EFRAG and CDP unite to elevate environmental reporting

In an impactful move for sustainability reporting, the European Financial Reporting Advisory Group (EFRAG) and the environmental non-profit CDP are joining forces. Their collaboration is set to usher in a new era of environmental disclosure that aligns with the upcoming European Sustainability Reporting Standards (ESRS).

Here’s what asset managers need to know about this partnership and its implications for the future of corporate environmental reporting.

Harmonising disclosure systems with ESRS

CDP has taken a significant step by aligning its renowned disclosure system with the ESRS, backed by EFRAG’s technical expertise. This strategic alliance is about both alignment and ensuring companies are up to the task of meeting new, mandatory sustainability reporting requirements. As asset managers, the transparency and uniformity this collaboration promises will likely enhance your ability to analyse and compare the environmental performance of investments.

Leveraging CDP’s extensive reach

Recognised for its comprehensive coverage of climate change, forests, and water security, CDP’s data is integral to financial institutions, policymakers, and organisations globally. With the support of EFRAG, CDP promises to facilitate a smooth transition for companies to report ESRS-compliant data. Given that over 23,000 companies utilise CDP’s platform, including a substantial portion of the global stock market capitalisation and about 90% of the European market value, this move is monumental for asset managers focusing on sustainability.

Preparing for compliance

With new standards on the horizon, readiness is key. EFRAG’s collaboration with CDP includes educational initiatives like webinars and technical guidance materials to empower companies in their ESRS reporting via CDP’s platform. Maxfield Weiss, CDP Europe’s executive director, underscores the importance of this development, saying “The ESRS are a watershed – an obligation for thousands of companies inside and outside the EU to report how they impact climate change, pollution, water and biodiversity. Their implementation through the CSRD will help ensure a level playing field for and support the companies already investing in their transition.”

Impending reporting obligations

The ESRS will soon require large corporations to embed enhanced environmental disclosures in their annual reports starting in 2024, extending to medium-sized businesses progressively by 2026. For asset managers, this means more robust data will be available to gauge environmental risk and performance as part of investment decision-making.

The ESRS is designed to capture the essence of double materiality. Companies must disclose not only the environmental and climatic factors affecting their business operations and value creation but also their impact on people and the planet. This comprehensive approach provides a more holistic view of a company’s sustainability profile, which can be critical for asset managers in assessing long-term investment viability.

Comprehensive environmental reporting standards

The ESRS framework comprises standards (E1 – E5) that span climate change, pollution, water and marine resources, biodiversity and ecosystems, and resource use and circular economy. Legal mandates for broad environmental data reporting will now encompass impacts, risks, and opportunities—details pertinent for asset managers in evaluating environmental stewardship of companies.

Global alignment with IFRS and GRI standards

The ESRS not only aligns with the ISSB’s IFRS S2 climate-related disclosure standard but also the Global Reporting Initiative (GRI) standards. This congruence reinforces the global sustainability reporting movement, aiming to streamline the diverse reporting landscape, thus benefiting asset managers with a consistent and comparable set of data across jurisdictions.

As the ESRS begin to take shape and influence corporate reporting practices, asset managers can expect a transformation in environmental disclosure quality and comparability. The EFRAG and CDP collaboration signifies a major step towards this goal, and asset managers should gear up to integrate these insights into their investment strategies for a sustainable future.