Valuing and Reporting on Natural Capital...An introduction to CDSB 14 • 9.2.2 of the Protocol requires you to provide decision-makers with the information from your natural capital

March 20 | Tweet @CDSBGlobal

Valuing and Reporting on Natural CapitalSundip Jadeja, Technical Manager

Nadine Robinson, Technical Director


Valuing and Reporting on Natural Capital 2

Objectives

The objectives of this session are two-fold:

1. Understand how to apply the CDSB Framework to disclose material natural capital and environmental information in your annual report

2. Learn from your peers on how they have approached climate and natural capital reporting (including making TCFD disclosures)


Natural Capital

“The stock of renewable and non-renewable resources (e.g. plants, animals, air, water, soils and minerals) that combine to yield a flow of benefits to people”

(Source: Natural Capital Protocol, p.2 Adapted from Atkinson and Pearce 1995; Jansson et al. 1994)


Natural Capital is a key risk and opportunity for business

• Your stakeholders care about natural capital

2020 WEF Global Risks Report

http://reports.weforum.org/global-risks-report-2020/shareable-infographics/

http://reports.weforum.org/global-risks-report-2020/shareable-infographics/


Natural Capital –Financial Impactshttps://e360.yale.edu/digest/natural-disasters-could-

cost-20-percent-more-by-2040-due-to-climate-change


Natural Capital Momentum

p.2, The European Green Deal, 2019

UK Government

The EU Green Deal 2019...aims to protect, conserve and

enhance the EU’s natural capital:

The Network for

Greening the

Financial System


Board

Technical Working Group (examples)

Our mission: To provide decision-useful environmental information to markets via the mainstream corporate report


CDSB vision

Companies reporting climate change and

environmental information with the same rigour,

quality, and value as financial information.

This facilitates a world whereby decisions and actions

contribute to more sustainable economic, social and

environmental systems.


The CDSB Framework as a tool for making natural capital disclosures


An introduction to CDSB 10

Reporting Requirements

REQ-01 Governance REQ-07 Organisational boundary

REQ-02 Management’s environmental

policies, strategy and targets

REQ-08 Reporting policies

REQ-03 Risks and opportunities REQ-09 Reporting period

REQ-04 Sources of environmental

impact

REQ-10 Restatements

REQ-05 Performance and comparative

analysis

REQ-11 Conformance

REQ-06 Outlook REQ-12 Assurance

cdsb.net/Framework

The CDSB Framework


An introduction to CDSB 11

The CDSB Framework


An introduction to CDSB

The CDSB Framework

12


An introduction to CDSB

The CDSB Framework

13

New York Stock Exchange

London Stock Exchange

Luxembourg Stock Exchange

Santiago Stock Exchange

Egyptian Exchange

Bursa Malaysia

Australian Securities Exchange

Singapore Stock Exchange


Natural Capital in the CDSB Framework

14An introduction to CDSB

• 9.2.2 of the Protocol requires you to provide decision-makers with the information from your natural capital assessment to inform their decisions – the CDSB Framework is a tool to help make these disclosures

• The CDSB Framework sets out an approach to reporting environmental information, including natural capital dependencies, in mainstream reports

• e.g. REQ-02 “Disclosures shall report management’s environmental policies, strategy and targets, including the indicators, plans and timelines used to assess performance”

– Disclosures related to natural capital dependencies are key:

“…information should be provided about the renewable and non-renewable environmental resources and process on which the organisation depends for the provision of goods or services that support the organisation’s overall strategy”


Learning from real world disclosure practice in the utilities sector


16Valuing and Reporting on Natural Capital

Enel SpA: Environmental Sustainability

Annual Report 2018, p.174



Enel SpA: Biodiversity

• Annual Report 2018,

p.174



Enel SpA: Water

Annual Report,

p.174



Iberdrola SA

Integrated Report February 2019

• Designated chapter covering all six capitals, including natural capital

• Four natural capital related themes disclosures, and against each they

discuss their management approach, principle activities in the reporting

year and outlook:

1. Environmental protection, and halting biodiversity loss

2. Combat climate change and its effects

3. Guaranteeing sustainable modes of production and consumption

4. Revitalise alliances with Stakeholders for sustainable development


Valuing and Reporting on Natural Capital

Integrated Report February 2019, p.38

Iberdrola SA:

Relationship

between the

capitals

20



Iberdrola SA: Environment and Biodiversity

• p.70



Iberdrola SA: Climate Change • p.70


23

TCFD recommendations

23

Overview

1. Voluntary

2. Report climate-related financial disclosures in

the annual financial filings (mainstream report)

3. Financial sector & high risk non-financial sectors

4. Transition risks & physical risks (and opportunities)

5. Scenario analysis & forward-looking information

6. Short-term, medium-term & long-term

7. Qualitative & quantitative disclosures

Governance

Strategy

Risk Management

Metrics and Targets



Valuing and Reporting on Natural Capital 24

Governance Strategy Risk Management Metrics and Targets

Disclose the organization’s

governance around climate-related

risks and opportunities.

