Standards setters target unified climate disclosure framework

Two standards setters have agreed to tie their work to that of a G20 task force to help companies issue – and investors understand – disclosure regarding climate change, at a time when boards and governance teams are facing growing pressure to engage with shareholders on the topic.

The Sustainability Accounting Standards Board (SASB) and the Climate Disclosure Standards Board (CDSB) last week issued a paper explaining how they plan to align with the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations.

‘As the impacts of sustainability-related business risks on business and society – including those associated with climate change – have risen in prominence, a variety of reporting approaches have proliferated, creating confusion in the market over which one to use,’ says Jean Rogers, founder and chair of the SASB, in a statement on the SASB-CDSB paper. ‘Alignment between the SASB, CDSB and TCFD provides streamlined guidance for issuers, more useful information for investors and other decision-makers, and increased stability and resilience for the broader capital markets.’

The task force, which was set up by the Financial Stability Board, in June finalized a set of recommendations for voluntary corporate financial disclosures clarifying what may constitute material and relevant climate-related risks, establishing principles for effective disclosure, proposing key disclosures across thematic areas – governance, strategy, risk management and metrics and targets – and providing guidance on implementation.

One of the markers of this year’s proxy season has been the increased pressure from institutional investors for companies to disclose how they will be affected by climate change and efforts to counter it. A number are working with SASB as it develops its guidelines for 79 industries. For example, Vanguard chair and CEO Bill McNabb in a recent letter to public companies notes the firm’s ‘evolving position’ on climate risk and gender diversity, saying this has come from a better understanding of the impact these issues can have on the bottom line for Vanguard investors (CorporateSecretary.com, 9/13).

‘Climate risk is an example of a slowly developing and highly uncertain risk – the kind that tests the strength of a board’s oversight and risk governance,’ McNabb writes. He calls on investors, boards and management to encourage greater disclosure of sustainability risks, pointing to Vanguard’s own involvement with the SASB.

Janine Guillot, director of capital markets policy and outreach at SASB, told Corporate Secretary this summer that there is increasing awareness among companies that mainstream institutional investors are interested in ESG matters. She urged governance professionals to encourage boards to take such issues seriously.

ALIGNMENT PLANS
As the CDSB and the SASB move toward increasing alignment with the TCFD’s recommendations, their efforts will comprise three elements:

• Gap assessment – They will identify existing points of alignment and opportunities for increased alignment with the TCFD recommendations. Where possible, changes will be proposed to the CDSB framework and/or the SASB standards to enhance their compatibility with the recommendations
• Harmonization – They will work to identify and articulate links between the CDSB framework and the SASB standards, ensuring that proposed changes enhance their compatibility not only with the task force’s recommendations but also with one another
• Public comment – All proposed updates to the CDSB framework and SASB standards will be open to public comment.

At the same time, the groups note in the paper that there are differences in their missions that may prevent full alignment. For example, they write that although the CDSB framework and the TCFD recommendations are applicable across the economy, each of the 79 SASB standards is designed for a specific industry, identifying the unique financial impacts of various sustainability issues, including climate change.

‘Although these differences may limit the ability of CDSB and the SASB to perfectly align their approaches with every aspect of the TCFD recommendations, any such restriction is expected to be minor, will be transparently noted and should not impede the ability of preparers to use the CDSB framework and the SASB standards to satisfy the TCFD recommendations and supporting recommended disclosures,’ officials write.