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Investor-Focused Sustainability Reporting Frameworks

Corporations and organizations practice sustainability reporting on their performance and goals for a variety of reasons, which we have explored in previous blog posts. One of the most interesting and powerful drivers behind major corporations’ sustainability disclosure and action has been investor pressure. Where there was once reticence to incorporate non-financial considerations into investment decision-making for fear of breaching fiduciary duty, modern asset owners and institutional investors are demanding more data into companies’ sustainability practices as a prerequisite for investment.

In January 2020, BlackRock CEO Larry Fink’s letter to CEOs highlighted the rapidly evolving landscape, portending “a fundamental reshaping of finance” due to investors increasingly “recognizing that climate risk is investment risk.” Crucially, Fink demonstrates that this is not a planet over profit motivation, nor a greenwashing strategy – BlackRock is all about the dollars and cents. “Our investment conviction is that sustainability- and climate-integrated portfolios can provide better risk – adjusted returns to investors. And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.”

As capital increasingly flows to sustainably aligned companies, you may be wondering how to best get ahead of the curve and prepare a report that will answer investor questions and position your company for success in the sustainability landscape. Below, our team of energy and sustainability analysts review investor-focused sustainability reporting frameworks that may be pertinent to your organization.

The Frameworks

CDP (Carbon Disclosure Project)

CDP, formerly known as the Carbon Disclosure Project, issues questionnaires on climate change, water security, and deforestation for thousands of companies, cities, states, and regions globally.  Representing institutional investors with over USD 100 trillion in assets under management, CDP has a weighty presence and actively reaches out to companies to solicit sustainability information (though you can also elect to respond as a self-selected company).

CDP gives a score to companies and cities based on their path to disclosure and towards environmental leadership, including their CDP A List ranking released early this year. The reporting process has a focus on gathering qualitative data, requiring the details of environmental projects and specifics on risk management at the organization. In 2018, CDP launched sector-specific questionnaires to better facilitate investor comparisons of similar companies. Responses to CDP Questionnaires are submitted through their online portal from April to August of the year in question. For more information on CDP, see their website.

GRESB (Global Real Estate Sustainability Benchmark)

If your company is involved primarily real estate, GRESB may be the most pertinent framework for you. Similar to CDP, GRESB issues a survey annually assessing responders’ sustainability performance, development, and management approaches. However, GRESB is laser focused on real estate portfolios, allowing for more in-depth sector-specific questions and comparisons among responders. GRESB also places a high premium on quantitative performance in energy, emissions, water and waste, representing about 70% of the total score. GRESB represents over 100 institutional investors managing USD 22 trillion in assets under management, and has quickly become the dominant framework in the real asset space. Part of their success is due to the collaborative approach between investors and responders, helping balance the burden of responding with the most pertinent and comparable data points for investors. However, as other frameworks move towards sector-specificity in their analyses, GRESB’s defining characteristic may also limit its dominance in a consolidated marketplace. See the GRESB website for more details.

Task Force on Climate-related Financial Disclosures (TCFD)

The Task Force on Climate-related Financial Disclosures grew out of an international oversight body for the financial system, the Financial Stability Board, as it grappled with climate change’s likely effects in the lead up to 2015’s COP21 climate negotiations. Chaired by Michael Bloomberg and supported by titans across finance and industry including Unilever and the Bank of England, the TCFD spent a year and a half gathering feedback before publishing its final report. In 2017, the Recommendations of the Task Force on Climate-related Financial Disclosures revealed widely applicable disclosures for firms to include in their financial filings as well as supplemental guidance for certain sectors.

The core elements of recommended Climate-Related Financial Disclosures (TCFD).

The TCFD isn’t a framework in itself, though following the recommendations they published are certain to address investor concerns, as well as showcase your firm’s savvy with the metrics most applicable to investors. SASB is referenced as a framework well suited to fulfill the TCFD’s recommendations by the Task Force itself, with more info below. Learn more in the TCFD’s Overview booklet.

Following the recommendations of TCFD guides is a sure-fire way to address investor concerns.

Sustainability Accounting Standards Board (SASB)

One of the initiatives we are most excited about at EnergyWatch is the move to consolidate sustainability and financial reporting. The Sustainability Accounting Standards Board seeks to bridge this gap, arguing (as does the TCFD) that sustainability belongs in financial reports if it is financially material. This threshold for “materiality” depends on industry and locational factors, but to help you piece through what is pertinent to your company, SASB provides 77 separate industry specific standards, downloadable for free on their website, as well as a materiality map to explore. SASB does not have a portal or a questionnaire; they encourage companies to use the standards in their own financial reporting.

At EnergyWatch, we have seen increasing client interest in moving sustainability reporting to their financial filings. For instance, in 2019 EnergyWatch client Vornado Realty Trust obtained a Deloitte examination of their Sustainability Report data to be furnished with an SEC form 8-K (more information here), the first time an examination report of ESG topics has been made in an SEC filing.

If you’re interested in seeing how EnergyWatch and our WatchWire platform can help you get a handle on material energy and sustainability issues for your company, please reach out for a free consultation.