Introduction
The importance of climate change-related information in financial reporting has become a significant concern for investors in recent years. However, the lack of harmonization and internationally agreed standards for reporting has resulted in inconsistent data and increased reporting burdens for companies. The Carbon Disclosure Standards Board (CDSB) was formed as a forum for collaboration on how existing standards and practices can link financial and climate change-related information.
With that work complete, on November 3, 2021, the IFRS Foundation announced that it would form a new International Sustainability Standards Board (ISSB), as well as the consolidation of the Climate Disclosure Standards Board and the Value Reporting Foundation (VRF—which houses the Integrated Reporting Framework and the SASB Standards) by June 2022.
In this blog we will explore the background of CDSB and why it is still helpful to understand.
Background
Over the last few decades, several frameworks have been developed to account for and report greenhouse gas emissions and natural capital. However, the lack of harmonization has resulted in inconsistent data and increased company reporting burdens. The resulting information is provided in various formats, making analysis and comparison more challenging for investors and other stakeholders.
To address these concerns, the CDSB was formed as a forum for collaboration on how existing standards and practices can link financial and climate change-related information. The CDSB has developed a Framework for reporting environmental information, natural capital, and associated business impacts. This Framework provides a standards-ready tool for companies to disclose climate change-related information in mainstream financial reports.
The CDSB Framework has undergone several revisions to meet user needs further and ensure universal applicability. In 2015, the CDSB Framework for reporting environmental and climate change information was released, and in 2022, the CDSB Framework for reporting environmental and social information was released.
Despite the existence of these frameworks, there is still a lack of internationally agreed standards for reporting corporate climate change-related information. This leads to variations in methodologies, scope, and boundaries of reported information, which limits comparability and usefulness and increases the cost of reporting for companies.
CDSB Programs
The Climate Disclosure Standards Board (CDSB) has programs that aim to improve the quality and comparability of climate change-related information in financial reporting. One of these programs is the Framework for reporting environmental information, natural capital, and associated business impacts. The Framework guides organizations in reporting environmental information and natural capital in mainstream financial reports. The Framework has been updated over the years, with the latest edition released in 2022.
Another program that CDSB offers is the Consistency Report. The report addresses the lack of international standards for reporting corporate climate change-related information. The report calls for consistency of approach to the demand and supply of climate change-related information.
CDSB is also working on developing an independent XBRL climate change reporting taxonomy. This taxonomy will help encourage the adoption of the Climate Change Reporting Framework as the standard for climate change reporting. XBRL is an important tool in allowing all stakeholders to share and analyze information.
CDSB has also integrated with the International Integrated Reporting Committee (IIRC), which promotes integrated reporting. Integrated reporting consolidates an organization’s strategy, governance, financial performance, and responsibility and contribution towards the environmental, social, and economic factors and the context within which it operates.
Finally, CDSB helps companies and policymakers implement recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD develops voluntary disclosures that help organizations understand the risks and opportunities associated with climate change.
Development and Contents of the CDSB Framework
The CDSB Secretariat developed the CDSB Framework and is overseen by the CDSB Technical Working Group. The Framework is designed to help organizations report environmental and social information in mainstream reports, with investors being the primary users of this information.
The Framework has several guiding principles that ensure the reported information is decision-useful to investors, correct and complete, and supports assurance activities. These principles are applied in determining, preparing, and presenting all environmental and social information reported per the reporting requirements.
The reporting requirements in the CDSB Framework set out the environmental and social information that should be reported in mainstream reports for investors. The requirements are based on existing reporting provisions and CDSB’s input where there are gaps in those provisions. The requirements cover several aspects of organizational policies and strategies, risks and opportunities, governance, results and performance, future outlook, and conformance requirements. The CDSB Framework acknowledges that there will be degrees to which organizations will conform with the requirements, depending on various factors
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Intended Users and Audience
The CDSB Framework is designed for use by organizations, including single companies or entities and corporate groups, who are responsible for financial, governance, and sustainability reporting. The primary audience for the information reported according to the CDSB Framework is investors, the primary users of mainstream reports.
However, the information may also satisfy the needs of other stakeholders. The CDSB Framework provides investors with decision-useful information that helps them integrate climate change-related costs, risks, and opportunities into their analyses. It also helps companies report environmental and social information in mainstream reports, enhancing the efficiency of capital allocation by investors and providing greater certainty on disclosure requirements.
Recognition and Adaptation
CDSB has been recognized as a leader in serious long-term innovation in sustainability, innovation, and social enterprise to create value in the long term. The CDSB Framework has been adapted to changing market and user demands, with amendments made to meet user needs further and ensure universal applicability.
The Framework was initially focused solely on climate change-related information, but it has since been expanded to include social and environmental climate change information. CDSB continues to work with global experts to develop an independent XBRL climate change reporting taxonomy, which will encourage the adoption of the CDSB Framework as the standard for climate change reporting.
Consolidation of CDSB
The IFRS Foundation recently consolidated the Climate Disclosure Standards Board (CDSB) into its organization as part of forming the new International Sustainability Standards Board (ISSB) and consolidating the Value Reporting Foundation. The ISSB will develop IFRS Sustainability Disclosure Standards, providing investors with high-quality, globally comparable sustainability information. The ISSB will work closely with the International Accounting Standards Board (IASB) to ensure coherence between IFRS Accounting Standards and IFRS Sustainability Disclosure Standards.
CDSB was an international consortium that aimed to advance and align the global mainstream corporate reporting model with equating natural and social capital with financial capital. CDSB provided a framework for reporting environmental and social information with the same rigor as financial information, which formed the foundation for the Task Force for Climate-Related Financial Disclosures (TCFD) recommendations. Although the CDSB has now consolidated into the ISSB, its technical guidance and resources on climate, water, biodiversity, and social disclosures will remain relevant and applicable for companies until the ISSB publishes corresponding IFRS Sustainability Disclosure Standards. CDSB technical work has not been subject to the IFRS Foundation’s due process and does not form part of IFRS Standards.
Conclusion
The CDSB Framework, despite having been consolidated, is helpful to understand since the Framework provides a standards-ready tool for companies to disclose environmental and social information, including climate change-related risks and opportunities. Companies that need help with understanding the CDSB Framework should contact Veritrove.
