CLIMATE GOVERNANCE PAPERS Climate-Related Financial Disclosures Thematic Module in the Integrated State-Owned Enterprises Framework (iSOEF) June 2022 © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Contents List of Figures iii List of Tables iii Acknowledgements iv Preface v 1. Introduction to the Diagnostic Matrix 1 Why Should SOE Regulators and SOEs Focus on Climate Change? 1 Why a Diagnostic Matrix? 2 Why a Separate Thematic Module? 2 The Basis of the Thematic Module 4 2. iSOEF Thematic Module: SOE Climate-Related Financial Disclosures 7 Introduction of the iSOEF Thematic Module 7 Step 1. Conducting a Preparatory Desk Review 8 Step 2. Adapting and Distributing Questionnaires for Assessing Legal Adoption and Implementation in the Jurisdiction 9 Step 3. Interviewing Key Counterparts and Holding Focus Group Discussions 28 Step 4. Reviewing Additional Documents and Validating Information 29 Step 5. Summarizing the Results and Writing the Assessment Report 29 Post-Report 29 Notes 36 Appendix 1: Report Outline 33 Figures Figure 1. World Bank iSOEF Framework Illustration (As Illustrated by the iSOEF Overview Document) 3 Figure 2. Elements of the TCFD Climate-Related Financial Disclosure Recommendations 8 Tables Table 1. iSOEF Module 4: Corporate Governance and Accountability Mechanisms 4 Table 2. Consideration and Comparison of the Basis for the iSOEF Thematic Module 5 Table 3. Guidelines for Assessing Individual SOE Alignment and Developing Pathways for Further Harmonization 30 Acknowledgements The Climate-Related Financial Disclosures diagnostic matrix for state-owned enterprises (SOEs) was developed by the World Bank in partnership with the International Federation of Accountants (IFAC), the Integrated Reporting Council (IIRC), and the Carbon Disclosure Standards Board (CDSB). The diagnostic matrix was based on the Climate-Related Financial Disclosures for State-Owned Enterprises Toolkit developed for shareholder departments and regulators to support SOEs in addressing and reporting on climate change as part of their operations. The Toolkit was informed by the recommendations and related guidance documents of the Task Force on Climate-Related Financial Disclosures (TCFD). In this regard, the team acknowledges the TCFD. The diagnostic matrix was prepared by a team that comprised of Karin Ireton (Lead consultant), Gabriella Kusz (consultant), Monika Kumar (Environmental Specialist), Kjetil Hansen (Senior Public Sector Specialist, Co-Task Team leader), and Patrick Kabuya (Senior Governance Specialist, Co-Task Team Leader). The diagnostic matrix benefited immensely from the comments and suggestions of the peer reviewers, including Henri Fortin (Lead Financial Management Specialist), Fiona Elizabeth Stewart (Lead Financial Sector Specialist), Stephane Hallegatte (Lead Economist), Gemma Clements (CDSB), and Natalie Manuilova (Senior Governance Specialist). The team gratefully acknowledges Stathis Gould (Director of Advocacy, IFAC), Jonathan Labrey (Chief Strategy Officer, IIRC), Gemma Clements (Capacity Building and Engagement Manager, CDSB), Adrian Fozzard (Practice Manager for the Latin America and the Caribbean Region, Governance Global Practice), and Nicholas Menzies (Senior Governance Specialist) for their guidance and support. Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note iv Preface It has become increasingly clear that state-owned enterprises (SOEs) should consider climate change in their operations and investments. As part of this change, SOEs should take appropriate actions to maximize the opportunities and manage the risks involved and also disclose their climate change adaptation and mitigation strategies and actions and their financial impacts. To inform countries on how they can best require and support SOEs on this important issue, climate change–related considerations should be included in the World Bank’s integrated state-owned enterprises framework (iSOEF) assessment. Therefore, this diagnostic matrix proposes the inclusion of a new thematic module to the existing iSOEF to help evaluators gain insight into the degree of legal or regulatory motivation within SOEs to integrate climate change into their management practice and adopt climate-related financial disclosure. They will also be able to assess the extent to which climate-related financial disclosure has been implemented in practice throughout a given jurisdiction’s SOE sector. The current iSOEF provides guidance on assessing SOE performance in an economy. This includes the rationale for SOEs and their economic outcomes, operational efficiency, and corporate governance, as well as effective government oversights on these enterprises and options for reforming the sector. The iSOEF takes a modular approach, allowing for a flexible application according to the specific country context and development needs. Modules 1–4 address the role of SOEs in the market, their fiscal and distributional implications, and their corporate governance and accountability mechanisms. Module 5 takes a sectoral perspective, focusing on state-owned financial institutions. Finally, three thematic modules address cross-cutting factors, such as corruption risks, political economy considerations, and communication strategies. Each module contains additional analytical tools, matrices, questionnaires, key indicators, and other analytical instruments to be used for diagnostics and assessment. This diagnostic matrix proposes the inclusion of (i) a new thematic module in the iSOEF to facilitate an assessment and consideration of climate-related management and financial disclosure, and (ii) a question on climate-related financial disclosures under Module 4: Financial Accountability, Controls, and Transparency, or “non-financial reporting.”. This latter question is appropriate to indicate the scope of the non-financial reporting concept and to ensure that the iSOEF is adequately addressing it in both theory and practice. This diagnostic matrix is structured as follows. Chapter 1 sets the scene on why SOE regulators and SOEs should focus on climate change, why a diagnostic matrix is essential, and why a separate thematic module. Chapter 2 sets out the iSOEF Thematic Module on SOE Climate- Related Financial Disclosures, articulating the specific assessment steps. Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note v 01 Introduction to the Why Should SOE Regulators and SOEs Diagnostic Matrix Focus on Climate Change? Although there are many pressures and priorities facing SOEs, oversight agencies and regulators have identified climate change as a critical area of focus. The overarching goal is to improve management of climate-related risks and increase the relevant disclosure of climate-related financial risks and opportunities, which is in line with the World Bank’s climate strategy. SOEs play a strategic role in the provision of essential public services in many countries and should therefore have an instrumental role in assisting governments in meeting their mandates for climate change risk management and the reduction of carbon emissions. Further, SOEs manage significant infrastructure and assets and provide essential services that could be negatively impacted by climate change, with potentially substantial resultant impacts on countries’ ability to provide services to their populations or to earn revenues and taxes from those enterprises. Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 1 In view of these concerns, there is increased Why a Diagnostic Matrix? recognition by shareholder departments and regulators that SOEs need to take appropriate action to maximize these opportunities and manage the The purpose of this diagnostic matrix is to enable risks. Therefore, regulators need to ensure that SOEs World Bank governance teams and SOE regulators to consider environmental and climate-related matters assess the current status of climate change-related in their governance, strategy, risk management, and management and disclosure within SOEs. Based on reports—in other words, that they fully disclose material these assessments, the teams can propose structured climate-related financial risks and opportunities. Among recommendations and the use of the Climate-Related other beneficial outcomes, SOE efforts to take these Financial Disclosures for State-Owned Enterprises Toolkit measures will contribute to their governments’ ability to for shareholders and regulators, which will support rapid meet their commitments to the Paris Climate Change uptake of and growing proficiency in the emerging norms Agreement and also help them to attract better financing and standards of good climate management practice and more investors, given the currently increased focus and disclosure. Internationally, disclosure is used to on environmental and social governance (ESG) among assess the management of ESG and climate-related private investors and banks. issues, as the disclosures must be based on underlying management procedures, methodologies, and protocols The conclusion therefore is that regulators should and enable insight into a comparable basis among SOEs. require, or at the very least encourage, SOEs to take appropriate actions to identify and manage climate- related risks and maximize opportunities to address Why a Separate Thematic Module? them. This would entail creating climate mitigation and adaptation strategies to reduce their impact on climate change and to adapt to the climatic changes that are now Although there is an urgent need to address the unavoidable. SOEs should also consider whether their challenges faced by climate change, there is also a governance models, strategies, risks and opportunities, need to balance the focus areas of the iSOEF and and performance metrics and targets, facilitate the to ensure a measure of climate-related financial actions needed to protect their businesses and the disclosure within the broader subject of non- services they deliver. financial reporting. The decision to create a separate thematic module on the subject of climate-related The proposed thematic module is inherently linked financial disclosure is strongly motivated by the lack of to the Climate-Related Financial Disclosures for established standards, tools, and academic literature. State-Owned Enterprises Toolkit (the Toolkit) It therefore provides assessors with the opportunity to created as part of this project. The training, case delve further into to the topic and, rather than simply studies, and educational materials provided in the provide a high-level diagnostic, to offer some concrete Toolkit offer SOEs the inputs they need to enhance operational recommendations for strengthening climate their performance in the area of climate-related financial aspects in the regulation of SOEs. Further, it encourages disclosure. After undertaking this iSOEF assessment, the allocation of adequate attention as well as resources regulators and SOEs will be better prepared to adopt and and measurement to this crucial subject without tipping implement global standards and good practices in this the balance of focus away from other core aspects of thematic area. non-financial reporting. As climate-related financial disclosure is a priority and climate change is a key area of focus, through this separate module, assessors and client countries can have access to a high-quality methodology and tools in a manner and system aligned with the iSOEF, as shown in figure 1 below. Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 2 Figure 1. World Bank iSOEF Framework Illustration (As Illustrated by the iSOEF Overview Document) SOE Landscape Corporate governance SOE and Fiscal Distributional and the market impacts impacts accountability mechanisms Political Communication Economy State-owned financial institutions Sector- specific Other sectors (to come) or special themes Anti-corruption and integrity Context Source: iSOEF overview document. In addition to inclusion as a supplementary thematic market performance (list), goal achievement (list), module (sector specific or special themes), Module innovation (list), employee involvement (list), climate/ 4 (depicted on the following page in table 1) should environmental impact (list), other (list).” ensure inclusion of the following questions as part of its assessment of non-financial reporting. • (Additional question after Question #263) “Within the jurisdiction, how aware are SOEs • (Additional question after Question #100, but of their environmental impact and climate before Question #101) “Are SOEs legally required change orientation?” to include climate-related risks as part of their non- financial reporting? (Application by SOEs may be In this manner, the urgency of climate change and the mentioned specifically by law or generally meant to necessity of reporting its financial impacts would be apply to SOEs.)” conveyed while balanced in accordance with the other elements of non-financial reporting and, more broadly • (Addition to Question #170 highlighted in red) speaking, corporate governance and ESG. “NON-FINANCIAL: customer service (list), Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 3 Table 1. iSOEF Module 4: Corporate Governance and Accountability Mechanisms Dimension Key Issues Legal and Regulatory • SOE legal framework lacks coherence Framework • Legal form of SOEs is not adequate • SOEs enjoy exemptions from laws and regulations The State as Owner • Ownership is scattered across many government agencies • Transitioning to centralized ownership is challenging • Ownership entity lacks capacity and authority • Aggregate reporting is weak to non-existent Performance Management • Overarching mandates, roles, and objectives of SOEs are not clear • SOEs lack a modern performance management system • Key performance indicators are too numerous, of uneven quality, or too narrowly focused • The process of negotiating performance agreements is not well defined Boards of Directors • Board composition is not balanced • Board nomination process is unclear or informal • Board is not sufficiently autonomous to fulfill its role • Board is not efficient • Conflicts of interest are not adequately managed Financial Accountability, • Financial statements are of poor quality Controls, and Transparency • Financial reporting suffers long delays • Financial statements are not accessible by the public • External auditors issue reports with qualified opinions • The external audit lacks independence or effectiveness • Internal controls are weak • Non-financial reporting is weak to non-existent Procurement • Onerous public procurement rules hamper SOEs’ ability to compete • The absence of a sound procurement framework heightens the risks of inefficiencies, market distortions, or corruption • Controls over procurement activities at the SOE level are weak Source: Prepared by World Bank team. The Basis of the Thematic Module • International Integrated Reporting Council (IIRC) Framework • Global Reporting Initiative (GRI) Standards • Financial Stability Board (FSB) Task Force on Through the course of desk research, discussions Climate-Related Financial Disclosures (TCFD) with World Bank Group staff, and interviews with • Climate Disclosure Standards Board (CDSB) SOEs, SOE regulators, and others, the consultants Framework have explored the use of various standards and • Sustainability Accounting Standards Board (SASB) options upon which to base the assessment and Standards questionnaire. Models examined include: Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 4 Global consensus and acceptance, as well as the that could be applied to both the public and private degree of rigor and credibility of the standards sectors, it was decided to move forward with the FSB’s to be applied, were considered in selecting the TCFD-recommended disclosures as the basis of the basis of the assessment. Additionally, in an effort assessment. A visual representation of the evaluation is to not create something new but rather to draw upon presented below in table 2. independently and internationally established standards Table 2. Consideration and