On 31st January 2022, the Climate Disclosure Standards Board (CDSB) was consolidated into the IFRS Foundation to support the work of the newly established International Sustainability Standards Board (ISSB). While this site and its resources remain relevant for preparers looking to improve sustainability disclosure until such time as the ISSB issues its IFRS Sustainability Disclosure Standards on such topics, no further work or guidance will be produced or published by CDSB. For further information please visit the IFRS website.

CDSB statement on the UK Environmental Audit Committee’s report

Today the UK Environmental Audit Committee released its latest report “Greening finance: embedding sustainability in financial decision making”, as a result of its Green Finance Inquiry into climate change reporting regulation.

CDSB supports the findings of the report, in particular as it calls for the UK government to make climate risk reporting to be mandatory as the most likely way to “see comprehensive and comparable climate risk disclosures.” 

Despite this strong statement, the plan recommends the government to “set a deadline that it expects all listed companies and large asset owners to report on climate-related risks and opportunities in line with the TCFD recommendations on a comply or explain basis by 2022.” Simply making a statement of what the government might expect from the market misses the point of realistically requiring companies to report such information in the near future. It is also unclear whether a statement may trigger widespread implementation.

As for the overview of existing regulation, we agree that the existing wording of the Companies Act 2006 should already be interpreted to require companies to report this type of information, as climate change poses a financially material risk for businesses. There is already guidance clarifying this point, such as the DEFRA Environmental Reporting Guidance (2013) and the FRC Strategic Reporting Guidance, which is a solid basis for the government to build on.

Rapid action at scale

An increasingly delayed transition to a low-carbon economy would exacerbate the costs of climate change. The 2022 deadline indicated in the report could pose financial risks by shortening the timeframe for the market to offload climate-related risks. We suggest the UK Government or the FRC to undertake an annual review of companies’ reporting on climate change, starting in 2018, similar to our report of affected FTSE350 companies’ reporting under the Companies Act 2013 amendments, outlined in our report: Comply or explain. CDSB would be happy to support the government in this process.

The UK market also needs feedback from an authoritative source, in order to help promote good practice and highlight areas for improvement. Good monitoring, supervision and regular feedback to companies on their reporting is therefore crucial to ensure effective implementation. We stand behind the idea that the role of the FRC needs to be strengthened, by clarifying their mandate and providing it the resources to deliver on this. 

Finally, we find the report’s focus on the investor side critical: companies are only one element of the financial system, and it is important to address all actors involved in financial markets to bring lasting and effective change.