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EU Non-Financial Reporting Directive How companies make the most out of it!
Download from cdsb.net/NFRHandbook
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IntroductionsEU Non-Financial Reporting Directive – How companies make the most out of it! 2
Michael ZimonyiPolicy & External Affairs Manager [email protected]
Luke BlowerSenior Technical [email protected]
Marie-Camille AttardAccount Manager, Supply ChainCDP [email protected]
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EU environmental reporting handbookWhat could environmental reporting in line with the Non-Financial Reporting Directive look like?
v1.0, September 2016www.cdsb.net/NFR
Agenda
1. Introduction to CDSB
2. The Non-Financial Reporting Directive
3. Case studies
4. Deep dive: supply chain & science-based targets
5. Next steps
6. Q&A
EU Non-Financial Reporting Directive – How companies make the most out of it! 3
Please send us your questions using the chat function
cdsb.net/NFRhandbook
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Climate Disclosure Standards BoardEU Non-Financial Reporting Directive – How companies make the most out of it! 4
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To provide decision-useful environmental information to markets via the mainstream corporate report
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What is the CDSB Framework?EU Non-Financial Reporting Directive – How companies make the most out of it! 6
Reporting environmental information in the annual report
Environmental information(CDP, GRI, SASB, ISO 26000, UNGC CEO Water Mandate)
CDSB Framework
Annual Report / Integrated Report(MD&A, Form 10-K/20-F, Lagebericht, Form 56-1)
Non-financial information
Connector
Financial information
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The CDSB Framework
• 7 guiding principles• 12 reporting requirements• Detailed guidance on climate, forests, water• Alignment with CDP, GRI, SASB and others to support
inclusion in mainstream reports• Covers all the environmental related requirements prescribed
by current and upcoming legislation (e.g.: EU Non-Financial Reporting Directive)
EU Non-Financial Reporting Directive – How companies make the most out of it! 7
for reporting environmental information & natural capital
cdsb.net/framework
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Introduction to the Directive
Michael ZimonyiPolicy & External Affairs ManagerClimate Disclosure Standards Board
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The Directive
• Amends the Accounting Directive 2013/34/EU
• Member States to transpose by 6th Dec 2016
• Transpositions vary
• Report on implementation by 6th Dec 2018, possibly accompanied by legislative proposals
• Guidance by 6th December 2016
• European Commission review in 2018
• FSB Task Force on Climate-related Financial Disclosures may have impact
EU Non-Financial Reporting Directive – How companies make the most out of it! 9
Directive 2014/95/EU on the disclosure of non- financial and diversity information
Source: David Bertho/flickr
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The Directive
Who?“large undertakings or parent undertakings of a group exceeding on their balance sheet ... [an] ... average number of 500 employees during the financial year”.
Where?• Management report; • Consolidated management report for
corporate groups; or• Separate report corresponding to same
financial year – not recommended.
EU Non-Financial Reporting Directive – How companies make the most out of it! 10
Requirements in practice
Source: HayleyCartwright/flickr
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The Directive
What?• For financial years starting on 1 January 2017.
What?• business model;
• policies pursued by the group, including due diligence processes implemented;
• the outcome of those policies;
• the principal risks linked to the group’s operations … which are likely to cause adverse impacts …, and how the group manages those risks;
• non-financial KPIs.
EU Non-Financial Reporting Directive – How companies make the most out of it! 11
Requirements in practice
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The Directive
Where the group does not pursue policies in relation to one or more of those matters, the consolidated non-financial statement shall provide a clear and reasoned explanation for not doing so.”
