Following the launch of the EU Environmental Reporting Handbook, CDSB’s project manager, Gemma Clements, shares four essential tips on how to disclose environmental information in line with reporting requirements in Europe.
The beginning of 2020 has seen a surge of activity around environmental disclosures, especially within the EU. On the 28 January Vice President Dombrovskis announced that later this year he will present a renewed sustainable finance strategy for the EU, which includes a revision of the Non-Financial Reporting Directive (NFR Directive), requiring companies to provide better disclosure about their sustainable activities and responses to sustainability risks and opportunities.
Since the transposition of NFR Directive into national law in 2016, we have seen different levels of disclosure from companies with key challenges around connectivity, consistency and locations of disclosures.
To help companies improve their reporting practices in line with the EU’s ambition, here I outline the top tips that companies should consider when preparing and disclosing environmental information:
1. Ensure your disclosures are connected and coherent, linking information on environmental matters to overall corporate strategy, performance and prospects
Connectivity is a key element of the NFR Directive, and the content categories (see the EU Environmental Reporting Handbook for description of categories a-e) and reporting requirements should not be seen as separate sections but as one complete disclosure. For example, when a company describes their policies and strategies in relation to environmental matters, they should also provide information about the actions taken towards these policies, and the key performance indicators (KPIs). As the recent review by the Alliance for Corporate Transparency showed, companies need to provide connecting information that demonstrates how policies are being actioned, and what the outcomes of these policies are.
It is also important to connect environmental matters to the wider business strategy and performance. Companies should consider how linking this information can provide a holistic picture of the company’s overall strategy, performance and prospects.
2. Ensure that your report is clear and concise
For some companies, disclosing sustainability information in the mainstream report is new, and there are different approaches that one could take, including integrating the information throughout or providing specific sections in the report narrative. When I say mainstream report, I’m referring to the annual reporting packages that companies publish to deliver their audited financial results under corporate or security laws.
It is important that the report is easy to navigate and read, making the disclosure coherent and understandable. Make sure to use plain language and consistent terminology, avoiding jargon and boilerplate text. In many cases, where companies have used signpost and labelling, this is helpful for readers to find the specific information they are looking for across the report.
3. Go beyond climate change – environmental reporting is more than emissions reporting
In relation to environmental matters the NFR Directive refers to “details of the current and foreseeable impacts of the undertaking’s operations on the environment…the use of renewable and/or non-renewable energy, greenhouse gas emissions, water use and air pollution.” Companies need to consider how to communicate information about the impacts and dependencies related to waste, air pollution, water and resource use – and not just GHG emissions. The CDSB Framework provides the structure companies need to disclose environmental information through the principles and requirements. Companies may also wish to draw on the environmental metrics provided by GRI, CDP and SASB.
4. Apply guiding principles for effective disclosure in the mainstream report
The CDSB Framework outlines guiding principles that are designed to ensure that environmental information is decision-useful, correct, complete and suitable for conducting assurance activities, where appropriate. The guiding principles should be applied when determining, preparing and presenting environmental information in the mainstream report. We encourage you to take a look at the CDSB Framework for more detail about the guiding principles.
For further guidance, I recommend that you look at the EU Environmental Reporting Handbook by CDSB and CDP, which was developed to demonstrate how companies have responded to, and are reporting in line with EU requirements. The Handbook comprises of annotated examples, illustrating the different approaches companies have taken and highlight areas of good practice.