Business relationships in difficult times
Climate Disclosure Standards Board (CDSB)
Introduction: Advancing mainstream corporate reporting
As highlighted in the Sustainability and business — the call to action; build back better report, we started on a programme of thought leadership to explore accountancy and sustainability. This is part of a series of briefs exploring the topic of sustainability, business and the finance professional’s key role. These briefs will help organisations consider the sustainability issues, how to integrate them into their long-term decision-making, and how to incorporate these issues into internal and external reporting.
This paper is designed as a summary of a specific standard or framework. It is written from the management accounting perspective. As a finance professional you are likely to encounter one or many of the sustainability frameworks and standards. It is a crowded and fragmented landscape, with slightly different terms, inconsistent language and various measures between the numerous methodologies. Adding to the confusion is whether adoption is voluntary or mandatory and that some organisations work with combinations of standards and frameworks at the same time. Finally, the approaches to reporting also differ. They range from annual reports, integrated reports, sections on an organisation’s website aimed at a specific audience or a stand-alone sustainability report.
Fortunately, there are several initiatives underway to address this fragmented accounting and reporting landscape. They build a coherent global approach to corporate reporting that encompasses financial and non-financial reporting.1
A framework or a set of standards? The difference
A framework is a set of principles-based guidance for how information can be structured and prepared, and which broad topics should be covered. A set of standards are specific, replicable and detailed requirements for what should be reported for each topic. They are rules-based requirements.
The Climate Disclosures Standards Board (CDSB), a consortium of business and environmental NGOs, developed a framework that companies can use to incorporate climate change and environmental information into their mainstream reports.
The CDSB was formed at the World Economic Forum annual meeting in 2007 and builds on the work of its board member organisations, which include:
*CDP provides the secretariat for the CDSB
What is the CDSB framework?
To provide an approach for disclosing decision-useful environmental information in mainstream reports, the primary audience of the CDSB Framework is the investor. Other stakeholders, including regulators and other parties having an interest in capital markets, may also be beneficiaries.
The first version of the Framework focused primarily on climate change risks and opportunities. The scope has since been expanded to encompass natural capital dependencies, environmental risks and opportunities, policies, strategies and targets, along with environmental results and performance against those targets.
The Framework includes guiding principles that characterise the desirable attributes of reported information. In addition to ensuring that the disclosed information is based on criteria suitable for conducting assurance activities, the principles state that the disclosures ‘should look to the future as well as the past and present and should communicate trends and factors relating to environmental information that isare likely to affect the organisation’s future performance, position, and development’.
The reporting requirements, designed to encourage standardised disclosure of environmental information that complements other information in mainstream reports, are:
REQ-01 Governance — Disclosures shall describe the governance of environmental policies, strategy and information.
REQ-02 Management’s environmental policies, strategy and targets — Disclosures shall report management’s environmental policies, strategy and targets, including the indicators, plans and timelines used to assess performance.
REQ-03 Risks and opportunities — Disclosures shall explain the material current and anticipated environmental risks and opportunities affecting the organisation.
REQ-04 Sources of environmental impact — Quantitative and qualitative results, together with the methodologies used to prepare them, shall be reported to reflect material sources of environmental impact.
REQ-05 Performance and comparative analysis — Disclosures shall include an analysis of the information disclosed in REQ-04 compared with any performance targets set and with results reported in a previous period.
REQ-06 Outlook — Management shall summarise its conclusions about the effect of environmental impacts, risks and opportunities on the organisation’s future performance and position.
REQ-07 Organisational boundary — Environmental information shall be prepared for the entities within the boundary of the organisation or group for which the mainstream report is prepared and, where appropriate, shall distinguish information reported for entities and activities outside that boundary.
REQ-08 Reporting policies — Disclosures shall cite the reporting provisions used for preparing environmental information and shall (except in the first year of reporting) confirm that they have been used consistently from one reporting period to the next.
REQ-09 Reporting period — Disclosures shall be provided on an annual basis.
REQ-10 Restatements — Disclosures shall report and explain any prior year restatements.
REQ-11 Conformance — Disclosures shall include a statement of conformance with the CDSB Framework.
REQ-12 Assurance — If assurance has been provided over whether reported environmental information is in conformance with the CDSB Framework, this shall be included in or cross-referenced to the statement of conformance of REQ-11.
Both the Principles chapter and the Reporting Requirements chapter of the Framework document provide specifics as to the purpose of the specified requirement, along with additional explanatory guidance for implementation.
How is the CDSB framework developed?
The CDSB Framework draws on other reporting provisions including financial reporting standards and principles, legislative and regulatory reporting requirements, along with the work of CDSB Board members, as noted above, and guidance other authoritative sources issue.
To underscore this approach, here are a few key definitions and terminology from the Framework:
Investors — ‘The CDSB Framework adopts the International Accounting Standards Board’s (IASB) definition of investors that is: “existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.” ’2
Natural capital — ‘The CDSB Framework adopts the IIRC’s definition that is: “all renewable and non-renewable environmental resources and processes that provide goods or services that support the past, current or future prosperity of an organisation. It includes air, water, land, minerals and forests, biodiversity and ecosystem health.” ’3
Sources of environmental impact — Sources of environmental impact are the activities of and outputs from the organisation that actually or potentially influence or contribute to environmental impacts, including:
Renewable/non-renewable energy generation, use and consumption
Land use, land-use change and forestry (LULUCF)
Non-GHG emissions to air, land and water (e.g. noise, odour, particulates, pollutants, etc.)