EU Non-Financial Reporting Directive – How companies make the most out of it! 12
Requirements in practice
Source: PIVISO/flickr
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Case Studies13
Luke BlowerSenior Technical OfficerClimate Disclosure Standards Board
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A brief description of the undertaking’s business model
EU Non-Financial Reporting Directive – How companies make the most out of it! 14
NFRDirective CDSBrequirements CDPquestionnairesBriefdescriptionoftheundertaking’sbusinessmodel
REQ6– Outlook CC0.1,F0.1,F0.2,W0.1
Goodpracticeexamples• TheuseoftheInternational<IR>Frameworkguidanceandstructuretoincludethedifferentcapitalsasinputsandoutputs
(EniS.p.A);
• Inputs,outputsandoutcomestothemodelareincluded(EniS.p.A);and
• Themodellinkswiththecorporatestrategyandincludesthevaluechain(ABVolvo)todemonstrateconnectivity.Thiscaneitherbepresentedthroughthemodel,oraspartofanaccompanyingnarrativeasshownintheVolvoexample.
Recommendations• WerecommendusingtheIIRC’sguidanceonthebusinessmodel;and
• Linkyourbusinessmodeltothecompany’sstrategyandpolicies.
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Eni S.p.AEU Non-Financial Reporting Directive – How companies make the most out of it!
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EU Non-Financial Reporting Directive – How companies make the most out of it! 16
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Adescriptionofthepoliciespursuedbythegroupinrelationtothosematters,includingduediligenceprocessesimplemented
EU Non-Financial Reporting Directive – How companies make the most out of it! 17
NFRDirective CDSBrequirements CDPquestionnairesAdescriptionofthepoliciespursuedbythegroupinrelationtothosematters,includingduediligenceprocessesimplemented
REQ1– Policy,strategyandtargets
REQ6– Outlook
CC2.2,CC2.3,CC3.1,CC3.2
F8.1,F8.2,F8.3,F8.4,F9.5,F9.6,F10.2,F10.5
W6.2,W6.3,W8.1,W9.1
Bestpracticeexamples• Policy,strategyandtargetsareclearlystatedandexplained(Norsk Hyrdo ASA/PostNord AB);
• Aseparatesectiondedicatedtoaviabilitystatement,withclearlydefinedstrategiesandtargetsisalsoconnectedtoother contentelements(NorskHydroASA);
• Materialityassessmentsandstakeholderengagementprovidesrationaleforthepoliciesandstrategies(Norsk HydroASA/MondiPlc);
• Theinclusionofthesupplychainwithinpoliciesandstrategiesdemonstratesmanagementbeyondthefinancialreportingentity(Norsk HydroASA);and
• Communicatingtargets,includingscience-basedtargets,andoutcomesalongsidestrategy(MondiPlc/PostNord AB)demonstratesnotonlyperformanceandprogress,butalsothecriteriaandcontextagainstwhichthisisassessed.
Recommendationsforcompanies• Outlinepoliciesclearlyandprovideaforward-lookingstatementwithrationale.Thisshouldincludehowenvironmentalpoliciesandstrategiesrelateto,
orsupport,theorganisation’soverallpoliciesandstrategies,andalsodemonstrateduediligence;and
• Cleartargets,timelineandkeyperformanceindicatorsshouldbeoutlinedalongsidetheenvironmentalstrategytodemonstrate howitismeasuredandresourced.
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Mondi plcEU Non-Financial Reporting Directive – How companies make the most out of it!
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The outcome of those policies19
NFRDirective CDSBrequirements CDPquestionnairesTheoutcomeofthosepolicies REQ-01– Policy,strategyandtargets
REQ-05– Performanceandcomparativeanalysis
REQ-06– Outlook
CC3.4,CC12.1,CC12.2,CC12.3,CC12.4,CC14.3
W5.1,W5.2,W5.3,W6.4,W7.1
Bestpracticeexamples• Performanceiscomparedtopreviousyears,andrelatestotargets.Thisallowsforcomparativeanalysis(TitanCementCompany SA).
• Methodologiesonhowdatahasbeencollectedarestated,withdetailsaboutanychangesforcalculatingresults(BPPlc).
• Outcomestoinformfutureactionsarepresentedwhichdemonstratesforwardlookingdisclosure(TitanCementCompanySA/DaimlerAG).
