Technology and climate reporting: can XBRL help TCFD?

With the Paris Agreement now ratified by over 140 countries¹ and the final report of Mark Carney and Michael Bloomberg’s Task Force on Climate-related Financial Disclosures (TCFD) due in July, climate reporting is rising up the corporate agenda. One of TCFD’s main aims is to try to create a common framework for climate disclosure globally and inform evolving regulatory demands. At CDP we know that there is no one-size- fits-all approach to climate reporting, with all companies having their own environmental challenges, contexts and data collection issues. We will be adopting the TCFD recommendations in their entirety within our disclosure platform for 2018.

For some time now, similar reporting challenges have been addressed by the European Supervisory Authorities (ESAs): The European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA), using digital standards formats.

But how is TCFD taking into consideration the current and future reporting practices adopted by companies by regulatory requirements? For example, from 2020, the ESMA requires all IFRS fillers to prepare their Annual Financial Report² in XBRL (eXtensible Business Reporting Language) format.

We believe that lessons learnt from current reporting practices in regulation and new opportunities for alignment with regulatory information should be considered by TCFD. Exploring digital standards formats, such as XBRL, is a good starting point.

Step in XBRL

Thankfully, technology is on hand to help solve these challenges. XBRL is a freely available global standard for exchanging business information. It is already used by 10 million companies in more than 60 countries and implemented by over 100 regulators.

This widespread usage and ease of access means that XBRL is ideally placed to help companies meet the new requirements of corporate reporting and, in doing so, brings new opportunities for the investors and other stakeholders using the data to make important decisions.

What does this mean for climate reporting?

At CDP, we believe that technology, and XBRL in particular, could be a vital tool for meeting the TFCD recommendations. To this end, we have been working with the 2degree investing initiative, XBRL International, Eurofiling, CEN (European Committee for Standardization), AECA and CDSB to produce a ground-breaking new report, focusing on exactly how XBRL can help overcome climate-related reporting challenges.

Our study points to how XBRL will drive and strengthen data-driven decision-making that is inclusive of climate and financial aspects in the following key ways:

1. Connecting environmental and financial information models, making it easier for investors and companies to see the interlinkages between them and allowing them to make better use of them in decision making;
2. Reducing the costs of reporting, enabling data to be consistent, structured and usable across different existing disclosure regimes;
3. Improving data quality, thus allowing investors and companies to use climate and financial data to make comparisons and lead to more transparency in the reporting process;
4. Allowing investors to make important connections between data sets so they can plan over both the short and long term;
5. Providing an overall better picture of the financial risks associated with climate change and other sustainability matters; and
6. Strengthening the dialogue between companies and shareholders, and evolving it to include a broader set of stakeholders, including global public opinion.

XBRL key for a sustainable economy

CDP’s new report is an excellent example of how technology, private sector demand and legislation could work together to facilitate more streamlined and standardized corporate reporting on climate and environmental variables.

As the requirements of the TCFD start to hit home, and governments ramp up their efforts to meet the demands of Paris agreement, XBRL will be key in providing the kind of data the private sector needs to maximize the future development of a sustainable economy.

----

¹ http://unfccc.int/paris_agreement/items/9444.php

² https://www.esma.europa.eu/press-news/esma-news/esma-proposes-new-digital-format-issuers%E2%80%99-financial-reporting