Comparison of the Basis for the iSOEF Thematic Module Government Emphasis on Standards International Acceptance Involvement/Support Climate Disclosure IIRC Moderate Moderate Moderate GRI Moderate Moderate High TCFD High High High CDSB Moderate Moderate High SASB Moderate Moderate Moderate Source: Assessment by G Kusz and K Ireton. Unlike other standards and standard-setting bodies, due to the strong likelihood that it will be included in future the TCFD is established by the FSB, an international standards development and evolution in this space. body that monitors and makes recommendations on the global financial system. Its membership The selection of TCFD is further supported by the fact consists of key members of the G20 and all the main that the International Financial Reporting Standards international organizations and central banks, including (IFRS) Foundation has established an International the International Monetary Fund, World Bank, Bank for Sustainability Standards Board that will develop International Settlements, Organization for Economic Co- global sustainability disclosure standards. Prototype operation and Development (OECD), European Central climate and ESG disclosure standards were issued in Bank (ECB), ECB Banking Supervision, European November 2021 and will be followed in 2022 by formal Commission, Basel Committee on Banking Supervision, draft standards. The TCFD recommendations have been International Association of Insurance Supervisors , incorporated into these drafts. International Organization of Securities Commissions, International Accounting Standards Board, Committee To ensure that the thematic module maintains global on the Global Financial System, and the Committee relevance, it will be evaluated and revised regularly on Payments and Market Infrastructures. Given the to incorporate evolving developments on climate expansiveness of international participation in and change and sustainability reporting, reforms being support for the FSB and thereby the TCFD, as well as championed by the IFRS Foundation to harmonize the degree of involvement and support for the FSB by the sustainability reporting across the board. World Bank Group and other international organizations, these standards were selected for use as the foundation Although there are differences between SOEs and of the iSOEF module. private sector firms, it should be noted that this module has sought to maintain equivalency in Although the field of sustainability reporting and the non-financial reporting requirements that are climate-related financial disclosure is evolving, the applicable to both SOEs and other firms. As such, utilization of the TCFD has important staying power. the module has not reduced the scope or nature of the In addition to the reasons outlined above, the TCFD has TCFD guidance used as the basis of this assessment. been selected as the basis of assessment for this module This equivalency has been maintained to ensure that Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 5 regardless of state ownership, SOEs should operate to achieve their higher-order objective of mitigating with the same level of reporting and disclosure as their climate change. Given the grave state of the climate non-state peers. Furthermore, the application of TCFD, crisis and the urgency in addressing it, the World Bank along with consistency between SOE and private believes that this level of equivalency is warranted. sector firm reporting, advances the global objective of harmonization and the creation of a single set of broadly To appropriately apply the iSOEF thematic module, applicable non-financial reporting standards. Finally, as it is important to understand the theoretical SOEs are often located in network sectors that heavily underpinning of the TCFD recommendations. The impact carbon emissions and climate change, such as underlying requirement is that climate-related financial transport, energy, water, and extractives, there is an disclosure reports contain information on four core important imperative that they advance climate-related elements: organizational governance, strategy, risk financial disclosure at the same level as private sector management, and the use of metrics and targets. These peer companies. Holding SOEs to the same standard of are explained in further detail in the below graphic. reporting and disclosure as non-SOEs will help countries Figure 2. Elements of the TCFD Climate-Related Financial Disclosure Recommendations1 1 Governance How the organization will be structured to address climate-related risks and opportunities, 2 Strategy An analysis of the actual and potential impacts of climate-related physical and transitional and how the leadership will provide oversight. risks and opportunities on the organization’s Name committees and accountable executives; businesses, strategy, and financial planning; assess capability of board to provide oversight consider impacts on income statement, on this issue. balance sheet, and borrowing. Test the strategy against different scenarios. Elements of Disclosure 4 Metrics and Targets The metrics and targets used to assess and manage relevant climate-related risks and Risk Management 3 Describe the processes used to identify, assess, and manage physical and transition opportunities; many organizations begin with risks. Identify opportunities for new commercial disclosing Scope 1 (emissions generated in solutions. Test the risk framework for longer-term the process of conducting the business) and 2 risks, including the need for new infrastructure, emissions (from purchased electricity). or assets that become obsolete early due to changing climate, technology, or markets. Source: Adapted from TCFD final recommendations. Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 6 02 iSOEF Thematic Module: Introduction of the iSOEF SOE Climate-Related Thematic Module Financial Disclosures Non-financial reporting as it concerns climate- related financial disclosures is a growing practice and expectation among public interest entities. The disclosure serves as a reassurance that the issues are being managed, and the disclosure templates provide a proxy for a management checklist. In the case of SOEs, the regulators in question may not yet require disclosure of this element of non-financial reporting. In such instances, the Climate Related Financial Disclosures for State Owned Enterprises Toolkit (the Toolkit) may be of particular use as a jurisdiction seeks to acquaint itself with the concepts involved in climate-related financial disclosure, as it is an excellent means of assessing management practice in this area and the disclosure framework enables the regulator and the SOE to quickly grasp the fundamentals of growing international practice. Additionally, the assessment team may opt to utilize the portion of this module that assesses voluntary implementation (Component II) among SOEs to understand the degree to which disclosure may happen outside of formal requirements. It may also use the entirety of this module (Components I and II) as a framework for discussion with country counterparts in cases where there is neither the legal adoption of a requirement nor voluntary implementation in the SOE sector. Moreover, the questionnaires themselves may be utilized as one input in the design of jurisdictional roadmaps for strengthening climate-related financial disclosure among SOEs. Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 7 This optional thematic module should be used to SOE diagnostics, country climate and development help assess and identify the level of alignment of reports, country climate institutional assessments, and a country’s SOE sector with the internationally project appraisal documents). In the first instance, this developed and globally accepted FSB TCFD step allows the team to acquaint itself with the country recommendations. The key counterpart and recipient context and to understand the broader economic, of this assessment module is the jurisdiction’s SOE environmental, and SOE landscape of the jurisdiction. It oversight agency and regulator(s). As appropriate, early also allows the team to: (i) gain an initial understanding and frequent engagement with essential counterparts will of the key issues; (ii) adapt an approach to assessing be crucial to a successful assessment, the development the institutional framework in the specific country context; of recommendations, and preparation of the final report. (iii) identify important counterparts to help conduct The following questionnaire is meant to be provided to the the assessment (for example, line ministries, sector jurisdiction’s SOE oversight agency and regulator(s) to regulators, stock exchanges, capital markets regulators, evaluate the level of alignment. However, as the concept SOE regulators, or environmental agencies to the extent of mandatory requirements to manage climate-related that these play a role in the climate-related financial issues and provide climate related financial disclosures disclosure of SOEs); and (iv) determine which SOEs to is still evolving, this questionnaire has been designed focus on in the diagnostic to assess actual practices and as a tool not only for evaluation, but also for education, the degree to which climate related financial disclosure prioritization, and strategic planning. Through thoughtful requirements are applied effectively. The team should national reflection and discussion, regulators and other also familiarize itself with the climate action plans and key stakeholders can work together to strengthen the targets of the country and/or sector. Country plans level of transparency and accountability with regard to are typically spelled out in policy documents and as SOEs’ impact on climate change. Nationally Determined Contributions filed with the UN Framework Convention on Climate Change. Similar to other Modules undertaken as part of the World Bank iSOEF, this assessment is comprised of five In order to make this module accessible, it key steps: is recommended, though not required, that a sustainability professional be included on the • Step 1: Conducting a Preparatory Desk Review assessment team. Given the emerging nature of • Step 2: Adapting and Distributing Questionnaires for climate related financial disclosure, this module has Assessing Legal Adoption and Implementation in been designed to be applicable either by sustainability the Jurisdiction reporting or by climate professionals or World Bank • Step 3: Interviewing Key Counterparts and Holding staff/consultants. A sustainability reporting or climate Focus Group Discussions professional can offer views on any gaps that exist, issues • Step 4: Reviewing Additional Documents and that may arise in practice, or other limitations related Validating Information to the country context. This expert may also possess • Step 5: Summarizing the Results and Writing the knowledge about the global context and emerging trends Assessment Report and other issues in climate-related financial disclosure. A review of the questions included in the STEP 1. Conducting a Preparatory questionnaires is recommended for each dimension Desk Review to be assessed. Some questions may need to be adapted to the country context and to specific circumstances. For example, depending on the ownership model At the scoping stage, before conducting the main field (centralized, decentralized, or other) implemented in the mission, the team will need to collect relevant reports country, the team may want to revise or add questions and information from public sources. These sources to better capture the information required. Similarly, could include government or SOE websites, information depending on the degree of legal adoption, the team from counterpart agencies (such as SOE ownership may wish to utilize only the questionnaire associated with entities or the finance or environment ministries), and Component II: Implementation to understand the degree relevant World Bank documents (for example, systematic of voluntary application of climate-related financial country diagnostics, country partnership frameworks, disclosure in cases where SOE climate reporting is not public expenditure reviews, economic memorandums, explicitly mandated by law. Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 8 Based on the available information, the team could four alternative approaches could be considered in decide how many and which individual SOEs to include completing the questionnaire: (i) filling in a part of it as part of the Component II assessment. through the desk review and requesting confirmation; (ii) asking technical counterparts to fill it in (for example, the relevant line ministry); (iii) hiring a consultant to STEP 2. Adapting and Distributing fill it in based on his/her expertise and/or counterpart Questionnaires for Assessing Legal inputs; or (iv) completing it during the main due diligence Adoption and Implementation in mission on the basis of the team’s interviews with key counterparts. Furthermore, the assistance of local legal the Jurisdiction experts may be sought. Meetings and group discussions during the mission would then be used as an opportunity to fill in remaining gaps, clarify questions, and follow up This step is comprised of two component on issues of common interest. questionnaires: Component I, which enables an assessment of the degree of legal adoption of the As is explained in further detail under the section requirements for SOE disclosure of climate-related on Component II: Implementation, separate financial information, and Component II, the degree of questionnaires should be completed for individual actual implementation of legal requirements or the extent SOEs that are from a variety of sectors and that of voluntary public disclosures. have been identified by the team as important to include in the diagnostic. The team should arrange Each of these two components has questions for the survey’s translation into the local language(s) organized around the four core elements of and should send it to the respective SOEs prior to the TCFD financial disclosure—governance, strategy, meetings with key counterparts. In coordination with the risk management, and metrics and targets. The relevant government counterparts, the World Bank team questions have been drawn directly from the 2017 should identify a sample of at least five–ten SOEs to TCFD recommendations. In addition, where appropriate, complete the questionnaire that should reflect a diversity sub-questions have been included to obtain additional of enterprises from throughout the jurisdiction’s SOE details and thereby develop a clearer understanding of landscape. In identifying a diverse sample, the World Bank the concept introduced by the overarching question and team and government counterparts should consider the the potential gap between current and desired practice. following characteristics: Finally, the Component I questionnaire includes additional questions to ascertain the degree of regulatory oversight • SOE industry classification (transport, utility, over climate-related financial disclosure by SOEs. extractive, service provision, etc.) • nature of state ownership in the entity (parastatal, Given the emerging nature of legally mandated minority government ownership, etc.) management of climate-related issues and financial • degree of SOE impact on climate change (intensive, disclosure, it is important to note that in answering moderate, or low greenhouse gas [GHG] impact) Component I, it may be that legal requirements apply only to a particular subset of SOEs (e.g., listed SOEs), Given the diversity of jurisdictions and the variation in in which case, the questionnaire and the report should capacity of SOEs to complete this questionnaire across be completed with this subset in mind. Additionally, it jurisdictions (human resources, language capacity, should be noted that Component II Implementation could technical knowledge, etc.), the World Bank team may be utilized independent of Component I in cases where need to