Renewable and non-renewable material resource use (e.g. forest products, fish stocks, minerals, metals, etc.)
Water use and consumption
Also reflecting this collaborative and complementary approach, the CDSB, developed an extensive collection of resources, including:
TCFD Good Practice Handbook, a joint CDSB and SASB produced a follow-on to the Implementation Guide, identifies examples of good practices in reporting across the four core TCFD elements of governance, strategy, risk management, and metrics and targets.
Why is the CDSB framework needed?
The CDSB recognises that information about natural capital is essentially equal to financial capital in terms of providing an understanding of corporate performance; and is committed to a global mainstream reporting model that reflects that equality.
Companies can use the CDSB Framework not only to incorporate climate change, environmental and natural capital-related information into their mainstream report, but also to achieve a more holistic view of related risks and opportunities and their effect on performance. Investors and analysts can be better equipped to make well-informed capital allocation decisions; regulators and stock exchanges can benefit from standards-ready material for compliance and listing requirements.
The framework aims to:
Help companies translate their sustainability information into long-term value;
Provide clear, concise and consistent information to investors, connecting the organisation’s environmental performance to its overall strategy, performance and prospects;
Enable and encourage informed investor-decision making on the allocation of financial capital; and
Add value to an organisation's existing mainstream report, while minimising the reporting burden and simplifying the reporting process.5
Who will encounter the CDSB framework?
The primary audience of the CDSB Framework is the investor. Other stakeholders, including regulators and other parties having an interest in capital markets, may also be beneficiaries.
Finance professionals working for corporate entities are more likely to encounter the CDSB Framework. These are corporations looking to understand how their sustainability and finance performances intersect; in particular, their environmental and natural capital dependencies and impact, along with their strategy, policies and performance. Also, organisations that have the Task Force on Climate-related Financial Disclosures (TCFD) on their radar will also be aware of the CDSD and related guidance specifically targeted to climate change disclosure requirements.
If your organisation is using or contemplating the CDSB Framework, the 2019 CIMA® professional qualification syllabus and CGMA competency framework (2019 edition) can help you ask the right questions to identify your potential knowledge and skills gaps.
What’s next from
the AICPA & CIMA?
We will continue to watch the sustainability space and play a central role in its development. We will ensure that the journey towards the development of global standardised comparable ESG metrics and non-financial reporting is not at the expense of closing any future sustainability debate and innovation. Our aim is to achieve a balance of sustainability reporting and assurance alongside data-driven insights so that resilient organisations and finance professionals can address future prosperity, planet and people challenges.
'We believe that we will see profound changes in the next few years in the work of management accounting and public accounting to embed new practices and standards relating to sustainability. The Association will continue to provide education and guidance to all areas of the profession, ensuring that it is ahead of this transformation. It’s truly an exciting time to be an accounting and finance professional'.
Andrew Harding, FCMA, CGMA,
Executive, Management Accounting Association of International Certified Professional Accountants
In September 2020, SASB and four other sustainability framework and standards organisations announced their intention to work together to create a comprehensive approach to corporate reporting. The five bodies are, CDP (Carbon Disclosure Project), the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC), and the Sustainability Accounting Standards Board (SASB). (Accessed 16 September 2020).
Also, in September 2020, the IFRS Foundation issued a Consultation Paper on Sustainability Reporting, eliciting feedback on the proposed creation of a Sustainability Standards Board under the governance structure of the IFRS Foundation to create global sustainability standards. (Accessed 07 January 2021).
In February 2021, the IFRS Foundation Trustees announced their intention to produce a definitive proposal (including a road map with timeline) by the end of September 2021, and possibly leading to an announcement on the establishment of a sustainability standards board at the meeting of the United Nations Climate Change Conference COP26 in November 2021. (Accessed 11 February 2021).
CDSB, Framework for Reporting Environmental & Climate Change Information: Advancing and Aligning Disclosure of Environmental Information in Mainstream Reports (2020). p.8. (Accessed 18 January 2020).
CDSB, Framework. p.8.
CDSB, Framework. p.8.
Framework for reporting environmental and climate change information. (Accessed 18 January 2021)
Kenneth W. Witt
Management Accounting & Member Engagement
Association of International Certified
The American Institute of CPAs® (AICPA®)
The AICPA is the world’s largest member association representing the accounting profession, with more than 418,000 members in 143 countries and a 129-year heritage of serving the public interest. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting.
The AICPA sets ethical standards for the profession and U.S. auditing standards for audits of private companies, not-for-profit organisations, federal, state and local governments. It develops and grades the Uniform CPA Examination and offers specialty credentials for CPAs who concentrate on personal financial planning; fraud and forensics; business valuation; and information technology. Through a joint venture with The Chartered Institute of Management Accountants® (CIMA), it established the Chartered Global Management Accountant® (CGMA®) designation to elevate management accounting globally. The AICPA maintains offices in New York, Washington, DC, Durham, NC, and
Ewing, NJ. aicpa.org
The Chartered Institute of Management Accountants (CIMA)
CIMA founded in 1919, is the world’s leading and largest professional body of management accountants, with members and students operating in 177 countries, working at the heart of business. CIMA members and students work in industry, commerce, the public sector and not-for-profit organisations. CIMA works closely with employers and sponsors leading-edge research, constantly updating its qualification, professional experience requirements and continuing professional development to ensure it remains the employers’ choice when recruiting financially trained business leaders. cimaglobal.com
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