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June 09, 2009
Guidelines for Corporate Disclosure of Costs of Climate Change Are Proposed
    by Robert Kropp

The Climate Disclosure Standards Board issues a proposed framework that would align corporate reporting of climate change with principles and objectives of financial reporting rules.


At the recent World Business Summit on Climate Change in Copenhagen, the Climate Disclosure Standards Board (CDSB) issued a proposed framework for standardized corporate reporting of climate change information.

The exposure draft of the framework, entitled The Climate Disclosure Standards Board (CDSB) Reporting Framework, seeks comments by September 25 from business, investors, the accounting profession, and regulatory agencies, so that the findings can be updated in advance of the United Nations Climate Change Conference (COP15). The Conference will be held in Copenhagen in December 2009.

The proposed framework uses the Corporate Accounting and Reporting Standard developed by the Greenhouse Gas Protocol (GHG Protocol) as its basic emissions reporting standard. The GHG Protocol is an international accounting tool used by government and business to quantify and manage GHG emissions.

CDSB describes its proposal as "a principles-based global reporting framework for climate change-related disclosure to be used by companies in compiling their mainstream financial reports." The framework is designed to provide investors with information that will help them assess the affect of climate change on corporate performance.

The Carbon Disclosure Project (CDP) is one of the principal members and Secretariat of the CDSB. On behalf of 475 institutional investors and other parties, the CDP issues annual Information Requests to more than 3,700 corporations, and holds the largest database of corporate climate change information in the world.

SocialFunds.com spoke with Paul Simpson, COO of the CDP, about his organization's involvement with the framework proposed by the CDSB.

"Our mission at the CDP is to get companies to report emissions and then get those reports to people like investors who need them," Simpson said. "We have a lot of expertise in how these reports should be written, and we want to provide our knowledge to the CDSB initiative on how these companies should include this information in their annual reports."

The proposed framework advocates for the adoption by companies of the relevant principles and objectives of financial reporting in their identification of real and potential impacts of climate change on financial performance. By linking corporate management of climate change issues with financial performance, incorporation of climate change information into mainstream reporting models with which companies are already familiar can be more efficiently accomplished.

To make corporate climate change-related reporting as mainstream and reliable as financial reporting, the CDSB recommends that climate change disclosure be included in annual financial reports according to standard reporting procedures. At present, the impacts of climate change are not reflected in the annual reporting of corporate financial performance. As a result, investors are left with an incomplete assessment of how climate change affects the financial performance of the companies in which they hold ownership stakes.

"We're recommending that companies include climate change information in their annual reports," said Simpson. "Climate change is such a big issue that it is affecting already and will continue to affect a company's finances. That is why we advocate that emissions and financial reporting be done together, or at least consistently."

Simpson continued, "What investors want is consistency in what is reported and how it is reported. Emissions reporting should be done in line with how financial reporting is done."

"We're not re-inventing the wheel, but building upon what is already there," he added.

Addressing concerns by investors that companies may point to the current economic crisis as reason for delaying the implementation of climate change reporting, the CDSB acknowledged that "reporting under the proposed framework may give rise to additional costs." The cost of reporting may vary widely among companies, the framework found, but what costs may arise are likely to be reasonable. The proposed framework recommends the alignment of climate change reporting with financial reporting rules, which should allow for adaptation to existing reporting mechanisms.

Furthermore, according to the CDSB, "The benefits to business, investors, and regulators significantly outweigh the costs, by providing capital markets, business and policy makers with disclosures designed to help them act to prevent dangerous climate change and the associated costs."

Simpson told SocialFunds.com, "In our conversations with governments, the question of what reporting will cost companies came up. There aren't significant new costs to companies that are already reporting their emissions. Every company needs these information systems in our fast-changing world, and companies need to have the tools to measure their emissions."

"Measurement of emissions, at a minimum, can identify areas where energy efficiency can be improved," Simpson continued.

Because of the current political realities involving mandatory reporting of corporate GHG emissions, the proposed framework presents its recommendations as voluntary initiatives. However, the CDSB clearly reports a widespread demand for inclusion of critical climate detail and analysis in mandatory reports.

"We are talking in detail with organizations about moving to mandatory reporting," Simpson said. "But one of the dangers of regulation is the adoption of a lowest common denominator for a complex issue." By proposing a framework for what companies should report about climate change, as well as how reporting can be made more useful for investors, the CDSB hopes to contribute to a mandatory reporting system that successfully captures the costs to companies of climate change in all its complexities.

Simpson concluded, "As Bill Clinton said at the CDP launch in 2007, 'We have to keep score.' You can't manage what you're not measuring."

 

 
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