utilize other Bank specialists or a third-party a jurisdiction’s SOEs voluntarily manage and disclose contractor to facilitate its completion on behalf of or in such information. This application of the thematic module concert with the leadership of the various SOEs. could provide additional insight on the degree and nature of voluntary disclosure in a given jurisdiction and provide Component I. Legal Adoption Questionnaire input on the need for a legal mandate. Objective: This questionnaire has been designed to If possible, the completed Component I Legal be answered in coordination with the jurisdiction’s Adoption questionnaire should be available to the SOE regulator. Given the emerging nature of legally team for review prior to meetings with counterparts. mandated climate-related financial disclosure, it may Depending on circumstances and in-country capacity, Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 9 be that legal requirements apply to only a particular financial information, the below questionnaire may subset of SOEs or are structured in such a way that be used to facilitate this process. It may be, for legal requirements only indirectly compel SOE entities example, that some jurisdictions intend to introduce (or to manage climate-related risks and provide the related have introduced) regulations requiring SOEs to transition financial disclosures. Emerging regulation has focused over a number of years to full climate-related financial on disclosure. For the SOE the disclosure template then disclosure. In others, there may be a requirement provides the model for what should be addressed in to consider and integrate climate change into the management practice. Examples of such requirements management process but as yet no requirement to are those that specify that climate-related financial disclose that information in a public format. disclosures be made by all listed companies (including listed SOEs) or by all entities in which there are large Finally, in the event that there are no legal public investments (that may be applicable to SOEs). requirements that may either directly or indirectly require SOEs to provide climate-related financial Further, in the event that there are ongoing disclosures, the World Bank team should continue to discussions or draft legislation or requirements Component II: Implementation and assess the degree that would compel all SOEs or some subset of the to which the jurisdiction may have voluntary disclosures SOE sector to manage and disclose climate-related in practice. 1. National Framework # Question Y/N Response/Comments Legal Reference or Source 1.1 Is there any legal framework requiring non-financial or climate- related disclosure in the jurisdiction? 1.1 (a) If yes, describe the specific requirements: who should comply, implementation timelines, etc. 1.1 (b) If yes, is there oversight or review of the disclosures? 1.1 (c) If yes, is there a specific requirement to manage and disclose on climate- related issues in either a non-financial or financial report? 1.2 Are the Nationally Determined Contributions or country climate change strategy, action plans, and targets available to SOEs? Are they part of the management or board terms of reference for SOEs? 1.2 (a) Are there sector-specific targets and action plans applicable to SOEs? Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 10 2. Governance The focus of this section of the iSOEF module is to examine the degree to which there is a legal requirement to disclose the information related to governance of climate-related risks and opportunities within and among the SOE sector. # Question Y/N Response/Comments Legal Reference or Source 2.1 Are SOEs mandated (legally required) to describe and disclose board oversight of climate-related risks and opportunities? 2.1 (a) As part of these disclosures are SOEs required to describe the procedures and frequency by which the board and/or board committees (e.g., audit, risk, or other) are informed about climate-related issues, enabling them to manage SOE-related risks and to address any management gaps? 2.1 (b) As part of these disclosures are SOEs required to create a governance framework and describe (any of) the following aspects: whether the board and/or board committees consider climate-related issues when reviewing and guiding strategy, major plans of action, risk management policies, annual budgets, and business plans and when setting performance objectives, monitoring implementation and performance, and overseeing major capital expenditures, acquisitions, and divestitures? 2.1 (c) As part of these disclosures on SOE management of climate-related risks are SOEs required to set and then describe the goals and targets by which the board monitors and oversees progress on addressing climate-related issues? 2.2 Are SOEs mandated (legally required) to manage climate risk and then describe in their reporting management’s role in assessing and managing climate-related risks and opportunities? 2.2 (a) Are SOEs required to establish and then report on whether they have assigned climate-related responsibilities Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 11 Governance continued # Question Y/N Response/Comments Legal Reference or Source to management-level positions or committees and if so, do such management positions or committees report to the board or a committee of the board and do those responsibilities include assessing and/or managing climate-related issues? 2.2 (b) As part of these disclosures are SOEs required to provide a description of the associated organizational structure(s)? 2.2 (c) As part of these disclosures are SOEs required to describe the procedures by which management is informed about climate-related issues? 2.2 (d) Are SOEs required to monitor and manage climate-related issues by assigning specific responsibilities to positions and/or management committees? 3. Strategy The focus of this section should be to explore the degree to which SOEs have a legal requirement to disclose the actual and potential impacts of climate-related risks and opportunities on their businesses, strategy, and financial planning where such information is material. # Question Y/N Response/Comments Legal Reference or Source 3.1 Are SOEs mandated (legally required) to identify, describe, and disclose the climate-related risks and opportunities that they have identified over the short, medium, and long terms? 3.1 (a) As part of their risk management procedures, are SOEs required to identify and publish a description of the relevant short-, medium-, and long-term time horizons, taking into consideration the useful life of their assets or infrastructure and the fact that climate-related issues often manifest themselves over the medium and longer terms? Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 12 Strategy continued # Question Y/N Response/Comments Legal reference or source 3.1 (b) As part of these management procedures and disclosures are SOEs required to set the specific climate- related issues for each time horizon (short, medium, and long term) that could have a material financial impact on the organization? 3.1 (c) Are SOEs required to provide a description of the management procedure(s) and methodologies used to determine which risks and opportunities could have a material financial impact on the organization? 3.1 (d) Are SOEs required to describe their risks and opportunities by sector and/or geography, as appropriate? 3.2 In their management and governance procedures are SOEs mandated (legally required) to describe and disclose the impact of climate- related risks and opportunities on their businesses, strategy, and financial planning? 3.2 (a) As part of these disclosures are SOEs required to provide information on the impact on their businesses and strategy in (any of) the following areas: • Products and services • Supply chain and/or value chain • Adaptation and mitigation activities • Investment in research and development • Operations (including types of operations and location of facilities) 3.2 (b) Are SOEs required to develop plans on managing climate-related issues as an input to their financial planning process, the time period(s) used, and how these risks and opportunities are prioritized? 