eu non-financial reporting directive: how companies can make the most of it!

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EU Non-Financial Reporting Directive How companies make the most out of it!

Download from cdsb.net/NFRHandbook


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]


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


Climate Disclosure Standards BoardEU Non-Financial Reporting Directive – How companies make the most out of it! 4


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


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


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)


for reporting environmental information & natural capital

cdsb.net/framework


Introduction to the Directive

Michael ZimonyiPolicy & External Affairs ManagerClimate Disclosure Standards Board


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


Directive 2014/95/EU on the disclosure of non- financial and diversity information

Source: David Bertho/flickr


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.


Requirements in practice

Source: HayleyCartwright/flickr


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.




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.”



Source: PIVISO/flickr


Case Studies13

Luke BlowerSenior Technical OfficerClimate Disclosure Standards Board


A brief description of the undertaking’s business model


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.


Eni S.p.AEU Non-Financial Reporting Directive – How companies make the most out of it!


Adescriptionofthepoliciespursuedbythegroupinrelationtothosematters,includingduediligenceprocessesimplemented


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.


Mondi plcEU Non-Financial Reporting Directive – How companies make the most out of it!


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!


BPEU Non-Financial Reporting Directive – How companies make the most out of it!


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.



BHP BillitonEU Non-Financial Reporting Directive – How companies make the most out of it!


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.



AkzonobelEU Non-Financial Reporting Directive – How companies make the most out of it!


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

[email protected]

Science-Based Targets

Elena Stecca, CDP

Project Officer Global Initiatives,

Commit to Action

[email protected]


Next steps


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


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


Be prepared and lead



cdsb.net/NFRhandbook


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




Thank youe: [email protected]: +44 (0)203 818 3939 www.cdsb.net@CDSBGlobal

eu non-financial reporting directive: how companies can make the most of it!

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