Disclose the actual and potential

impacts of climate-related risks and

opportunities on the organization’s

businesses, strategy, and financial

planning where such information is

material.

Disclose how the organization

identifies, assesses, and manages

climate-related risks.

Disclose the metrics and targets

used to assess and manage

relevant climate-related risks and

opportunities where such

information is material.

a) Describe the board’s oversight of

climate-related risks and

opportunities.

a) Describe the climate-related risks

and opportunities the organization

has identified over the short,

medium, and long term.

a) Describe the organization’s

processes for identifying and

assessing climate-related risks.

a) Disclose the metrics used by the

organization to assess climate-

related risks and opportunities in

line with its strategy and risk

management process.

b) Describe management’s role in

assessing and managing risks and

opportunities.

b) Describe the impact of climate-

related risks and opportunities on

the organization’s businesses,

strategy, and financial planning.

b) Describe the organization’s

processes for managing climate-

related risks.

b) Disclose Scope 1, Scope 2, and,

if appropriate, Scope 3 greenhouse

gas (GHG) emissions, and the

related risks.

c) Describe the resilience of the

organisation’s strategy, taking into

consideration different climate-

related scenarios, including a 2°C or

lower scenario.

c) Describe how processes for

identifying, assessing, and

managing climate-related risks are

integrated into the organization’s

overall risk management.

c) Describe the targets used by the

organization to manage climate-

related risks and opportunities and

performance against targets.


Common questions on TCFD adoption

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What does good

practice look like?

Which scenarios

should we be using?

Where should this

information be

disclosed?

How does TCFD fit

with the other

reporting standards

and frameworks?

Will TCFD become

mandatory?



Practical Activity

Complete the worksheet by reading the extract examples and answering these questions:

1. What elements of the extracts are particularly good?

2. What further information could be included? What was missing?

3. What stood out to you? Consider which elements you could adopt in your own practice.

26

What do good practice climate-related disclosures look like?



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Extract 1

Enel SpA

Extract 2

Iberdrola SA

1. What

elements of

the extract are

particularly

good?

2. What

further

information

could be

included? How

might the

disclosures be

enhanced?

Practical implementation of the TCFD recommendations


Answer sheet: Making Climate-related Financial DisclosuresUtility Week Investor Summit, London 4 March 2020

© Climate Disclosure Standards Board

“While climate change affects nearly

all economic sectors, the level of

exposure and the impact of climate-

related risks differ by sector, industry,

geography, and organization.

Furthermore, the financial impacts of

climate-related issues on

organizations are not always clear or

direct, and, for many organizations,

identifying the issues, assessing

potential impacts, and ensuring the

material issues are reflected in

financial filings may be challenging.

Key reasons for this are likely

because of (1) limited knowledge of

climate-related issues within

organizations, which may inhibit the

identification of such risks; (2) the

tendency to focus mainly on near-

term risks without paying adequate

attention to risks that may arise in the

longer term; and (3) the difficulty in

quantifying climate-related risks.”

Implementing the Recommendations of

the Task Force on Climate-related

Financial Disclosures, 2017, p4.

Key concept:

Financial impact of

climate change

Further resourcesTCFD Knowledge Hub

tcfdhub.org

TCFD Implementation Guide

cdsb.net/tcfdguide

TCFD Good Practice Handbook

cdsb.net/tcfdhandbook

CDSB, Framework for Reporting

Environmental Information

cdsb.net/framework

SASB Standards

sasb.org/standards-overview

SASB Materiality Map

sasb.org/standards-overview/materiality-

map/

Enel SpA - Good Practice and Opportunities for Enhancement

(Climate Disclosure Extract from 2018 Annual Report)

Iberdrola SA - Good Practice and Opportunities for Enhancement

(NFI Statement Extract from 2018 Sustainability Report)

• Interconnected TCFD disclosures made in Annual Report which

integrate climate and environment-related information into core

business strategy, and risk management processes.