3.2 (c) Are SOEs required to develop and provide a holistic picture of the interdependencies among the factors Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 13 Strategy continued # Question Y/N Response/Comments Legal Reference or Source that affect their ability to create value over time? 3.2 (d) Are SOEs required to assess and provide in their disclosures the impact on financial planning in (any of) the following areas: • Operating costs and revenues • Capital expenditures and capital allocation • Acquisitions or divestments • Access to capital If climate-related scenarios were used to inform the organization’s strategy and financial planning, have these also been disclosed? 3.3 Are SOEs mandated (legally required) to prepare plans to build strategic resilience and to describe and disclose those plans, taking into consideration different climate- related scenarios, including a 2°C or lower scenario? 3.3 (a) As part of these disclosures are SOEs required to provide information on (any of) the following areas: • Where they believe their strategies may be affected by climate-related risks and opportunities • How their strategies might change to address such potential risks and opportunities • Any climate-related scenarios and associated time horizon(s) utilized Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 14 4. Risk Management The focus of this section should be to explore the degree to which there is a legal requirement for SOEs to disclose how they identify, assess, and manage climate-related risks.t # Question Y/N Response/Comments Legal Reference or Source 4.1 Are SOEs mandated (legally required) to manage, describe, and disclose their procedures for identifying and assessing climate- related risks? 4.1 (a) Are SOEs required to establish methodologies and provide verifiable information on the procedures for assessing the potential size and scope of identified climate-related risks and on the definitions of risk terminology used or references to existing risk classification frameworks used? 4.2 Are SOEs mandated (legally required) to describe and disclose their procedures for managing climate-related risks? 4.2 (a) As part of these disclosures are SOEs required to provide information on their procedures for managing climate- related risks? • Transition risks • Physical risks • Resource efficiency • Energy source • Products and services • Markets • Resilience 4.3 Are SOEs mandated (legally required) to establish, describe, and disclose how procedures for identifying, assessing, and managing climate-related risks are integrated into their overall risk management? Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 15 5. Metrics and Targets The focus of this section of should be to explore the degree to which there is a legal requirement for SOEs to disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. # Question Y/N Response/Comments Legal Reference or Source 5.1 Are SOEs mandated (legally required) to describe and disclose the metrics they use to assess climate-related risks and opportunities in line with their strategy and risk management process? 5.1 (a) Where material, as part of these disclosures are SOEs required to describe whether and how related performance metrics are incorporated into remuneration policies? 5.1 (b) Are SOEs required to set internal carbon prices (or use an established carbon pricing method, such as a carbon tax) in assessing and disclosing their climate-related opportunity metrics (e.g., revenue from products and services designed for a lower-carbon economy)? 5.1 (c) Where appropriate, are SOEs required to disclose metrics for historical periods to allow for trend analysis? 5.1 (d) Are SOEs required to establish and describe the methodologies used to calculate or estimate climate-related metrics? 5.2 Are SOEs mandated (legally required) to describe and disclose Scope 1, Scope 2, and if appropriate, Scope 3 GHG emissions and the related risks in accordance with the GHG Protocol?2 5.2 (a) Are SOEs required to manage according to related and generally accepted industry-specific GHG efficiency ratios? Are they required to disclose those efficiency ratios? Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 16 Metrics and targets continued # Question Y/N Response/Comments Legal Reference or Source 5.2 (b) As part of these disclosures are SOEs required to provide GHG emissions and associated metrics for historical periods to allow for trend analysis? 5.2 (c) Where not apparent, are SOEs required to provide a description of the methodologies used to calculate or estimate the metrics? 5.3 Are SOEs mandated (legally required) to set, describe, and disclose the targets used to manage climate-related risks and opportunities and performance against targets? 5.3 (a) In describing their targets, are SOEs required to disclose: • Whether the target is absolute or intensity based • The time frames over which the target applies • The base year from which progress is measured • The key performance indicators used to assess progress against targets 5.3 (b) Where not apparent, are SOEs required to provide a description of the methodologies used to calculate targets and measures? Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 17 6. Regulatory Capacity The purpose of this supplemental section is to provide insight and perspective on the capacity of the regulator with regard to management of climate-related issues and disclosure of financial impacts. The information is meant to help the assessment team build a full and complete picture of the regulator’s ability to fulfill its objectives in overseeing compliance with legal and regulatory requirements. # Question Y/N Response/Comments Legal Reference or Source 6.1 The legal or regulatory bod(ies) responsible for overseeing compliance with SOE climate- related financial management and disclosure requirements has adequate financial resources (budgetary allocations) to fulfill this duty. 6.2 The legal or regulatory bod(ies) responsible for overseeing compliance with SOE climate- related management and financial disclosure requirements has adequate human resources (number of staff) to fulfill this duty. 6.2 (a) Salaries provided to staff are sufficient to attract and retain trained and skilled professionals. 6.3 The legal or regulatory bod(ies) responsible for overseeing compliance with SOE climate- related financial management and disclosure has adequate human capacity (experts, skilled or trained staff) to fulfill this duty. 6.3 (a) Staff/representatives have access to regular trainings on climate change, assessments of climate-related financial disclosures, and opportunities to strengthen and maintain up-to-date knowledge and understanding of this thematic area. 6.4 If there are multiple legal or regulatory bodies responsible for overseeing compliance with SOE climate-related management and financial disclosure, is there sufficient coordination and communication among bodies Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 18 Regulatory capacity continued # Question Y/N Response/Comments Legal Reference or Source to reduce duplication/cross- purpose actions and ensure effective regulation? 6.4 (a) Are there memorandums of understanding, reporting lines, formal channels for dialogue, etc., to facilitate coordination and collaboration among multiple bodies with oversight of compliance with SOE climate-related financial disclosure? 