CDSB Framework

Natural capital in annual reports - the new norm CDP UK Workshop

London, 12th April 2016

April 16 | Tweet @CDSBGlobalWhy it Matters1

To provide decision-useful environmental & natural capital information to markets via the mainstream corporate report

April 16 | Tweet @CDSBGlobalINTANGIBLES becoming increasingly tangible (e.g. increasing energy prices directly affecting overheads, volatile commodity prices, etc..)

Environmental Goods and Services are equally meaningful and of capital importance in determining the value of a companys performance and prospects

CDSB does this by offering companies a framework for reporting environmental information with the same rigour as financial information. In turn this helps them to provide investors with decision-useful environmental information via the mainstream corporate report, enhancing the efficient allocation of capital.2

Background, mission, stakeholders & initiativesCDP UK Workshop3

Technical Working GroupBig 5 accounting firms and major accounting associationsBusinessNGOsAcademiaSubject expertsBoard

April 16 | Tweet @CDSBGlobalThe CDSB Framework help you connect environmental performance with overall strategy, performance and prospects (at the core of management commentary in annual reports)

Clear, concise and comparable presentation,Support compliance & assurance activities

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CDP UK Workshop4

The mainstream report

And many others..

InfluencesFinancial statements Governance disclosuresManagement commentaryOther informationElements

April 16 | Tweet @CDSBGlobalWith regards to accounting rules and financial reporting, the IFRS indicates that the management commentary offers an opportunity for a companys management to provide a comprehensive picture on management statements, the company performance and the allocation of capital. In particular, this part of mainstream reporting covers the nature of the business, the management objectives -and the strategies for meeting those objectives and likelihood of success- the entitys most significant risks, resources and relationships, the results of operations and prospects, and the critical performance measures and indicators used to evaluate performance against objectives. In short, climate risk is material and relevant to a companys position, performance and prospects.

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CDP UK Workshop5

The mainstream reportAll capitals drive a companys performance; Cash, inventory, land, machinery, buildings (accounted for);Relationships with suppliers and customers, natural resources etc. (not accounted for);Investor interest in value creation and performance.Why environmental information?

April 16 | Tweet @CDSBGlobalVALUE, the value a company creates is a result of the relations of all types of capital.Natural capital refers to the existing STOCKS and FLOWS and Ecosystem Resources and Services that generate both tangible and intangible services

What are the key assets and resources on which your core business relies one?Natural capital IS about understanding the key natural resources impacts and dependencies specific to your business

Natural Capital DependenciesEnvironmental resultsEnvironmental R&OEnvironmental policies, strategies and targetsPerformance against targetsRISK Mitigation (against losses/liability + reputation protection) AND VALUE CREATION (to both markets and society, incl. employees and consumers) It is about being a Responsible Business

Output is theresult of a production process, which combines knowledge, labou intermediate inputs and non-financial or capital assetss

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International trends CDP UK Workshop6That are shaping the future of corporate reportingThe COP21 Agreement A universal, legally binding global climate deal

UNs SDGsTransforming our world: the 2030 Agenda for Sustainable Development

April 16 | Tweet @CDSBGlobalA PLAN of action for people, planet and prosperity.

SDG 6 Clean Water and SanitationSDG 7 - Renewable Energy SDG 12- Responsible Consumption SDG 13 Climate ActionSDG 14 Life Below Water SDG 15 Life on LandSDG 17 Partnerships for the Goals6

International trends CDP UK Workshop7That are shaping the future of corporate reportingThe Natural Capital Protocol > 500+ organisations worldwide respondedProtocol and Sector Guides available in July 2016;In 2015, corporate bonds have moved beyond the utilities and real estate sectors to include transport & waste. The total labelled green bonds outstanding were $65.9bn (10th June 2015).

April 16 | Tweet @CDSBGlobalTHE NCP will offer guidance and recommendations on methodology, valuation tools in different business applications

USE debt capital markets to fund climate solutionsLabelled green bonds are bonds that earmark proceeds for climate or environmental projects and have been labelled as green by the issuer (CBI).

