Climate reporting and regulation - everything you need to know

The world of reporting and regulation in the ESG space is an emerging one which is ever-changing and full of specific, and sometimes confusing language. As the environmental impact of businesses is coming under greater scrutiny and regulation, it’s important to have a handle on reporting terminology and requirements.

What is ESG Reporting?

ESG reporting integrates Environmental, Social, and Governance factors into a company's overall business strategy and reporting practices. It provides a holistic view of an organisation's sustainability efforts, encompassing not only environmental concerns but also social responsibility and governance practices.

What is Sustainability Reporting?

ESG and Sustainability reporting are essentially the same thing, as businesses typically use their Sustainability Report to make their ESG disclosures.

What is Climate Reporting?

Climate reporting is a subset of sustainability reporting that specifically focuses on an organisation's efforts to address and mitigate climate change. It includes data related to greenhouse gas emissions, energy efficiency, and climate-related risks and opportunities.

What is Environmental Reporting?

Environmental reporting extends beyond climate issues to cover a broader range of environmental impacts. This includes reporting on water usage, waste management, biodiversity conservation, and other aspects of an organisation's environmental footprint.

Benefits of ESG Reporting

  • Enhanced reputation: ESG reporting demonstrates a commitment to responsible business practices, enhancing a company's reputation and brand image.
  • Risk management: It helps identify and mitigate risks related to environmental, social, and governance factors, reducing the potential for financial and operational setbacks.
  • Investor confidence: It attracts socially responsible investors who prioritise sustainability, potentially increasing access to capital and improving stock performance.
  • Market competitiveness: Companies that excel in ESG metrics often gain a competitive advantage, as customers, partners, and employees increasingly prefer socially responsible businesses.
  • Regulatory compliance: ESG reporting ensures compliance with evolving regulations related to sustainability and responsible business practices.
  • Employee engagement: Companies with strong ESG commitments tend to attract and retain top talent, as employees are often more motivated to work for socially responsible organisations.
  • Long-term sustainability: ESG reporting promotes a long-term perspective, aligning business strategies with the sustainability goals needed for continued success in an ever-changing world.
  • Transparency and accountability: ESG reporting fosters transparency and accountability, helping stakeholders assess a company's performance in critical areas beyond just financial metrics.

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Regulation and Reporting timeline

The progression of climate regulation and reporting has been marked by significant milestones. Governments, international organisations, and industry bodies have worked together to establish standards and frameworks that promote transparency and accountability. 

Here's a snapshot of key developments:

  • The Kyoto Protocol (1997): An international treaty established binding emission reduction targets for developed countries.
  • The Paris Agreement (2015): Building on the Kyoto Protocol, this landmark accord set the stage for global action on climate change, aiming to limit global warming to well below 2 degrees Celsius.
  • Task Force on Climate-related Financial Disclosures (TCFD): Launched in 2015, TCFD developed recommendations for disclosing climate-related financial risks and opportunities, becoming a globally recognized framework.
  • Sustainable Development Goals (SDGs): The United Nations set 17 SDGs in 2015, providing a universal framework for sustainable development.
  • EU Sustainable Finance Action Plan: The European Union has been at the forefront of sustainable finance regulations, introducing the EU Taxonomy Regulation and Non-Financial Reporting Directive (NFRD).
  • Green Finance Initiatives: many countries have been actively promoting green finance and sustainable investment, which is an emerging hot topic in the ESG reporting space.
  • Mandatory reporting

The UK’s Streamlined Energy and Carbon Reporting (SECR) policy requires organisations of a certain size to share energy use and carbon emissions information in their annual reports. 

The Australian government also hopes to introduce mandatory climate reporting in 2024, a move that will hold significant consequences for large businesses and is expected to trickle down to SMEs and supply chains. The Australian government released a consultation paper on 27 June 2023 which proposes:

  • mandatory reporting requirements to commence from 1 July 2024 for Australia's largest listed and unlisted companies and financial institutions, with other businesses subject to the requirements over time. 
  • reporting subject matter to cover financial materiality, governance, strategy risk and opportunities and greenhouse gas emissions (initially only scope 1 and 2, with material scope 3 emissions from second year)  

Common Reporting Frameworks

  • Global Reporting Initiative (GRI): A widely used framework for sustainability reporting.
  • Carbon Disclosure Project (CDP): Focuses on disclosing environmental impact, including carbon emissions.
  • ISO 14001: An international standard for environmental management systems.
  • SASB (Sustainability Accounting Standards Board): Provides industry-specific ESG disclosure standards.
  • TCFD Recommendations: Encourage organisations to disclose climate-related financial information.

Which Framework Should You Use?

The choice of the best ESG reporting framework depends on various factors, including a company's industry, size, and specific sustainability goals. There isn't a one-size-fits-all answer, however:

  • GRI is a comprehensive and globally recognized framework that provides guidelines for reporting on a wide range of ESG issues. It offers flexibility and is suitable for companies seeking a holistic approach to ESG reporting.
  • SASB focuses on industry-specific ESG reporting standards, making it particularly useful for companies looking to align their reporting with industry peers and the GHG Protocol.
  • TCFD is essential for organisations looking to emphasise climate-related risks and opportunities and aid investors/stakeholders in assessing climate resilience.

Reading Material

See below for some highly acclaimed Sustainability Reports from both larger and smaller corporations.

Siemens: Siemens is often recognized for its detailed and comprehensive sustainability reports. They provide a thorough overview of their ESG initiatives, including efforts to reduce carbon emissions and promote diversity and inclusion.

Toyota: Toyota is known for its sustainability reporting, emphasising environmental initiatives such as reducing carbon emissions, promoting renewable energy, and advancing sustainable mobility solutions.

Patagonia:  Although not a typical SME, Patagonia is known for its strong ESG commitment. They started as a small company and have maintained a focus on sustainability throughout their growth.  

Astrazeneca: Have produced a unique one-pager that visualises and provides great detail of the business strategy and targets to Net zero.

Reach out to our team if you are unsure about your reporting requirements or how to cater for a request from one of your customers, investors or part of a tender/ application process

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