Recommendationsforcompanies• Considerincludingvisuals(i.e.:graphs,charts,diagrams)inreportsthatwouldotherwisebetext-heavytomakeinformationclear
andconcise.
• Provideaclearlinktooverallpolicy,strategyandtargetstoallowforanassessmentofyourperformance.
• Provideexplanationsofanysignificantchangesinresults,includingthoseresultingfromchangesinstrategy,governance,KPIs,acquisitions,divestmentsorotherfactors.Explainandjustifythereasonforanymissingdata.
EU Non-Financial Reporting Directive – How companies make the most out of it!
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BPEU Non-Financial Reporting Directive – How companies make the most out of it!
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The principal risks related to those matters linked to the group's operations including, where relevant and proportionate, its business relationships, products or services which are likely to cause adverse impacts in those areas, and how the group manages those risks
21
NFRDirective CDSBrequirements CDPquestionnairesTheprincipalrisksrelatedtothosematterslinkedtothegroup'soperationsincluding,whererelevantandproportionate,itsbusinessrelationships,productsorserviceswhicharelikelytocauseadverseimpactsinthoseareas,andhowthegroupmanagesthoserisks
REQ-02– Risksandopportunities
REQ-06– Outlook
CC2.1,CC5.1,CC6.1
F2.1,F2.2,F3.1,F3.2,F3.3,F3.4,F4.1,F4.2,F4.3,F7.2
W2.1,W2.2,W2.3,W2.4,W2.6,W2.7
Bestpracticeexamples• Anoverviewisprovidedofriskmanagementapproach(BHPBillinton Plc).
• Descriptionofbothlegislativeandoperationalrisksareincluded(Norsk HydroASA/BHPBillinton Plc).
• Thephysicalrisksassociatedwithclimatechangearedescribedtoanextent.Thiscouldbeimprovedwithspecificdetailand mitigationstrategies(PKNOrlenSA/(Norsk HydroASA).
Recommendationsforcompanies• Provideacomprehensivesetofenvironmentalrisks,includingregulatory,physical,reputational,transitionandlitigationrisk.
• Explainhowthereportedrisksimpactoperations,supplychain,businessmodel,financialperformanceandallothermaterialimplications.
• Providethecausesandsourcesoftheserisks.Thiscouldinformyourmitigationstrategies.
• Includetimeframesfortheriskstotakeeffect,inadditiontothemitigationstrategies.
• Linkriskstopoliciesandstrategieswhereappropriate,todemonstrateduediligence.
EU Non-Financial Reporting Directive – How companies make the most out of it!
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BHP BillitonEU Non-Financial Reporting Directive – How companies make the most out of it!
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Non-financial key performance indicators relevant to the particular business
23
NFRDirective CDSBrequirements CDPquestionnairesNon-financialkeyperformanceindicatorsrelevanttotheparticularbusiness
REQ-01– Policy,strategyandtargets
REQ-04– Sourcesofenvironmentalimpact
REQ-06– Outlook
CC1.2a,CC7.1,CC8.2,CC8.3a,CC9.2a,CC9.2b,CC9.2c,CC9.2d,CC10.1a,CC10.2a,CC10.2b,CC10.2c,CC11.2,CC11.3,CC11.5,CC14.1
F0.5,F0.6,F1.1,F5.1,F5.2
W1.2,W1.2a,W1.2b,W1.2c,W5.1,W5.1a,W5.2,W5.2a
Bestpracticeexamples• Indicatorsreflectbusinessactivities,visionandstrategy(AkzoNobel N.V./PennonGroupPlc/MarksandSpencerPlc.).
• Connectstrategytoqualitativeandquantitativeinformationandexplainshowthetargetsaretobeassessed(AkzoNobel N.V.).
• TheKPIsthatareusedarerelevantandmaterialtoindividualcompanies(PennonGroupPlc).
