IFC – a member of the World Bank Group – and CDP, a not for profit which runs the global environmental disclosure system, have released a report analyzing the current state of best practices in environmental disclosure, examining more than 100 disclosure practices across developed and developing economies. The report, which was developed in consultation with the United Nations Sustainable Stock Exchanges Initiative (UN SSE), also highlights practical examples for developing high-quality regulation that addresses market needs and investor demands, helping to mobilize private capital flows towards sustainable solutions.
Voluntary disclosure of environmental action has accelerated rapidly as companies seek to attract sustainable investment opportunities and reduce their environmental impacts. In 2022, nearly 20,000 organizations disclosed sustainability-related information through CDP – a 38% increase from 2021. Additionally, 67 of the 120 stock exchange members of UN SSE have written guidance on environmental, social and corporate governance reporting. However, the lack of mandatory disclosure requirements and standardization of disclosed sustainability information has resulted in the inability of investors and decision-makers to effectively assess the sustainability efforts of companies and projects.
“The growth in voluntary disclosure in recent years is overwhelmingly positive. Yet, in the face of the climate and environmental crises, we recognise that voluntary disclosure is no longer enough,” said Pietro Bertazzi, Global Director for Policy Engagement and External Affairs at CDP. “This report will be vital in ensuring that governments develop policies that can truly drive forward the environmental agenda, track their own progress towards targets and boost ambitious action in the real economy. Robust and ambitious mandatory disclosure regulation will help all actors to better understand and act on not just the risks facing them, but the opportunities in front of them as well as their impacts on people and planet.”
The report examines environmental policies and practices against five criteria set out by CDP on mandatory disclosure requirements, including: addressing sustainability-related financial disclosures, as well as impact on people and the planet; ensuring compatibility of disclosure standards either required or recommended; providing a system of enforcement; adhering to technical quality and content; and allowing space for innovation. The assessments covered in the report also consider IFC’s comprehensive approach to addressing the corporate governance and regulatory environment, including codes, scorecards and reporting guidelines.
“Sustainability and climate reporting is often lacking, particularly in emerging markets where private sector investment is critical to achieving the Sustainable Development Goals and the Paris Agreement,” said Martine Valcin, Global Manager, Corporate Governance and ESG Advisory Knowledge and Learning, IFC. “The environmental disclosure policies explored in this report can help regulators and stock exchanges in emerging markets strengthen reporting practices and develop appropriate regulatory tools, paving the way for these economies to accelerate efforts.”
The report’s findings are a critical resource given the current trajectory towards strengthening environmental disclosure, including the creation of the International Sustainability Standards Board by the International Financial Reporting Standards Foundation and the recent adoption of the European Union’s legislative proposal on corporate sustainability reporting.