The UK Task Force on Climate-Related Financial Disclosures (TCFD) will come into force from April 2022 for large registered companies and financial institutions in the UK. The mandatory TCFD requirement in the UK will solicit decisive, transparent, and consistent climate-related financial risk disclosures and information from the issuers to the stakeholders.
This blog is based on An Eight-Step Guide to the SASB Standards Disclosure Process which was originally written by a leading European banking expert. This guide is a useful resource for any firm embarking on the journey of setting up its internal ESG or TCFD reporting process.
Today ESG has all the attention of investors and regulators and has been mandated in various jurisdictions and countries. Disclosing a company’s ESG and sustainable business practices have ushered in mandatory reporting standards — including those by TCFD.
One of the main ESG reporting challenges that are faced by many firms is discerning where to focus their resources and energies to provide the most effective way of disclosing the information to stakeholders.
This step-by-step guide has been curated to help do just that.
Step 1: Managing Stakeholders’ ESG Expectations
Identifying your firm’s most significant stakeholders and their sustainability disclosure expectations should be the first step in moving forward with the ESG disclosures. This could include the guidelines and standards the stakeholders want you to concentrate on, as well as how often the ESG disclosures are analyzed by them.
While engaging with institutional stakeholders, you need to thoroughly think about the ‘material’ challenges in your sector and how your investors evaluate the ESG disclosures provided by your firm.
Step 2: Choosing Industry-Specific Standards
The next step is selecting the metrics applicable to your industry and ensuring alignment with the specific sustainability standards. If you opt for the SASB Standards, then out of the 77 industry-specific standards on the SASB website, you must select the appropriate metrics that concern your industry.
Step 3: Analysis and Evaluation
The third step involves evaluating the extent to which your firm is already adhering to the metrics articulated in your chosen sustainability standard. You need to analyze your company’s existing process of collecting and disclosing data. This analysis should include ESG and financial disclosures issued by your firm.
In-depth conversations with your internal team will help you make informed decisions on whether the data required to respond to the remaining metrics are being collected and recorded. This process will help you understand which disclosures should be enhanced, and the extent of alignment your collected information has with your chosen industry standard.
You should also identify the disclosure responses that may be viewed adversely by stakeholders. Additional context around the quantitative responses of the disclosures can help provide a holistic understanding to the investors.
Step 4: Improving Existing Practices
You must determine the areas where your firm can make improvements and make changes to improve the performance metrics as measured by your sustainability standard. Even when the practices do not align with investor expectations, the team must work collaboratively to produce the required outcomes.
Reviewing the disclosures made by other companies can help you to make necessary changes to your current practices and fill in disclosure gaps.
Step 5: Drafting the Disclosures
One of the key areas of focus should be the process of drafting your sustainability disclosures. This should be done by paying detailed attention to the guidelines and protocols of the standards used. You can also group your sustainability officers/governance with experts in financial disclosures like external reporting/ investor relations personnel to accomplish the drafting process. An ideal way is to submit your draft disclosures to ESG-focused organizations and law firms for recommendations.
Key Points to Keep in Mind:
- Provide narrative around the qualitative information of disclosures. This will give investors a complete understanding of your business.
- If your firm is not willing or able to respond to the industry-specific metrics, it is advised to provide partial information and a note on why you are not able to fully disclose the metric. This will help you to gain the confidence of investors who may be concerned about “cherry-picking” the metrics.
Step 6: Involving the Top Management
While disclosing new information, it is equally important to internally assess and review your draft ESG disclosures. The senior management must be informed about the results of the performed gap analysis.
All additional changes should be internally discussed and standardized to the applicable metrics. All measures should be reviewed by the management to make the disclosure publicly available.
Step 7: Releasing Your Disclosures
After all control processes have been conducted, and approvals from senior management and the Board are acquired, you must decide to make your disclosure public. You may post the disclosure on your firm’s website in addition to supporting corporate governance and ESG documents.
Announcing the release of the disclosures can be done through proxy statements and press releases. The right communication channel can outline and impactfully deliver your message behind adopting the chosen ESG standard. Evaluating the best-in-class disclosures of other companies will also help you decide how, where, and when to announce your disclosures.
Step 8: Engaging with Stakeholders
While engaging in any subsequent stakeholder engagements once your disclosures are published, request feedback and suggestions that can help to ease your disclosure process in the future.
All responses must be communicated to the senior management and the Board. This internal transparency will ensure that everyone is well informed of shareholders’ expectations.
With the growing focus on ESG and TCFD in the marketplace today, proper guidance is required around climate-related metrics and targets.
The ideal way for any firm to disclose TCFD-related information is by getting expert assistance from companies like IRIS CARBON®.
With the experience of over 40 countries across the world, our report creation platform is used for the regulatory reporting requirements in 40 countries and 30 regulators across the world.