We refer to your 17 February 2014 invitation to comment on the draft Climate Disclosure Standards Board (‘CDSB’) framework for corporate reporting (the ‘Draft Framework’). If implemented, the Draft Framework will expand the CDSB’s scope of reporting to include water and forest commodities in addition to the current climate change related coverage. We appreciate the opportunity to participate in this consultation and provide comments to the CDSB.
Norges Bank Investment Management manages the Norwegian Government Pension Fund Global (the ‘fund’). The fund is a long-term, globally diversified shareholder with minority equity positions in publicly listed companies. The fund also has investments in fixed income and real estate. We seek to protect the fund’s interests through the development of corporate governance standards and practices which create shareholder value and safeguard investments, including corporate disclosure and reporting.
Our understanding is that the objective of the Draft Framework is to help companies prepare and present environmental information in or linked to financial statements and reports. It is also intended to inform the future direction of CDP’s annual questionnaire on climate change risk, water management, and forestry, to which companies respond. We have submitted a detailed response to the Draft Framework through the CDSB online portal and a copy of that response is also enclosed as the Annex to this letter. In the following paragraphs we have summarised our main considerations regarding the Draft Framework.
We support the objective of improving the quality and relevance of environmental information communicated by companies to investors. Our investment process requires standardised and granular information to provide further insight into company risks, and to enable consolidation of risks across the portfolio. That standardised and granular information needs to be provided consistently over time and be relevant from an economic and financial perspective.
The relevance of climate change, water resources and forests differs across geographies and sectors. To achieve the requisite quality and relevance, information needs to be provided at a geographic level, as well as by reference to each company’s operations and sector. In our opinion, consolidation of such information and the ability to identify risks at a portfolio level requires information at company and site level. While the suggested Draft Framework may provide consolidation of risks across countries and sectors, it is our view that it should also reflect how climate change, water and forests have different economic and financial relevance for companies.
Harmonisation with existing regulations and standards
We support your efforts to align the Draft Framework with the objectives of financial reporting. However, given the number of standards, regulatory requirements and voluntary reporting frameworks, there is a need to consider how the Draft Framework might contribute to further consolidation of voluntary standards. It is our view that this voluntary scheme should supplement existing mandatory and regulatory reporting. As such, this should simplify and reduce the reporting burden on companies, in addition to increase transparency of environmental risks.
Emphasise the voluntary nature of the Draft Framework
International standards can be a powerful tool to strengthen expectations for sustainable business operations and disclosure over and above local legal and regulatory requirements. Such standards can contribute to transparency and greater understanding of complex environmental and social issues. Where externalities are significant and the economic risks material, third party assurances may in some cases be relevant. However, voluntary standards and reporting frameworks should distinguish themselves from mandatory regulatory and listing requirements, including the language they employ. We recommend avoiding wording with overly legal and regulatory connotations. The use of such terms may contribute to confusion and lead investors, companies, or other stakeholders to equate such standards with regulatory requirements.
Finally, we would like to thank the CDSB again for providing us with an opportunity to contribute our views on the Draft Framework.
Jan Thomsen William Ambrose
Chief Risk Officer Global Head of Business Risk