April 2023
Welcome to our first newsletter, our aim is to be brief, interesting and useful. There are four sections: a current topic, a viewpoint from one of our team, an update on relevant legislation and CEN-news.
This edition focuses on Climate-related disclosure through the latest CDP survey of transition plans. The research suggests most businesses remain at the early stages of their Net Zero journeys. We hope you enjoy the read and feedback is welcome.
Transition Plan disclosure quality: key area of focus
In February 2023, CDP published its latest survey ‘Are companies developing credible transition plans?’ (TPs). It revealed that there is still much to be done.
The survey involved 18,600 companies responding to 21 TP questions. 4,100 companies (22%) disclosed that they had already developed a 1.5°C-aligned climate transition plan, but only 81 (0.4%) reported sufficient detail to all 21 key indicators in the climate change questionnaire that align with a credible climate transition plan. Globally, 69% of the companies were only able to adequately respond to under a third of CDP’s questions, whereas only 12% covered at least two thirds of the questions. The UK averages were slightly better with 66% of 1,448 companies covering less than a third and 15% two thirds of the questions.
The UK government announced at COP 26 that it would make disclosure of a climate transition plan a mandatory requirement for large UK based companies. Although no further details on timing have emerged the Transition Plan Taskforce (TPT) has published draft guidance for what should go into these plans which is expected to be finalised in coming weeks. We are seeing signs that investors are urging companies to act ahead of any regulatory deadlines with scrutiny transition plan progress at companies some already voting negatively if sufficient plans have not been disclosed. We would recommend all listed companies to be working on their transition plans and for these to be published before the end of the year. CEN-ESG provides technical support for carbon footprinting, setting of science-based targets and completion of transition plans against the TPT guidance.
One of CDP’s measures of credibility was whether TPs contained time-bound and, where possible, verifiable targets. CDP believe these targets should be to halve emissions by 2030 and set a net zero long term target by 2050 at the latest. Two routes were considered: the SBTi route and the CDP route. Very few companies’ disclosed targets made CDP's threshold. The chart below considers the companies’ surveyed performance against three different targets. Once again, the room for improvement is high.
Source: CDP, February 2023
Important dates for CDP for 2023:
17th April CDP online response system opens.
26th July CDP deadline to be eligible for CDP score.
CEN-ESG can manage your CDP filings and maximise the value of your responses through our in-house gap analysis and score prediction process.
Perspectives
Euan Stirling, our Director in charge of Investor Solutions was previously Global Head of Stewardship and ESG Investment at Standard Life Aberdeen
More than seven years have passed since the Paris Climate Agreement was signed by 196 parties at COP 21. It is slightly depressing to find that so few companies have worked out, in that time, how to achieve the net-zero status that so many of them have publicly committed to. To be fair though, many of the governments who signed the accord are well behind where they need to be to limit global warming to 1.5 degrees as well.
When I read companies’ annual reports and look at government publications from around the world it is tempting to think that we are in good hands and that the climate crisis is being adequately addressed. However, the tiny number of companies whose transition plans actually add up to their ambitions cannot be ignored. Numbers count, and these ones are simply not good enough. I draw two conclusions from this.
The first is that it is easy to state objectives but much more difficult – and time-consuming – to turn them into hard numbers and explicit targets. With our clients, and across the corporate world, I can see that process in action and that gives me some confidence that the corporate world is responding to its climate obligations.
The second is that standing still in this environment is dangerous. The fact the number of companies meeting the disclosure criteria to all key climate indicators fell from 135 in 2021 to 81 in 2022 indicates a tightening of expected standards that will continue for some time to come. It is incumbent on all companies, especially those in climate-sensitive sectors to show leadership by admitting their weaknesses and showing clearly how they aim to address them.
The publication of CDP’s survey results is a call-to-arms for all company management teams and the investors who provide them with capital. If you fail to act now, then you should expect your customers and your regulators to judge you increasingly harshly.
One plan, too many guv’nors?
Understandably Transition Plans (TPs) are seen as a key part of climate-related reporting and there have been a number of reports on best practice including from the Carbon Disclosure Project (CDP), Climate Action 100+, the Glasgow Financial Alliance for Net Zero (GFANZ), Taskforce for Climate-related Financial Disclosure (TCFD) and the Transition Plan Taskforce (TPT) to name a few. Below is a timeline of some key milestones:
December 2015:
The Financial Stability Board establishes the Taskforce for Climate-related Financial Disclosure (TCFD).
June 2017:
The TCFD publishes its climate-related disclosure report based on governance, strategy, risk management, metrics and targets.
January 2021:
UK premium-listed companies are required to publish a TCFD consistency statement in their annual report.
March 2021:
The UK Financial Conduct Authority (FCA) was given the remit to support the UK's commitment to be Net Zero Carbon by 2050, with a 2035 milestone of reducing 1990 emissions by 78%.
October 2021:
The TCFD updates its disclosure report to include explicit guidance on Transition Plans (TPs).
The UK introduces proposals for Sustainability Disclosure Requirements (SDRs) and a Green taxonomy for larger companies in its 'Roadmap to Sustainable Investing'.
November 2022:
The Transition Plan Taskforce (TPT) published a Disclosure Framework and Implementation Guidance. Both documents were open for consultation which closed in February 2023.
January 2023:
In the EU, the Corporate Sustainability Reporting Directive (CSRD) came into force. This requires large and listed companies to publish regular reports on the social and environmental risks they face and how their activities impact people and the environment. It is expected to impact c.50,000 companies. This directive will replace the existing Non-Financial Reporting Directive (NFRD) which currently relates to c.11,700 large companies.
June 2023:
The International Sustainability Standards Board (ISSB)’s IFRS S1 General Sustainability-related disclosures and IFRS S2 Climate-related disclosures are expected to be published.
Spring/Summer 2023
Expected publication of final TPT Disclosure Framework and TPT Implementation Guidance.
2023/2024:
UK's FCA consults on adoption of the UK Green Taxonomy and ISSB standards and considers increased TP disclosure.
2024/2025:
CSRD reporting will become mandatory for large companies in the EU with first reports published in 2025.
2028:
CSRD will apply to non-EU undertakings where the net EU turnover is greater than EUR150m and where they either have a large or listed EU subsidiary or an EU branch generating more than EUR40m of annual revenues.
CEN-ESG Team News
We are delighted that Ellen Strange has joined us from KPMG New Zealand where she assured non-financial ESG information as well as helped clients improve their ESG reporting. She has joined as an Associate Director in the consulting team. She also joins fellow New Zealanders William and Callum, which means that CEN-ESG now has its very own tribe (collective noun for a kiwi).
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