6.5 Do the legal or regulatory bod(ies) responsible for overseeing compliance with SOE climate- related management and financial disclosure requirements have sufficient enforcement authority (e.g., fines, sanctions) to effectively compel compliance with climate- related financial disclosures by SOEs? Component II. Implementation Questionnaire the SOE landscape. In identifying a diverse sample, the team and government counterparts should consider the Objective: This questionnaire has been designed following characteristics: to gain insight into the level of implementation of the TCFD recommendations within a jurisdiction’s • SOE industry classification (transport, utility, SOE sector, as these serve as a template for what extractive, service provision, etc.) key stakeholders expect to be both managed • nature of state ownership in the entity (parastatal, and disclosed. This questionnaire may be used in minority government ownership, etc.) combination with that of Component I’s, which assesses • degree of SOE impact on climate change a jurisdiction’s legal and regulatory framework and the (intensive, moderate, or low GHG impact) degree to which the legal requirements have been implemented in practice. Alternatively, given the nature of Given the diversity of jurisdictions and the variation in the evolution of non-financial reporting and the possible the capacity of SOEs to complete this questionnaire high level of voluntary adoption that may be in practice (human resources, language capacity, technical without reference to legal requirements, this questionnaire knowledge, etc.), the Bank team may need to utilize may be used independently to assess more specifically other World Bank specialists or a third-party contractor the degree to which the TCFD recommendations have in to facilitate its completion on behalf of or in concert with fact been applied within a given jurisdiction. the leadership of the various SOEs. Application: As outlined above, in coordination with As such, the questionnaires have been designed to be relevant government counterparts, the World Bank completed either by the staff of the SOEs themselves, team should identify a sample of at least five–ten by World Bank Specialists, or by a third-party contractor SOEs to complete the questionnaire that should (local or international as appropriate). reflect a diversity of enterprises from throughout Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 19 Questionnaire: SOE Implementation of Climate- as any sustainability reports, non-financial reports, or Related Financial Disclosures other information that you provide either publicly (via a website or through a company registry, etc.) or directly to Dear Colleague, a relevant oversight body (e.g., SOE regulator, supreme audit institution [SAI], or other government entity). Thank you for taking the time to complete this questionnaire either as a representative of an SOE Where necessary, third parties responsible for completing selected as part of our jurisdictional sample OR as a this questionnaire may need to follow up through third party on behalf of an SOE selected for inclusion in discussions with representatives of the sample SOE in this sample. order to complete it successfully. To complete this questionnaire, please have with you the most recent copy of your SOE’s annual report as well Contact information/Demographics 1. Please list the name of the individual completing this questionnaire 2. Please list the email of the individual completing this questionnaire 3. Please list the legal name of this entity 4. Please list the nature of state ownership in this entity 5. Please list the industry of this entity 1. Governance The focus of this section is to explore the degree to which the SOE discloses (either voluntarily or by mandate) information related to governance of climate-related risks and opportunities within and among the SOE sector. Response/Comments # Question Y/N (Please note here the degree to which alignment is voluntary or mandatory) 1.1 Within any of its annual, sustainability, non-financial, or other reports (provided either publicly or to an oversight body), does this SOE disclose information related to its management of climate-related risks and opportunities? 1.1 (a) Has the SOE established and described the procedures and frequency in which the board and/or board committees (e.g., audit, risk, or other) are informed about climate-related issues? 1.1 (b) As part of these disclosures does this SOE provide a description of (any of) the following aspects: whether the board and/or board committees consider climate-related issues when Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 20 Governance continued Response/Comments # Question Y/N (Please note here the degree to which alignment is voluntary or mandatory) reviewing and guiding strategy, major plans of action, risk management policies, annual budgets, and business plans and when setting performance objectives, monitoring implementation and performance, and overseeing major capital expenditures, acquisitions, and divestitures? 1.1 (c) As part of these disclosures does this SOE provide a description of how the board monitors and oversees progress against goals and targets for addressing climate-related issues? 1.2 Within any of its annual, sustainability, non-financial, or other reports (provided either publicly or to an oversight body), does this SOE describe and disclose management’s role in assessing and managing climate-related risks and opportunities? 1.2 (a) As part of these disclosures does this SOE note whether it has assigned climate-related responsibilities to management-level positions or committees and if so, do such management positions or committees report to the board or a committee of the board and do those responsibilities include assessing and/or managing climate-related issues? 1.2 (b) In any of these reports, does this SOE describe the associated organizational structure(s)? 1.2 (c) In any of these reports, does this SOE describe the procedures by which management is informed of climate- related issues? 1.2 (d) In any of these reports, does this SOE describe how management (through specific positions and/or management committees) monitors climate-related issues? Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 21 2. Strategy The focus of this section is to explore the degree to which the SOE manages and then discloses (either voluntarily or mandatorily) information related to the actual and potential impacts of climate-related risks and opportunities on its businesses, strategy, and financial planning where such information is material. Response/Comments # Question Y/N (Please note here the degree to which alignment is voluntary or mandatory) 2.1 Within any of its annual, sustainability, non-financial, or other reports (provided either publicly or directly to an oversight body), has this SOE established risk management procedures and does it describe and disclose the climate- related risks and opportunities that it has identified over the short, medium, and long terms? 2.1 (a) In any of these reports, does this SOE describe the relevant short-, medium-, and long-term time horizons, taking into consideration the useful life of its assets or infrastructure and the fact that climate-related issues often manifest themselves over the medium and longer terms? 2.1 (b) In any of these reports, does this SOE describe the specific climate-related issues for each time horizon (short, medium, and long term) that could have a material financial impact on the organization? 2.1 (c) In any of these reports, does this SOE describe the procedure(s) used to determine which risks and opportunities could have a material financial impact on the organization? 2.1 (d) In any of these reports, does this SOE describe the risks and opportunities by sector and/or geography, as appropriate? 2.2 Within any of its annual, sustainability, non-financial, or other reports (provided either publicly or directly to an oversight body), does this SOE describe and disclose the impact of climate-related risks and Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 22 Strategy continued Response/Comments # Question Y/N (Please note here the degree to which alignment is voluntary or mandatory) opportunities on its businesses, strategy, and financial planning? 