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How COP27 impacts your annual report
Now that COP27 has come to an end, inevitably there will be questions around what new regulations and policies will mean for corporate reporting. COP26 saw many changes in this department with the introduction of the International Sustainability Standards Board (ISSB) and Transition Plan Taskforce (TPT). COP27 continues to build on these changes. Although there were no major curveballs thrown in this year there was a clear message that significant developments to disclosures are around the corner, which businesses should be preparing for.
Baseline sustainability disclosures
The ISSB is a consolidation of the Value Reporting Foundation (VRF) and the Climate Disclosure Standards Board (CDSB). Its purpose is to be a global baseline of sustainability disclosure standards aimed at meeting the information needs of both public authorities and the general market.
The ISSB announced at COP27 its new partnership framework with over 20 other partner organisations, including GRI, Deloitte and the CDP. The framework aims to encourage adoption of the ISSB disclosures through collaboration with these multi-national establishments.
The carbon disclosure project (CDP) also announced at COP27 that it would be integrating the ISSB disclosure (IFRS S2 Climate-related disclosures requirements) into its own global disclosure framework. The CDP has over 17,000 voluntary users worldwide, and so this marks a pivotal point for the ISSB going forward.
The ISSB is influenced by the Taskforce on Climate-Related Financial Disclosures (TCFD) and Global Reporting Initiative (GRI). As such, businesses should be considering the disclosures they are currently reporting under these frameworks as a launchpad for the release of ISSB. The final draft of the first two ISSB standards is due to be released in Q1 2023 with the most up to date exposure drafts released in November 2022.
Alongside the ISSB, the TPT was introduced in COP26 by the UK Chancellor as part of the UK's strategy to be the first net zero financial centre. The purpose of the TPT is to create high quality guidance for businesses on their net zero transition plans. The TPT announced the release of its most up to date draft disclosure framework at COP27, which integrates guidance from the ISSB, Taskforce for Climate-Related Financial Disclosures (TCFD) and the Glasgow Financial Alliance for Net Zero (GFANZ).
Disclosure of a net zero transition plan is due to be mandated for listed companies, asset managers and regulated asset owners as early as 2023. With this deadline looming it is more critical than ever that these businesses use this guidance to prepare for their own transition plan statements.
COP27 saw further developments to the net zero agenda with the release of the first report written by the newly established 'High-Level Expert Group on Net-Zero Emissions Commitments of Non-State Entities'. The group was established by the United Nations Secretary-General (António Guterres) with the aim of providing best practice guidance for those businesses dedicated to achieving net zero. The report outlines 10 recommendations that align with those of the ISSB and TPT. This report was based on a public consultation and as such offers an opportunity for businesses to gain insight into the key issues facing their stakeholders.
The expanding number of standards in this area means that businesses should be factoring net zero into their strategies now, so that they are ready to set out their transition plan when the mandate kicks into action.
Nature and Biodiversity
Finally, many businesses have incorporated mandatory TCFD reporting over the last few years but have not yet prepared for its newest relation; the Taskforce for Nature-related Financial Disclosures (TNFD). The TNFD was established in 2021 due to the growing importance of incorporating nature into business decisions. The framework is still growing with the final iteration due in September 2023. It announced 7 new members at COP27, including company executives and financial institutions which takes the total members up to 40.
For companies that consider nature to be a material issue for their business, the TNFD is likely to have a significant impact on their reporting. Reporting team should prepare by ensuring they have robust TCFD disclosures in place and have identified all nature related risks facing their business.
The ongoing development of these standards and frameworks mirrors the increasing importance of sustainability to investors. The goal is to achieve transparency through greater integration and consistency of reporting, allowing more effective communication to critical stakeholders. As the race to net zero intensifies businesses must start planning for the future now or risk being left behind.
First published in Communicate Magazine.