Requirements for adequate transparency and disclosure have the purpose of creating a better data and information basis for the decisions of financial and real-economic actors and thus, ultimately have a steering effect on investments and financing. A good data basis is essential for the assessment of investments and financing at the individual company and portfolio level with regards to the consideration of sustainability risks (but also opportunities) and the achievement of long-term sustainability goals. Further to this, it is also getting more relevant for risk assessments along the established risk types, giving more consideration to sustainability risks, including climate-related risks.
In many large companies in the real and financial economy, sustainability reporting and the disclosure of sustainability information is common practice. Many companies collect sustainability indicators at a good qualitative level and explain how they manage them while taking sustainability risks into account and achieving the sustainability goals they have set themselves.
However, due to the different quality levels of disclosure, there is a need for action regarding transparent, comparable and reliable sustainability reporting and with regards to the effects of the company’s activities on social and ecological aspects. In addition to questions of availability and comparability, the materiality of the information is particularly important, as the sustainability information currently provided does not necessarily meet the information needs of wider stakeholder groups. In addition to financial-market players, consumers, representatives of civil society and the scientific community seek for more meaningful information about companies. To this end, transparency and disclosure improve, not only the understanding of the nature of business, business results and the current and future state of the company, but also increasingly, the social and environmental impact of its economic activities.
Considering these enhanced information needs, there have indeed been many initiatives in recent years to further develop disclosures and transparency. In addition to the IIRC Framework for Integrated Reporting, and the EU Directive on non-financial reporting for companies, the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) are particularly noteworthy, as this private-sector initiative focuses on the need for comparable reporting of climate-related medium and long-term risks. The application of the TCFD recommendations should enable companies and investors to better quantify the financial impact of climate change on their business model and to more adequately assess the resilience of their business strategy.
Sustainability is increasingly understood as essential for all economic activities, product categories and financing. Transparency and disclosures are an indispensable basis for methodologically sound and thus comparable measurement of the sustainability performance of companies or financial products. It is also a prerequisite to assess the social and ecological added value of investments with a view to achieving the SDGs and the Paris climate targets.