Recommendationsforcompanies• CommunicaterelevantandmaterialKPIs.Ensurethattheseareaccompaniedbyshort/medium/longtermforecasts.
• ConnectKPIswithotherinformationinthemainstreamreport,suchasoverallorganisationalstrategy,performanceandprospects.
• TodemonstratehowtheKPIsareusedtoassesstheprogressagainsttargets,providebaselinesandconsistentyearonyeardisclosures.
• DifferentiateKPIsandotherperformanceindicators.
EU Non-Financial Reporting Directive – How companies make the most out of it!
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AkzonobelEU Non-Financial Reporting Directive – How companies make the most out of it!
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Supply chain & science-based targetsMarie-Camille AttardAccount Manager EuropeSupply Chain, CDP
www.cdp.net | @CDP
Engage with key suppliers to assess risks exposure and management.„ [...] shall include in the management report [...] 2014/95/EU
(d) the principal risks related to those matters linked to the understaking‘s operations including, where relevant and
proportionate, its business relationships, products or services which are likely to cause adverse impacts in those areas, and how the undertaking manages those risks. „
(e) non-financial key performance indicators relevant to the particular business
CDPSupplyChainProgrammefacilitatestoengagewithkeysuppliers(businessrelationships):
- Toreportonrisksandtheirmanagement
- TotrackyourenvironmentalKPI‘sonvaluechain.
www.cdp.net | @CDP
US$100trillion in assets
Climate change: 827 investors
Water: 643 investors
Forest: 365 investors
>US$2.7trillion in purchasingpower
89 CDP supply chain members
Climate change: 88 members
Water: 24 members
• A non-financial reporting platform on Natural Capital – Climate Change, Water and Forest
• An environmental organization combining purchasing power with investors & reduce burden on responders.
• This year 8310 suppliers were ask to respond to CDP supply chain by 89 Members.
CDP: How does it work ?
Investors Customers
1 Questionnaire / 1 Response
Suppliers
www.cdp.net | @CDP
Supply Chain Programme
Benefits from the Programme : § Reduce reporting Burden to suppliers: more than 8000 suppliers have been asked in 2016, might include one of
your suppliers ?
§ Minimize risks and identify opportunities to tackle them – dedicated risk management questions
§ CDP Database : >10000 companies: a reporting framework allowing benchmarking. You and your stakeholders are able to evaluate and compare envrionmental performance between companies providing information following a same standard.
§ Accessible to stakeholders
January February March April May June July August Sept. Oct. Nov. Dec.
3. Suppliers respond to CDP 1. Set Strategy, evaluate success and prepare for following year
2. Identify and communicate with selected suppliers
4. Results and Analyses to Members and Suppliers
www.cdp.net | @CDP
Assessing RisksSupply Chain Questionnaire
Cor
e Q
uest
ionn
aire
s Climate change questions Water questionsManagement: Strategies, targets,
emissions reduction activities
Risks & Opportunities: Regulatory, physical, other
Emissions Reporting: Emissions methodology
and data
Current State: Growth strategy & experienced detrimental impactsRisk Assessment & Implications: Risk assessment, exposure and opportunities Water Accounting: Water consumption, discharge, withdrawals and recycling Corporate Response: Governance, strategy, targets and initiatives
Supp
ly c
hain
mod
ule
Customer Specific Information• Allocating emissions to customers
• Collaborative opportunities
• Action exchange
• Product (goods & services) level data
Customer Specific Information• Highlighting facilities at risk with customer spend
• Collaborative opportunities
• Product (goods & services) intensity data
www.cdp.net | @CDP
Defining and Tracking KPIsClimatechangeKPI’s
2014 2015 2016Target
Response Rate 88% 90% 100%
ReportingScope 1&2Emissions 74% 80% 80%
HaveEmissionsTarget 37% 50% 70%
ReportingEmissionsReductionActivities 46% 60% 75%
#of CollaborativeOpportunitiesReported 27 35 50
TotalamountofCO2specificallyassociatedwithmemberengagement
314 500 1000
Climate Change
Water stewardship KPI
2014 2015 2016 Target
Response Rate 0 40% 60%Reporting water withdrawal and discharge information
0 35% 50%
Report having a public water policy 0 30% 50%
report completing a risk assessment for their operations
0 20% 40%
# of Collaborative Opportunities Reported 0 5 20
Water
www.cdp.net | @CDP
Science-Based Targets
Benefit to set Science-Based Targets:
- Be ready to fix you emissions reductions targets aligned with the 2°C / 1.5°C pathway
- Comply with Paris-Outcome and your contribution to the NDC’s
- Gives a benchmarking framework to validate your targets : do your targets make
sense?
