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December 7, 2020

CDSB’s environmental disclosures report: insufficient information for investment decision-making

By Joe Pickard

The latest report published by the Climate Disclosure Standards Board (CDSB), The state of EU environmental disclosures in 2020, found signs of improvement, however information remains insufficient for investment decision-making.

The report analysed strengths and weaknesses of disclosure among 50 of the of the largest companies in the EU with a combined market capitalisation of $3.5 trillion under the EU Non-Financial Reporting Directive (NFRD).

The companies reviewed by the CDSB showed some progress in the completeness and quality of greenhouse gas emissions and business model disclosures, however the report also found the the top strengths and weaknesses remained unchanged.

Top strengths:

  • Policies and due diligence – All companies disclosed environmental policies, but 30% did not clarify board and management level due diligence;
  • Business model – 52% fully disclose the environmental aspects of their business model; and
  • Key performance indicators – All companies provided GHG emissions disclosures, but only 10% disclosed metrics on biodiversity.

Top weaknesses:

  • TCFD – 68% referenced the recommendations of the Taskforce on Climate-related Financial Disclosures, but only 18% adequately disclosed their resilience to different climate scenarios;
  • Principal Risks – 74% considered both physical and transition risks, but just 4% clearly disclosed risks over different time horizons; and
  • Materiality – 38% (2019: 8%) applied a double materiality perspective, but this did not necessarily improve the quality of disclosures.

The CDSB’s report concluded that investors’ ability to integrate information disclosed under the EU’s rules into their decision-making is inherently limited without further improvements to the NFRD on TCFD, risk and materiality.

CDSB managing director Mardi McBrien said: “To achieve the goals of the Paris Agreement, it is essential for investors to receive comparable and consistent information that is needed to inform their capital allocation. The sustainability reporting landscape is moving towards harmonisation and common standards. The work of the European Commission is important in achieving this goal and we will continue working closely with Europe to develop leading approaches and internationally to develop a global baseline that works for all.”

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