Climate disclosure standards body looks at corporate stranded assets reporting

The Climate Disclosure Standards Board (CDSB), the consortium of business and environmental organizations formed at the World Economic Forum in 2007, is working on a proposal to get companies to report on how they address carbon stranded asset risks in the latest development to bring ‘stranded assets’ further up the agenda.

The move is part of a revision being considered to the CDSB’s climate reporting framework that was introduced in 2010 and follows on the heels of ExxonMobil, to an extent, reporting on the issue at the request of investors.

The revision is being put out to consultation, with a discussion paper looking at why what are termed ‘Carbon Asset Stranding Risks (CASRs)’ are “almost invisible in corporate reports”. Responses to the paper will feed into ‘version 2.0’ of the CDSB framework.

The CDSB – whose secretariat is hosted by the investor-backed CDP [the former Carbon Disclosure Project] – is proposing both amendments to existing legislation and new requirements to reporting laws, standards and practices. The consultation starts today (April 29) and runs to May 28.

“These changes are designed to encourage companies to account for and report in a way that enables investors and other users of mainstream corporate reports to identify, assess and respond to CASRs,” the London-based body said, adding there are “clear signals” that investors are starting to recognize CASRs through divestment practice.

The CDSB, which works with the Carbon Tracker Initiative whose work has put the stranded assets concept on the map, likens the current situation to the off-balance sheet/lack of transparency factors that contributed in part to the recent financial crisis.“Carbon Tracker’s work warns of similar crises brewing if CASRs continue to be invisible or obscured by lack of disclosure,” the document states. Thus, preserving the status quo whereby fossil fuel energy resources are sought, invested in, valued and listed on stock exchanges “threatens not just environmental, but financial disaster”.

“It is time for reporting standards to be updated to require disclosures relating to the potential risks from carbon assets becoming stranded,” said CDSB Executive Director Lois Guthrie.

The CDSB’s member bodies include the CDP, Ceres, the Climate Group, the Climate Registry, the International Emissions Trading Association, the World Council for Business and Sustainable Development, the World Economic Forum and the World Resources Institute.

Its Advisory Committee includes figures such as Jim Rogers, the former chairman of Duke Energy, Marlys Appleton, vice president at AIG Investments, Nathan Fabian, CEO of the Investor Group on Climate Change, Stephanie Pfeifer CEO at the Institutional Investor Group on Climate Change and Tobias Puhlmann, Principal Advisor on Energy and Climate Change at Rio Tinto. A technical working group is drawn from academia, the accounting profession and corporates. The CDSB is stressing that the paper represents the work of its secretariat and not necessarily the views of its board or technical working group.

Summary of proposals
1. Identify the most effective intervention points
2. Agree on language for classifying/communicating fossil fuel resources
3. Define the scope to provide a complete picture of risk beyond the balance sheet
4. Content and structure of reporting
5. Impairment testing
6. Disclosure in the notes and sensitivity analysis
7. Support and adopt relevant complementary activity