- Covers Scope 1, 2 and 3 Emissions
„[...]shallincludeinthemanagementreport[...]2014/95/EU(b)„adescriptionofthepolicies[...]includingduediligenceprocessesimplemented„(c)Theoutcomeofthosepolicies
www.cdp.net | @CDP
Science – Based Targets
- An initiative part of the We Mean Business - Commit to Action Platformwww.wemeanbusinesscoalition.org
- 184 Companies have committed to set up Science-Based Targets
Process
Background
www.cdp.net | @CDP
Criteria Science-Based Targets- Time frame: 2 years to set target; 5 year time horizon min. 15 years max.
- Boundary: Scope 1 & 2 emissions and all GHGs (Scope 3 if relevant)
- Level of ambition: Aligns with a 2 degree pathway
- Reporting: Disclose progress annually
Scope 3 targets (if greater than 40% of total scope 1,2,3 emissions):
§ Ambitious and measureable Scope 3 target with a clear time-frame
§ Complete scope 3 emissions screening
§ Boundary: majority of value chain emissions as defined by the GHG Protocol Corporate
Value Chain (Scope 3) Standard (e.g. top 3 categories, or 2/3 of total scope 3 emissions
LongerTermtargetsarestrongly
recommended!
www.cdp.net | @CDP
Additional informationSupply Chain:
How to engage with your suppliers
Marie-Camille Attard, CDPAccount Manager,
Supply Chain Europe
Science-Based Targets
Elena Stecca, CDP
Project Officer Global Initiatives,
Commit to Action
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Next steps
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36
Fiduciary duty & climate change disclosure
With the support of
“We are a group of companies and investors sharing a concern that financial markets do
not yet take sufficient account of climate-related corporate performance, risks and
opportunities relevant to future shareholder value …
For this reason, we have decided to produce and make use of such information on a
common basis … whether or not required by current regulation. We take this step
primarily out of a sense of fiduciary responsibility.”
• 150 corporate signatories from all sectors and regions
• Endorsement of funds: over $10 trillion in assets under management
Join at cdsb.net/Fiduciary
Fiduciary duty
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Opportunities
1. Take a look at the CDP/CDSB handbook
2. Follow member state implementation plans & contribute to consultations
3. Think about alignment & harmonization
4. Produce clear, coherent and connected reports
EU Non-Financial Reporting Directive – How companies make the most out of it! 37
Be prepared and lead
EU environmental reporting handbookWhat could environmental reporting in line with the Non-Financial Reporting Directive look like?
v1.0, September 2016www.cdsb.net/NFR
cdsb.net/NFRhandbook
September 16 | Tweet @CDSBGlobal
38EU Non-Financial Reporting Directive – How companies make the most out of it!
Questions?Please send us your questions using the chat function
Download fromcdsb.net/NFRHandbook
EU environmental reporting handbookWhat could environmental reporting in line with the Non-Financial Reporting Directive look like?
v1.0, September 2016www.cdsb.net/NFR
September 16 | Tweet @CDSBGlobal
Thank youe: [email protected]: +44 (0)203 818 3939 www.cdsb.net@CDSBGlobal