We know that reporting standards and climate disclosures can be challenging and our experts are here to help. Martin Fryer, our Head of Strategy and Disclosures, and Kate Arnold, Senior Sustainability Specialist, discuss some of the main reporting frameworks and standards.
What are the two main standards for sustainability reporting?
Martin – The Global Reporting Initiative (GRI) produced its first reporting framework in 2000. GRI guides what organisations should include in a sustainability report and how to measure performance.
The other standard is Integrated Reporting <IR>, set up in 2013, to connect sustainability reporting with language that investors understand. <IR> talks about creating value and the flow of capital through an organisation – natural and human capital, and others.
Most stock exchanges provide guidance for listed entities that refer to these standards. Some, such as those in South Africa or Singapore, mandate a sustainability report. In Aotearoa New Zealand, listed companies must report using the Aotearoa New Zealand Climate Standards. Australia is developing its requirements.
What is the Task Force on Climate-Related Financial Disclosures (TCFD)?
Martin – The TCFD is a reporting framework that was first published in 2017 and focuses on climate-related disclosures – the risks and opportunities a business faces due to effects like rising temperatures and extreme weather. The Taskforce was a response from the Financial Stability Board to 2008’s Global Financial Crisis.
TCFD reporting has grown exponentially over the past few years. It tells investors where they're putting their money and the climate-related risks involved. TCFD has four ‘pillars’: governance, strategy, risk management, and metrics and targets.
Learn more in our TCFD Need to Know
How are GRI, <IR> and TCFD related?
Martin – All three consider how a company can have an impact, both positive and negative, on the environment and on people, and how those same things impact them. Though they look at similar topics from different angles, they all promote disclosing how sustainability issues are integrated into things like governance, strategy and risk management. TCFD has a very specific focus on climate-related risks and opportunities over the short, medium and long term.
Learn more in our blog about reporting standards and frameworks.
A diagram showing how climate risks and opportunities can impact your financial performance
How do climate standards differ in Australia and New Zealand and when do they come into effect?
Martin – There’s a lot in common because the national standards of both countries follow the TCFD framework and use the four TCFD pillars.
Aotearoa New Zealand was the first country to regulate climate-related disclosure standards for large, listed companies. We did this through our External Reporting Board (XRB). Reporting is mandatory for accounting periods that started after 1 January 2023. Learn if you need to disclose your climate risks and the reporting requirements here.
Australia has consulted and we expect the regulations in early 2024. It is expected to require the largest Australian companies and financial institutions to disclose climate-related risks starting in the 2024/25 reporting period. Learn more about the Australian Treasury’s reporting consultation.
The standards differ slightly, but investors will know that if a business discloses in New Zealand, the report will cover most of what Australia or elsewhere requires.
How does disclosing climate risk benefit a company?
Kate – It helps identify risks and builds resilience and strategies that help a company adapt to climate change. Climate reporting shows a company where it is now and helps it understand how to act to become stronger in the future. Assessing climate risk should be part of risk analysis, like health and safety or commercial risk. Developing financial disclosures for climate-related risks gives investors confidence and that can improve a business’s reputation.
Assessing climate risks also helps a company plan its strategy. When a company shares its climate risks and opportunities, it engages stakeholders to take climate action and adapt.
If you’re a small private company, you would still benefit by making voluntary climate disclosures.
Martin Fryer and Kate Arnold
Why should companies consider voluntary disclosures?
Kate – As well as the reasons above, it can be a ‘trial run’ before a company is mandated to report. Working through the disclosures, a company will learn a lot about its operations. It also helps an organisation understand how long the reporting process takes.
Knowing what’s happening in their company engages a team. Reporting on sustainability helps builds momentum. Sustainability work shouldn’t be in its own corner but connected right through a business.
Martin – If a company only reports to tick a box, then it’s missing a massive opportunity. There's so much in a climate report that a business can share with its internal and external stakeholders. The report can include stories that recognise the great work the team is doing, and show how suppliers and customers are supporting your activities too.
How long does it take to produce a climate report?
Martin – Most reports are a three-to-four-month process assuming you treat it like a project. This avoids leaving things to the last minute.
What is important to know when starting a climate report?
Kate – Some clients have found strategy challenging. How does a business’s strategy address climate-related risks and opportunities? In a climate report, a company’s strategy should connect everything. They may need to develop new strategies to address this. Our clients generally understand risk, metrics and targets and they have a governance structure. Having those three pieces connect with strategy is important.
Companies also need to understand their stakeholders and have the right people involved. With some clients we work with a whole team; other times we deal with one person who manages their side.
What else have clients learned while reporting?
Martin – TCFD follows the Greenhouse Gas Protocol which requires businesses to disclose their Scope 3 (value chain) emissions. We work with many clients to help them understand which of the 15 Scope 3 categories are relevant and where they can reduce these emissions.
Some clients assume the metrics and targets section only covers greenhouse gas emissions from their operations. They need to consider a wide range of metrics and targets to show how their organisation is managing the physical and transitional risks and opportunities a changing climate will bring.
Learn more about physical and transitional risks and opportunities in our TCFD Need to Know.
What might climate disclosures look like in ten years?
Martin – In five years, we will have a more realistic view of the future, better data for scenario analysis (a tool to explore how the future may unfold) and understand the true impact of efforts to reduce emissions. We will potentially have experienced more physical impacts from a changing climate. In ten years, disclosures might be very different, because we could be living in a very different world and organisations will be being held more to account.
Kate – As well as climate disclosures, we will also see the Taskforce on Nature-related Financial Disclosures (TNFD). A coalition of financial institutions and companies is developing these disclosures that explore how a business connects with the natural world.
21 August 2023