Data from CDP, the non-profit that runs the global environmental disclosure system for companies, has shown the majority of companies reporting through CDP are already in part prepared for the new mandatory European Sustainability Reporting Standards (ESRS).
The study by CDP analysed over 18,700 companies’ 2022 disclosures and mapped them to the recently released ESRS 2 and ESRS E1 standards. The study found over 18,000 organisations had already reported on board-level oversight of climate and environmental topics, and around half (55%) have a process in place to assess climate risks and opportunities.
Climate risks and opportunities are a key step in determining the extent of climate and environmental information that companies should disclose to their stakeholders as ‘material’. However, the freedom of companies to determine what is material and to report on was seen as one of the biggest criticisms of the final ESRS standards.
“Compromises were made to ensure successful adoption: all disclosures, including climate related, are now subject to companies’ own materiality assessment,” said Mirjam Wolfrum, policy engagement director for Europe at CDP. “In addition, certain disclosures including scope 3 emissions and all of biodiversity related disclosures have been phased in. Understanding why companies disregard certain topics will be essential to ensure comparable and meaningful information for investors, auditors, and regulators.”
European companies are leading slightly with assessing climate risks and opportunities, with 59% reporting on processes to assess climate risks and opportunities, compared to 54% of non-EU companies.
The climate transition
Out of the 18,000+ reporting companies, only 4,100 (around 22%) disclosed that they had already developed a 1.5 °C-aligned climate transition plan. Power generation and infrastructure had the highest disclosure rate, with 2.2% and 1.7% of all 21 key indicators of a credible climate transition plan.
In terms of resilience planning for climate change, less than half (45%) of companies report on strategy and business model resilience analysis topics, manufacturing and transportation services are the laggards, with only 40% reporting on these topics, while the power generation sector comes out on top, with an 84% response rate.
Companies that voluntarily disclose their sustainability information through CDP are showing preparedness on some of the critical information required under the European Sustainability Reporting Standards (ESRS). This includes information on governance, strategy, risks and opportunities, and metrics and targets. However, it remains to be seen how corporations, both inside and outside Europe, will generally fare once the ESRS starts applying in 2024.
The Corporate Sustainability Reporting Directive (CSRD) for which the ESRS standards underpin will apply to more than 50,000 companies, and some of them will also be required to report under other standards and frameworks. This is expected to drive further development in the quality and implementation of sustainability reporting.
CDP is a global non-profit that runs the world’s environmental disclosure system. Founded in 2000, CDP works with investors and companies to motivate disclosure of environmental impacts and drive action on climate change, water security, and deforestation.
In 2022, nearly 20,000 organisations disclosed data through CDP, including more than 18,700 companies worth half of the global market capitalisation. CDP is a founding member of the Science Based Targets initiative, We Mean Business Coalition, The Investor Agenda, and the Net Zero Asset Managers initiative.
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