Climate research provider and environmental disclosure platform CDP and the European Financial Reporting Advisory Group (EFRAG) announced today the launch of a new agreement which will see CDP maximize the alignment of its disclosure system with the EU’s recently adopted European Sustainability Reporting Standards (ESRS).
CDP runs a global environmental disclosure system, enabling investors and other stakeholders to measure and track organization’s performance in key environmental sustainability areas including climate change, deforestation, and water security. The platform provides annual scores for companies – typically released each year in December – on each of the key categories, and the data is also used by information services providers such as Bloomberg, STOXX, Trucost, FTSE/Russell, MSCI and ISS ESG to power investment research, products, indices and ratings.
EFRAG was mandated by the European Commission in June 2020 to prepare new EU sustainability reporting standards. The ESRS, developed by EFRAG, and officially adopted by the European Commission in July, set out the rules and requirements for companies to report on sustainability-related impacts, opportunities and risks under the EU’s upcoming Corporate Sustainable Reporting Directive (CSRD).
The CSRD, on track to begin applying from the beginning of 2024, will significantly expand the number of companies required to provide sustainability disclosures to over 50,000 from around 12,000 currently, and introduce more detailed reporting requirements on company impacts on the environment, human rights and social standards and sustainability-related risk. Over time, the CSRD will also apply to many large non-EU based businesses that operate in the EU.
According to CDP and EFRAG, the new collaboration aims to accelerate the market uptake of the ESRS, helping companies to prepare for the new reporting requirements, and supporting market readiness for the new environmental reporting system.
Maxfield Weiss, Executive Director of CDP Europe, said:
“With the bar now being raised globally in respect to environmental disclosure, our collaboration with EFRAG will ensure companies preparing to report can do so through CDP. As the only independent global environmental disclosure system, CDP is proud to continue and scale up our role in making best-practice corporate reporting a norm.”
Under the new collaboration, CDP said that it will explore and implement alignment of its disclosure system with the ESRS, while EFRAG will provide technical expertise, access and guidance. Additionally, to support capacity building at companies reporting on ESRS data points through the disclosure platform, CDP will offer webinars and detailed technical guidance materials supported by EFRAG.
In a statement announcing the new collaboration, CDP and EFRAG highlighted a key area of alignment between the ESRS and the disclosure platform, with the European disclosure standards following a double materiality approach, under which companies are required to report on how they expect climate and environmental changes to affect their businesses, as well as the how they impact people and planet, while CDP’s system already covers areas including climate change, forests, and water security, impacts and risks.
Patrick de Cambourg, Chair of the EFRAG Sustainability Reporting Board, said:
“Only with robust environmental data can financial markets and other stakeholders identify businesses with credible plans to reduce their impacts so that they thrive in a zero-emissions, nature-positive future. This means companies reporting not only how climate change may affect their value, but also how they affect the environment. The standards elaborated by EFRAG in its role as technical advisor to the European Commission will support capital markets to compare companies, reduce greenwashing and redirect capital. And our collaboration with CDP will help to accelerate these standards’ market uptake, building capacity among EU and non-EU businesses alike to use them as regulation comes in.”
The launch of the new collaboration follows CDP’s announcement last month that it will align its sustainability reporting questionnaire with the IFRS Foundation’s International Sustainability Standard Board’s new climate disclosure standard beginning this coming year, and that it will consider other emerging sustainability disclosure systems going forward, in order to ease the reporting burden on companies, and encourage broader reporting on key environmental issues.