At the Future of Green Finance Conference (late March), the Governor of the Bank of England, Mark Carney, announced that serious resources will be allocated to catalyse the green bonds market with environmental risks to be factored into green certification and credit ratings.ALSO, strong trends in the growth of social impact bonds (to link to the SDGs).7

CDP UK Workshop8That are shaping the future of corporate reportingThe Task Force for Climate-related Financial Disclosures (TCFD) - objectives and scope of works are to drive transparency and climate-related disclosures for the benefit of investors, creditors, and underwriters. The TCFD identified 7 fundamental principles:Present relevant information,Be specific and complete,Be clear, balanced, and understandable,Be consistent over time,Be comparable among companies within a sector, industry, or portfolio,Be reliable, verifiable, and objective, andBe provided on a timely basis.

International trends

April 16 | Tweet @CDSBGlobalPrinciples critical for effective disclosures8

CDP UK Workshop9That are shaping the future of corporate reportingInternational trends

Single Market for Green Products (2013-2016)Circular Economy PackageCapital Markets Union

Directive 2014/95/EU on disclosure of non-financial and diversity informationUK transposition by the 6th of Dec 2016

April 16 | Tweet @CDSBGlobalDIRECTIVE2014/95/EUOF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 22 October 2014 amending Directive2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups

Circular Economy PackageBrussels, 2 December 2015 the Commission adopted an ambitious new Circular Economy Package to stimulate Europe's transition towards a circular economy which will boost global competitiveness, foster sustainable economic growth and generate new jobs

Capital Markets Union: an Action Plan to boost business funding and investment financingBrussels, 30 September 2015

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National TrendsUK Companies Act 2006 (Strategic Report and Directors Report) Regulations 2013Continued reporting of GHG emissions was supported by a number of respondents and the government believes it is important to maintain this reporting- HM TreasuryCDP UK Workshop10Mandatory UK environmental and GHG emissions reporting

cdsb.net/FTSE350

April 16 | Tweet @CDSBGlobalTreasury decided to keep the GHG requirement following the budget review

Continued reporting of GHG emissions was supported by a number of respondents and the government believes it is important to maintain this reporting in order to provide data transparency for investors and establish London as a centre of global green finance. The government also fully supports the work of the Financial Stability Boards industry -led Task Force on Climate-related Financial Disclosures (TCFD)

Our report reviewed the disclosure of environmental information in FTSE 350 companies annual reports following the implementation of the UK Companies Act 2006 (Strategic Report and Directors Report) Regulations 2013 - require companies to disclose information related to GHG emissions, environmental impact, polices, KPIs, principle risks and uncertainties.The report also provides some sector analysis and uses examples to illustrate current practice. The aim was to inform companies, regulators and governments of current reporting practices and their implications for the implementation of the EU Non-Financial Reporting Directive, as well as for the further development of corporate reporting.

Indeed the very purpose of the strategic report is to inform shareholders and help them assess how the directors have performed their duty under S172 Companies Act 2006 - this is a duty to promote the success of the company and have regard to (among other things) the impact of the company's operations on the community and the environment.10

The CDSB Framework7 guiding principles12 reporting requirementsReference detailed guidance on climate, forests, waterAlignment with CDP, GRI, SASB and others to support inclusion in mainstream reportsCovers all the environmental related requirements prescribed by current and upcoming legislation (e.g.: EU Non-Financial Reporting Directive)CDP UK Workshop11Requirements and principles aligned with the mainstream reporting model

cdsb.net/Framework

April 16 | Tweet @CDSBGlobalThe CDSB Framework already provides a firm foundation for companies to use in identifying what and how climate information should be reported in mainstream reports.

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Report checker pilotAnnual report review Conformance check with the CDSB Framework Feedback briefingFind out more at cdsb.net/reportcheckerCDP UK Workshop12

Advance & align your natural and financial capital reporting

Source: Michael Pollak/flickr

April 16 | Tweet @CDSBGlobalAnnual report review CDSB experts will review your annual report and check how it aligns with your other reporting initiatives (e.g.: CDP, GRI or CSR report). We will assess your environmental reporting in relation to investor requirements.Conformance check with the CDSB Framework we will perform rigorous checks against the requirements of the CDSB Framework, highlight areas of conformance and provide a gap analysis.Feedback briefing we will present recommendations outlining areas of non-compliance with the CDSB Framework and provide feedback to meet best practice. Executive presentation we can also join you in presenting our findings and recommendations to your CFO and executive team.12

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April 16 | Tweet @CDSBGlobal

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Thank youDsire LuccheseTechnical Managerdesiree.lucchese@cdsb.net +44 (0)203 818 3937@CDSBGlobalwww.cdsb.net

April 16 | Tweet @CDSBGlobal

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