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Businesses need to assess climate change risk

Businesses need to assess climate change risk

Jun 1, 2013

Companies listed on the JSE are required to provide integrated financial, social and environmental reporting. The JSE is the first stock exchange globally that requires an integrated report as part of the listing requirements.

Lois Guthrie, executive director of the Climate Disclosure Standards Board (CDSB) and technical director at the International Integrated Reporting Council (IIRC), applauded the JSE in showing leadership in encouraging companies to report on sustainability.

“The key areas that should be reported on are risks and opportunities. Business opportunities include cost reduction, increased innovation and staff motivation focussed on how climate change can affect value creation.”

Promethium Carbon, in partnership with the CDSB, have released a publication to provide CEOs, CFOs, reporting committees and internal auditors with a reference tool on integrated and climate change-related reporting.

“Corporate reporting requirements are developing fast. Regulators, standard setters, stock exchanges, non-governmental organisations and others are steadily introducing new information requirements,” says Robbie Louw, a director of Promethium Carbon.

The reporting is being adopted by an increasing number of companies and is seen as a natural progression of CDP carbon reporting. It gives an opportunity for companies to take a more in-depth look at how climate change may positively or negatively affect their business, and in some instances provide new business opportunities.

“Integrated reporting needs to provide a brief outline of the company’s plans and strategies to address their specific environmental requirements, risks and opportunities,” he says.

The reporting is designed to communicate information about the organisation’s ability to create value over time with reference to their strategy, business model, risks, opportunities and governance. The two forms of environmental reporting, Integrated Reporting and the current CDP Disclosure, are aimed at the listed companies and have similar goals.

“Climate change and integrated reporting also seek to address these and other issues by encouraging disclosures that consider the implications of corporate activity on all forms of capital over the long term. A level of consensus has now been reached that puts the materiality of climate change for business beyond doubt,” says Louw.

The International Integrated Reporting Council (IIRC) recently published guidelines suggesting that companies should report on factors that could materially affect their ability to create and preserve value over time.

The IIRC says report structure should address issues, such the company’s strategy, to create and preserve value in the short, medium and long term.

It should also cover the key risks and opportunities, the organisation’s goals and plans to achieve them, the governance structure, how this will support the organisation’s strategic objectives, business risk management and approach to remuneration.

The reports should include:

* The way climate change affects an organisation’s ability to create value over time and the impacts of climate change on the company’s value chain;

* Opportunities and risks faced by the organisation as a result of climate change and how the company’s strategy is tailored to manage this;

* Management’s actions, governance, activities, results and performance relating to climate change;

* Financial and non-financial information; and

* Greenhouse gas (GHG) emissions.

An integrated report should also answer the questions:

* What does the organisation do, what are the key Capitals that it uses and affects, and how does it create and preserve value in the short, medium and long term?

* What are the circumstances under which the organisation operates, including the key risks and opportunities that it faces?

* What are the organisation’s goals and how does it intend getting there?

* What is the organisation’s governance structure, and how does this support the organisation’s strategic objectives, risk management and approach to remuneration?

* How has the organisation performed against its strategic objectives and related strategies?

* What opportunities, risks, challenges and uncertainties will the organisation likely encounter in pursuing its strategic objectives, and what are the potential implications on its strategies and future performance?

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