2.1.1 Introduction to the survey
For six weeks, from 21 March to 1 May 2019, the Project held an online consultation to gather stakeholder input, primarily from report preparers and report users. The consultation garnered views on the levels of alignment between the Participants’ frameworks and standards, the crucial challenges faced when using the frameworks and standards, and the key areas where further alignment would be beneficial from the perspective of preparers and users.
Questionnaires were prepared to consider TCFD disclosures, ESG reporting and integration into mainstream filings.
For these two stakeholder groups, similar but separate questionnaires were prepared to consider TCFD disclosures, ESG reporting and integration into mainstream filings. The questionnaires were responsive to the Project’s year one ambitions and its focus on TCFD alignment. They were also designed to inform the Project as a whole and its possible next steps. Given the Project’s initial focus on the TCFD recommendations, which focus on providing information needed by investors, lenders and insurers, the questionnaires adopted an investor-focused perspective to corporate disclosure.
2.1.2 Survey response
The Project received over 50 survey responses, with a higher representation from report preparers than users. The report preparers who contributed were found to support the Project’s focus, i.e. on investors and lenders that are the primary audience of the TCFD recommended disclosures, underscoring the value of their responses to informing the Participants’ alignment efforts in this project phase.
While the participation levels and respondents’ outlook were informative, the consultation did not provide a fully representative picture of report preparers’ and users’ views. Given the nature of the survey and the Project, it is likely there is a skew in the respondents towards those already interested or engaged in alignment and ESG disclosures. In addition to the number of responses received, it is possible that the respondents include those that had specific interests or concerns. We remind the reader of this report to read the results with this in mind.
2.1.3 Survey results
Overall, the surveys found a diverse range of views amongst preparers on whether the differences between the Participants’ frameworks and standards were justified given their differing focus and audience. The results suggest that a significant number of preparers were unaware of the purpose and function of the different frameworks and standards, and how they may complement one another to facilitate effective reporting. The consultation also found that more report preparers did not believe that the Participants’ frameworks and standards are a complementary means of guiding ESG disclosure for effective decision-making than did believe they are.
Report users highlighted several technical issues, such as differences in terminologies and measurement methodologies.
In general, report users were slightly more positive than the report preparers on the alignment of the Participants’ frameworks and standards. However, report users highlighted several technical issues, such as differences in terminologies and measurement methodologies, where greater alignment between the frameworks and standards would enhance their ability to make effective investment decisions.
These results suggest that some degree of confusion exists in the market regarding the interconnection and complementarity of the Participants’ frameworks and standards, both conceptually and practically. As one preparer noted, the Participants ‘need to make clear where there is reciprocity between them, so that companies know whether and when information prepared according to one member will be accepted by one or more others.’
To a vast majority of the preparers, it was unclear how the Participant frameworks and standards could be used in a complementary manner with the TCFD’s recommendations.
Results from the surveys showed that nearly half of report preparer organisations currently disclose against the TCFD, the majority to a limited extent, with around a quarter intending to start reporting in the next two years. A large majority of report users responded that they use the TCFD recommended disclosures to inform some investment decisions.
To a vast majority of the preparers, it was unclear how the Participant frameworks and standards could be used in a complementary manner with the TCFD’s recommendations. According to the respondents, this somewhat affects their ability to effectively disclose against all four TCFD core elements. Relatedly, no report preparers believe that perceived misalignment between the frameworks and standards seriously inhibits their reporting for any of the four core elements.
That said, the preparers’ responses also show that the majority perceived that the Participants’ frameworks and standards collectively lack information across the 11 TCFD recommended disclosures. One preparer noted that the Participants’ frameworks and standards, for the most part, do not provide sufficient guidance ‘in respect of future-oriented information’ and that more support around scenario analysis could prove beneficial.
Responses from users show that they believe additional information about and greater alignment between the Participants’ frameworks and standards and the TCFD would enhance their ability to make effective investment decisions. This was especially true for the metrics and targets element of the TCFD, echoing the results noted below around metrics and methodologies for ESG disclosures.
ESG and financial information, terminologies, and metrics
Both preparers and users highlighted that the differing and inconsistent emphasis on the interconnection between ESG information to financial performance by the Participants inhibits the efficient and effective application of the frameworks and standards. Overall, both preparers and users believed the Participants’ reporting resources, when taken together, lacked sufficient information on how disclosures connect to financial issues and outcomes. One preparer underscored its importance: ‘Explaining in mainstream reports how non-financial risks transform into financial risks and ultimately into financial impacts is critical to effective communication.’ Investors, in particular, indicated that they would like to see better guidance on how ESG information should be integrated with financial information.
The perceived differences in the application of the concept of materiality employed by the different frameworks and standards was noted by preparers and users to be a challenge for effective disclosure. Investors signalled that they would like to see further harmonisation of the technical terminologies used by the Participants in their frameworks and standards. As one respondent put it, ‘all approaches would benefit if information reporters and users would ultimately be able to make use of consistent “atoms and molecules” of ESG reporting.’
In addition to better linking of ESG information with financial information and aligning terminologies, the survey responses underscored that both preparers and users believe the different metrics and methodologies employed by the Participants’ frameworks and standards and the wider reporting ecosystem pose a hinderance to effective reporting. One respondent from the investor community believed ensuring the availability of ‘data that is consistent in definition to allow meaningful analysis and comparisons across companies and sectors’ was a ‘key challenge to making ESG and other forms on non-financial reporting more widely adopted by investors.’ Report users also highlighted insufficient information on metrics and methodologies in the reporting frameworks and standards.
The survey also highlighted that preparers believe the Participants’ frameworks and standards collectively lack adequate information on the connection between ESG and corporate strategy, as well as connections to the UN Sustainable Development Goals (SDGs). One respondent believed the latter offered a ‘common language agreed upon at [an] international level to address the sustainability challenges the world faces.’
Priority areas for better alignment
Respondents also provided opinions on which specific ESG reporting topics would most benefit from further alignment between the Participants’ frameworks and standards. Preparers highlighted human rights, supply chain, resource use and efficiency, climate change/greenhouse gas (GHG) emissions and water as priority areas for better alignment.
Report users believed greater alignment between the frameworks and standards across multiple ESG subjects would be necessary to better factor ESG information into decision-making processes. Users identified several ESG areas, notably climate change and GHG emissions, water, supply chain, health and safety, and human rights where they thought the Participants’ frameworks and standards collectively lack adequate information.