• Disclosures cover Board roles, committees, business functions,

regions etc. with evidence of climate integrated and embedded

within existing governance mechanisms, and clear understanding

of when and how climate is addressed by the two board level

committees, and different position holders and functions.

• Climate-related elements of remuneration policy (e.g. short-term

targets for renewable energy within business lines for managers;

CO2 intensity per power generation target integrated for board).

• Considers both physical and transition risks and prioritises risks.

• Extreme weather/natural disasters identified as most significant

emerging risk, with mitigation measures stated (e.g. monitoring of

exposed assets; resilience projects, etc.)

• Two recognised scenarios used (IPCC RCP 2.6 (<2C) and RCP

8.5 (3.7C)) - discuss the physical and transition risks expected

under these, concluding business resilience due to business model

and emissions reduction leadership.

• States its exposure to climate-related physical and transition risks,

and how the organisation is reducing its emissions to better

manage transition risk, differentiating between different time

horizons.

• Explains process for determining material issues in the report.

• Disclosures offer a clear and reasoned overview of Enel’s strategy

and provides reader with a holistic understanding, including both

strengths and challenges where relevant.

• Climate integrated into Group risk management system with clear

links to governance.

• Year on year performance against the targets disclosed,

demonstrating performance trends.

• Climate-related targets to 2021, but no update on performance.

• Comprehensive KPI set with transparency over annual

performance as well as inclusion of climate-related financial

metrics, such as low-carbon CAPEX, carbon price and other KPIs

such as % emissions free generation – which enable overall

understanding of performance and policy outcomes over time.

• Presents all four core elements with clear headings, albeit

disclosures fall outside the mainstream report.

• Clarifies Board see climate change as a priority element for the

company.

• Details how its Sustainable Development Committee supports board

oversight of climate-related “aspects”; but silent on information on

relationship/role of audit and risk committees.

• States frequency of SD committee meetings where climate featured

on the agenda, but not the processes or how this ties into financial

elements such as budgeting or business planning, or acquisitions

(but signposts to Corporate Governance System section).

• Discloses Board’s involvement with climate strategy and links to

specific metrics on GHG emissions reductions, thereby illustrating

the interconnectivity of TCFD disclosures across core elements.

• No specific metric is provided but Executive Directors’ incentive plan

is tied to achievement of climate and energy-related SDGs.

• Strategy contains both risks and opportunities from the low carbon

transition (e.g. renewable energy development, electric mobility).

• States physical (IPCC RCP 8.5 (3.7C temp rise) and RCP 4.5

(stabilisation scenario) and transition scenarios used (SD (<2C) and

New Policies scenarios) - limited organisation-specific disclosures

on underlying input parameters and analytical choices.

• Applies transition scenarios to business model, concluding resilience

but limited disclosure of how physical impacts impact, albeit some

disaggregation by sector and geography.

• Distinguishes between physical and chronic risks.

• Flag that they will look to quantify impacts in future disclosures.

• No specificity on different timescales or how risks materialise.

• No reference to materiality assessment used to identify, assess and

manage climate-related risks (although elsewhere adheres to GRI/IR

Framework - not TCFD financial materiality lens).

• Climate risk embedded in ERM function and tied to governance.

• Metrics and targets cover both emissions and performance, but

actual figures not provided - signposts to another section, which

reduces decision-usefulness for investors. Environmental and

financial-related metrics provided elsewhere, with 5 years of data

and trends. Metrics typically provided in industry standard formats,

assisting comparability.


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Top Tips for TCFD-aligned Disclosures

1. Adopt the correct lens for looking at climate-related risks

2. Make holistic disclosures

3. Distinguish between climate leadership and management

4. Explain how you assess the material risk of climate change to the business

5. Disclose using existing standards and metrics

6. Make as many of the 11 recommended disclosures as possible

7. Put it in your mainstream report

Practical implementation of the TCFD recommendations


Key Resources


Where to learn more?tcfdhub.org

CDP helps

companies collect,

report and structure

their data.

SASB will help companies

understand what is

material to their

organisation.

CDSB helps companies

integrate the financially

material information into

their annual reports .

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ww.cdsb.net/tcfdguide ww.cdsb.net/tcfdhandbooklearn.tcfdhub.org

ww.corporatereportingdialogue.com



Questions?Nadine Robinson,

Technical Director, CDSB

[email protected]

www.cdsb.net

Sundip Jadeja,

Technical Manager, CDSB

[email protected]

Documents

Valuing and Reporting on Natural Capital...An introduction to CDSB 14 • 9.2.2 of the Protocol requires you to provide decision-makers with the information from your natural capital