October 25, 2019 Climate-related reporting
Open any newspaper, listen to any news bulletin and it’s a fair chance that one of the reports will be on climate change. And that’s hardly surprising. Even aside from climate protesters, we are seeing a growing impetus for government organisations, councils and business leaders to take action on climate change. For example, on the day of writing Devon County Council called on residents to submit their ideas for carbon reduction as the first step in developing a Net Zero carbon plan for the county.
The Institute of Directors (IoD) has also been active in this area, reporting on a climate change round table event which took place in September. The theme for the event was how to overcome the challenge faced by those looking to embed sustainability in corporate governance.
The discussion highlighted one of the clear challenges for investors in that “it remains far too easy for some companies attempting to ‘green-wash’ by issuing extensive reports replete with sustainability spin but lacking in substance.” The volume of reporting was also identified by directors as a challenge with the level of disclosure required potentially overwhelming the message.
This theme has now been echoed by a Financial Reporting Council (FRC) report which has been looking at the challenges of climate-related corporate reporting. The report acknowledged that: “For some companies, climate-related issues are material now, with impacts already disrupting supply chains and changing consumer behaviour. For others, climate-related issues are key to longer-term strategic planning decisions.” Perhaps because of this the report comments that investors “are increasingly calling for companies to report on challenges, targets and activities to support the action they are taking on this issue.”
The report does acknowledge that there is currently no specific requirement to report on climate change. Nevertheless, looking at the Companies Act and the UK Corporate Governance Code, climate change will form part of the company’s duty to disclose in a number of areas including risk, sustainability, promoting the success of the company, and identifying future opportunities and success of the business.
With this in mind the report comes up with a number of areas for consideration divided into governance and management, business model and strategy, risk management, and metrics and targets. Within these sections the report examines investor expectations and company views, before going on to look at what questions the company should be asking and what disclosures it should be making. The report also includes examples of disclosures which companies may wish to review when reporting on a number of areas including scenario testing and developing a climate roadmap.