Accounting Financial Theory Report: Climate Change Risk Disclosure

This report, prepared for the CEO of an Australian listed company, addresses environmental and climate change risk reporting. It begins with an introduction highlighting the importance of voluntary sustainability and environmental reporting, particularly in light of increasing environmental concerns. The report focuses on the Carbon Disclosure Project (CDP) as a voluntary reporting framework, explaining its purpose, operational areas (Climate, Water, Forests), and how it helps companies manage environmental impacts. The report details how CDP addresses disclosure limitations related to environmental aspects, enabling companies to measure and disclose GHG emissions, implement internal carbon pricing, and develop emission reduction targets. It also contrasts Integrated Reporting (IR) with GRI Sustainability Reporting, highlighting their conceptual differences and distinct focuses on stakeholders, time horizons, and materiality. The report concludes by emphasizing the crucial differences between the two reporting frameworks, which companies must consider when adopting them. The report is a comprehensive analysis of environmental reporting frameworks and their implications for corporate strategy and investor relations.

Running head: ACCOUNTING FINANCIAL THEORY REPORT
Accounting Financial Theory Report
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Introduction......................................................................................................................................2
Explanation of CDP.........................................................................................................................2
Integrated Reporting vs. GRI Sustainability Reporting...................................................................4
References........................................................................................................................................6

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Introduction
Voluntary sustainability and environmental reporting has become a crucial success factor
for the companies all over the world due to the increase in certain environmental issues like
change in climate and others (Steyn 2014). It puts the obligation on the listed companies to under
any mechanism of voluntary reporting for the disclosure of non-financial information on
different sustainability, environmental and governance aspects. Companies can select the
appropriate voluntary reporting framework based on their sustainability needs (Matisoff, Noonan
and O'Brien 2013). Some of the widely used voluntary reporting frameworks all over the world
are Carbon Disclosure Project (CDP), Sustainability Reporting by the Global Reporting
Initiatives, Sustainability Accounting Standards Board (SASB) and others. For the purpose of
this report, CDP is taken into consideration for addressing the disclosure limitation related to
environmental aspects. The second part shows the conceptual differences between GRI
sustainability reporting and Integrated Reporting (IR).
Explanation of CDP
CDP is a not-for-profit charity that the environmental stakeholders and invested launched
in the year of 2000. It works with the companies, investors, cities, states and regions for
managing the environmental impacts by improving environmental data disclosure (cdp.net
2019). Three main working areas of CDP are Climate, Water and Forests. The framework of
CDP takes into consideration the effects of climate change along with carbon disclosure. The
vision of CDP is to develop a thriving economy that works people and planer for long-term. In
order to achieve this, this framework focuses on the investors, companies and cities in order to
take urgent action for building a truly sustainable economy through measuring as well as

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understanding their environmental impact (cdp.net 2019). CDP runs a global disclosure system
enabling the firms, cities, states and regions to take into consideration the impact of their
operations on the environment. Over the period of last fifteen years, CDP has been able in
developing a system that has contributed towards effective engagement with the environmental
issues between the investors, firms, cities, states and regions. The database of CDP enables the
firms in connecting environmental integrity, fiduciary duty and public interest for making better
decisions on different actions related to climate (cdp.net 2019).
It needs to be mentioned that the components of CDP framework play a crucial role in
addressing the disclosure limitation of the company’s annual report and corporate governance
statement related to environmental and climate change issues (cdp.net 2019). The adoption of
CDP helps the companies in measuring and disclosing certain environmental aspects like
complete GHG accounting, transparent reporting on GHG emission and implementation of an
internal carbon price for further reduction in emission (cdp.net 2019). At the same time, CDP
helps the companies in providing definition as well as implementation of scientifically effective
target for emission reduction and preparing strategies for the firms to transition to a lower carbon
economy. Moreover, companies can get support from procurement of renewable energies,
reduction of risk in the supply chain and financing different climate actions (Depoers, Jeanjean
and Jérôme 2016). Through the adoption of CDP, companies become able in proactively
showing to their investors that they are committed to handle the climate change related risks and
they can reassure the investors that they are able in adapting the risks and opportunities occurring
from climate change through the disclosure of strategies and leadership demonstration. Lastly,
companies, through responding CDP, understand the best practices in addressing the climate
change issue in their annual report (Depoers, Jeanjean and Jérôme 2016).

