Executive Summary Analysis of Best Practices in Environmental Disclosure Policies A review of 101 policies worldwide based on Five criteria for high-quality disclosure T here is a growing focus on the need to shift capital effectively and rapidly toward environmentally sustainable solutions to innumerable challenges. Key questions remain, however, as to how investors, stakeholders, and decision- makers can best assess what companies, activities, or financial products are truly sustainable. Even when answers can be found, how can this information best be standardized across a wide array of contexts? Much of the common practice in sustainability reporting In order to assist regulators with an appetite for filling this has been reached through voluntary disclosure important information gap, we have produced this report requirements. However, the detailed, comparable, providing a comprehensive analysis of the state of enforceable, and decision-useful information needs environmental disclosure. First, we assess 101 policies to of investors and decision-makers has made it clear better understand what best practices exist in developed that we have reached the next step in the journey of economies with deep financial markets. Second, we environmental disclosure policies. Underpinning the illustrate the current situation in these economies when it answer to the challenges are regulatory activities that comes to environmental disclosure policy. Finally, we help meet the information needs of the private sector provide regulators with a framework to formulate better for nonfinancial and sustainability information. With policies capable of helping fill the information needs. landmark legislation being introduced in a number of jurisdictions in the world, it is clear that the much-needed We differentiate between developed and developing shift to mandatory disclosure requirements is under way. economies for two key reasons. Developing economies This regulatory development meets the need for a higher tend to be at an earlier stage in their journey of setting granularity in the quality of information available, greater disclosure requirements. This creates an opportunity for clarity and comparability across the board between these jurisdictions to leapfrog and incorporate best companies and industries, and timely and accessible data. practices from more mature jurisdictions. Next to this, Analysis of Best Practices in Environmental Disclosure Policies 1 the appetite of these economies to attract investment The initial aim of our analysis was to understand best creates a clear opportunity to act on the 2030 Agenda, practices in developed economies and to use this the Paris Agreement, and the upcoming Global assessment to assist regulators in developing economies. Biodiversity Framework. However, our analysis also highlighted that due to the special positioning of developing markets, these Our analysis examines policies through the lens of the five jurisdictions are well on the path of innovation and have success criteria set out by CDP on mandatory disclosure many lessons to offer to themselves across organizations requirements. According to these criteria, successful policy 1 internally and to other economies. should (1) ensure environmental integrity, addressing sustainability-related financial disclosures as well as Based on our analysis we outline an overarching process, impacts on people and the planet, with a holistic which regulators can use to embark on a policy (re) environmental approach; (2) ensure compatibility of iteration process. This process can help regulators focus on required or recommended disclosure standards; (3) provide aligning key indicators in policy with existing standards, an enforcement system; (4) adhere to the technical quality focus on collating disclosed information in decision- and content of the reporting process; and (5) allow space useful ways, and regularly revisit and adjust disclosure for innovation and more mature disclosure. requirements. 1 For more information, see CDP. 2021. “Shaping High-Quality Mandatory Disclosure: Taking stock and Building upon the TCFD Recommendations.” London: CDP. https://cdn.cdp.net/cdp-production/cms/policy_briefings/documents/000/005/863/original/TCFD_disclosure_report_2021_FINAL.pdf?1631608521. Figure 1: Five Criteria for Successful Mandatory Disclosure Requirements 1 Environmental integrity, addressing sustainability-related financial disclosures as well as impact on people and planet, The policy is designed to advance the environmental agenda and is designed to lead to real change that impacts people and the with a holistic environmental approach planet positively. 2 Ensure compatibility of If not based on existing internationally agreed disclosure standards required standards, the policy needs to be aligned with or recommended them. If national standards are developed, these need to be compatible with international ones. 3 Provide an enforcement system The policy implementation should be monitored by the relevant government authority, and effective measures for noncompliance should be in place. 4 Adhere to technical quality and content of To meet this criterion, reporting should focus not the reporting process only on risks but also on strategy, impact, sector focus, comparability of disclosures, reliability, and accuracy. It should require forward-looking information to allow transition. 5 Allow space for innovation and more The regulation should not form a ceiling and mature disclosure create a tick box exercise but serve as a floor/ minimum requirement that stimulates even more ambitious, broader, and deeper disclosure and action. Source: CDP. 2021 “Shaping High-Quality Mandatory Disclosure: Taking stock and Building upon the TCFD Recommendations.” London: CDP Analysis of Best Practices in Environmental Disclosure Policies 2 © 2022 International Finance Corporation. All rights reserved. 2121 Pennsylvania Avenue, NW Washington, DC 20433 USA Internet: www.ifc.org The material in this work is copyrighted by IFC, a member of the World Bank Group (WBG). Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. IFC encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly, and when the reproduction is for educational and non-commercial purposes, without a fee, subject to such attributions and notices as IFC may reasonably require. 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