financial capitals—and vice versa, companies can build the entire picture regarding climate risks and opportunities within their business operations. This strategic approach helps companies to learn how to develop their resources and relationships over the short, medium and long term to achieve a more sustainable and resilient business model.

Integrating climate reporting not only ensures investors are better informed, but also that company operations can be coordinated to implement action

To enhance understanding of this process, the IIRC is currently working with the private sector to create an integrated thinking management model, outlining the day-to-day management of integration, with an interim paper due for release in early 2020.

We encourage more businesses to contribute to this vital project, which examines the strategic imperatives behind longer-term value creation, multi-capital decision tools that are credible in the board room and with investors, as well as other challenges of corporate governance and performance management.

Integrating climate reporting not only ensures investors are better informed, but also that company operations can be coordinated to implement climate action in practice, rather than just on paper. It will spur action the business world now desperately needs—by breaking down prohibitive silos externally, in investor engagement, and internally, in company management.

Charles Tilley is interim CEO at the International Integrated Reporting Council.

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