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Integrated Reporting vs. GRI Sustainability Reporting
It needs to be mentioned that there are certain conceptual differences between Integrated
Reporting and Sustainability Reporting and these are discussed below.
Sustainability Reporting is all about the communication of a firm’s approach in
managing its major environmental and social issues. More specifically, it involves in
communicating publicly on how the firms evaluates which are the environmental as well as
social issues most important to them, how these issues can be managed and the company’s
current performance against these key issues (globalreporting.org 2019). However, Integrated
Reporting is considered as one step further of Sustainability Reporting because it sheds light on
how the firm manages its process of long-term value creation through adapting an integrated
approach to both these sustainability risks and traditional risks. Instead of reporting on
sustainability performance and financial performance on separate basis, the intention of
Integrated Reporting is to demonstrate how it is integrating environmental and social thinking
into the business (integratedreporting.org 2019). For example, an integrated report goes ahead of
financial, environmental, employee and social data for demonstrating how the firm is integrating
these wider risks as well as opportunities into its long-term strategy, into risk management
framework, into the policies and procedures of operations and the tradeoffs among these issues.
Sustainability Reporting is aimed at certain specific stakeholders like customers,
employees, general communities, business suppliers and investors, but Integrated Reporting is
aimed at stakeholders like equity investors, stockbrokers and debt providers (iasplus.com 2019).
Moreover, Sustainability Reporting takes into consideration the past, present and future aspects
while Integrated Reporting only considers near and far future that is long-term. Difference is
there between these two reporting frameworks related to materiality. Sustainability Reporting

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materiality can be considered as a relevance filter that assists in deciding whether the company
should include the information based on its adequate importance to the different interest of users
of the report (iasplus.com 2019). On the other hand, Integrated Reporting materiality can be
considered as a relevance filter that assists a firm in deciding whether it should include
information on the basis of whether it can create positive influence on the finance capital
providers or keep the capital in the organization for short, medium and long term (iasplus.com
2019). Thus, it can be seen from the above discussion that both Sustainability Reporting and
Integrated Reporting have certain crucial differences that the companies are needed to consider
while adopting these frameworks.

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References
Cdp.net. 2019. About us - CDP . [online] Available at: https://www.cdp.net/en/info/about-us
[Accessed 4 May 2019].
Cdp.net. 2019. Companies - CDP . [online] Available at: https://www.cdp.net/en/companies
[Accessed 4 May 2019].
Depoers, F., Jeanjean, T. and Jérôme, T., 2016. Voluntary disclosure of greenhouse gas
emissions: Contrasting the carbon disclosure project and corporate reports. Journal of Business
Ethics, 134(3), pp.445-461.
Globalreporting.org. 2019. Sustainability Reporting . [online] Available at:
https://www.globalreporting.org/information/sustainability-reporting/Pages/default.aspx
[Accessed 4 May 2019].
Iasplus.com. 2019. Sustainability reporting and integrated reporting. [online] Available at:
https://www.iasplus.com/en-gb/resources/sustainability-en-gb/sustainability [Accessed 4 May
2019].
Integratedreporting.org. 2019. What? The tool for better reporting | Integrated Reporting.
[online] Available at: https://integratedreporting.org/what-the-tool-for-better-reporting/
[Accessed 4 May 2019].
Matisoff, D.C., Noonan, D.S. and O'Brien, J.J., 2013. Convergence in environmental reporting:
assessing the Carbon Disclosure Project. Business Strategy and the Environment, 22(5), pp.285-
305.

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Steyn, M., 2014. Organisational benefits and implementation challenges of mandatory integrated
reporting: perspectives of senior executives at South African listed companies. Sustainability
Accounting, Management and Policy Journal, 5(4), pp.476-503.