The Technical Expert Group on Sustainable Finance set up by the European Commission (EC) has published its first report on companies' disclosure of climate-related information.
The report contains proposals for disclosing not just how climate change might influence the performance of a company, but also the impact of the company itself on climate change.
It contains recommendations that will allow the EC to update its non-binding guidelines on non-financial reporting with specific reference to climate-related information, in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), established by the Financial Stability Board.
The guidance in the report aims to assist companies in developing climate related disclosures that comply with the Non-Financial Reporting Directive and take into account the recommendations of the TCFD.
The report distinguishes between three types of disclosure:
- Type 1 disclosures – those that companies should disclose (high expectation that all reporting companies disclose them)
- Type 2 disclosures – those that companies should consider disclosing (expected of companies with significant exposure to climate-related risks and opportunities)
- Type 3 disclosures – those that companies may consider disclosing (additional or innovative disclosures that provide more enhanced information)
The report said: ‘Companies that report climate-related information can directly benefit from providing quality disclosure to their stakeholders.
‘The disclosure process can lead to increased awareness and understanding of climate related risks and opportunities within the company, better risk management, and more informed strategic planning.
‘Good climate-related disclosure that reflects strong governance and strategy on issues related to climate change can contribute to securing a lower cost of capital and a more diverse investor base.’
It continued: ‘In addition, increased confidence in climate-related disclosures can bolster green financial products and foster innovation in sustainable investment strategies in the broader financial eco-system.’
Stakeholders can provide written comments on the report until 1 February 2019.