2.2 (a) Has the SOE taken steps to analyze the impact on its businesses and strategy in (any of) the following areas and to disclose those impacts: • Products and services • Supply chain and/or value chain • Adaptation and mitigation activities • Investment in research and development • Operations (including types of operations and location of facilities) 2.2 (b) In any of these reports, does this SOE provide information on how climate- related issues serve as an input to its financial planning process, the time period(s) used, and how these risks and opportunities are prioritized? 2.2 (c) In any of these reports, does this SOE provide a holistic picture of the interdependencies among the factors that affect their ability to create value over time? 2.2 (d) Has the SOE taken steps to assess and disclose the impact on financial planning in (any of) the following areas: • Operating costs and revenues • Capital expenditures and capital allocation • Acquisitions or divestments • Access to capital If climate-related scenarios were used to inform the SOE’s strategy and financial planning, have these also been disclosed? 2.3 Within any of its annual, sustainability, non-financial, or other reports (provided either publicly Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 23 Strategy continued Response/Comments # Question Y/N (Please note here the degree to which alignment is voluntary or mandatory) or directly to an oversight body), does this organization describe and disclose the resilience of the organization’s strategy, taking into consideration different climate- related scenarios, including a 2°C or lower scenario? 2.3 (a) In any of these reports, does this SOE provide information on (any of) the following areas: • Strategies that may be affected by climate-related risks and opportunities • How strategies may change to address such potential risks and opportunities • Any climate-related scenarios and associated time horizon(s) utilized If the SOE does not disclose, how would regulators establish that the SOE is managing climate-related risks and addressing key vulnerabilities? 3. Risk Management The focus of this section is to highlight what should be managed by an SOE and to explore the degree to which it discloses (either voluntarily or mandatorily) how it identifies, assesses, and manages climate-related risks. Response/Comments # Question Y/N (Please note here the degree to which alignment is voluntary or mandatory) 3.1 Within any of its annual, sustainability, non-financial, or other reports (provided either publicly or directly to an oversight body), does this SOE describe and disclose the procedures and methodologies used for identifying and assessing climate-related risks? Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 24 Risk management continued Response/Comments # Question Y/N (Please note here the degree to which alignment is voluntary or mandatory) 3.1 (a) In any of these reports, does this SOE provide information on the procedures for assessing the potential size and scope of identified climate- related risks and on the definitions of the risk terminology used or references to existing risk classification frameworks used? 3.2 Within any of its annual, sustainability, non-financial, or other reports (provided either publicly or directly to an oversight body), does this SOE describe and disclose its procedures for managing climate- related risks? 3.2 (a) In any of these reports, does this SOE provide information on its procedures for managing climate-related risks? • Transition risks • Physical risks • Resource efficiency • Energy source • Products and services • Markets • Resilience 3.3 Within any of its annual, sustainability, non-financial, or other reports (provided either publicly or directly to an oversight body), does this SOE describe and disclose how procedures for identifying, assessing, and managing climate- related risks are integrated into its overall risk management? Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 25 4. Metrics and Targets The focus of this section is to explore the degree to which this SOE uses metrics and targets to assess and manage relevant climate-related risks and opportunities and discloses these (either voluntarily or mandatorily) where such information is material. Response/Comments # Question Y/N (Please note here the degree to which alignment is voluntary or mandatory) 4.1 Within any of its annual, sustainability, non-financial or other reports (provided either publicly or directly to an oversight body), does this SOE describe and disclose the metrics used to assess climate- related risks and opportunities in line with its strategy and risk management process? 4.1 (a) In any of these reports, does this SOE describe whether and how related performance metrics are incorporated into remuneration policies? 4.1 (b) In any of these reports, does this SOE provide its internal carbon prices as well as climate-related opportunity metrics (e.g., revenue from products and services designed for a lower-carbon economy)? 4.1 (c) In any of these reports, does this SOE disclose metrics for historical periods to allow for trend analysis? 4.1 (d) Has the SOE established and provided a description of the methodologies used to calculate or estimate climate-related metrics? 4.2 Does this SOE identify and analyze Scope 1, Scope 2, and if appropriate, Scope 3 GHG emissions and the related risks in accordance with the GHG Protocol,3 and are these disclosed within any of its annual, sustainability, non-financial or other reports (provided either publicly or directly to an oversight body)? 4.2(a) In any of these reports, does this SOE provide related and generally accepted industry-specific GHG efficiency ratios? Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 26 Metrics and targets continued Response/Comments # Question Y/N (Please note here the degree to which alignment is voluntary or mandatory) 4.2 (b) In any of these reports, does this SOE provide information on GHG emissions and associated metrics for historical periods to allow for trend analysis? 4.2 (c) In any of these reports, does this SOE provide a description of the methodologies used to calculate or estimate the metrics? 4.3 Has the SOE set targets to manage its climate-related risks, opportunities, and performance, and are these described within any of its annual, sustainability, non-financial or other reports (provided either publicly or directly to an oversight body)? Does it disclose the targets against certain objectives? 4.3 (a) In describing its targets, does this SOE disclose: • Whether the target is absolute or intensity based • The time frames over which the target applies • The base year from which progress is measured • The key performance indicators used to assess progress against targets 4.3 (b) In any of these reports, does this SOE provide a description of the methodologies used to calculate targets and measures? THANK YOU! Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 27 STEP 3. Interviewing Key second group would include institutions that play a key role in the chain of accountability for SOEs, such as a SAI, Counterparts and Holding Focus securities market regulator, and/or audit firm responsible Group Discussions for auditing non-financial information. A third group would be composed of the leadership of key SOEs, including the chief executive, chief financial officer, and board As this module is designed to be an optional addition chair, as well as any ESG technical specialists. A fourth to the overall iSOEF, in designing and undertaking group could include the local institute of directors and focus group discussions, individual interviews and professional accountancy organizations to understand conversations should seek to integrate the questions local non-financial reporting practices, consumer or social and need for insight into the overarching work plan pressure surrounding voluntary non-financial reporting, for in-country engagement. and specific requirements for climate related financial disclosures. Meetings with key counterparts are subject The initial work by the assessment team to to the decision of each team, with due consideration to the understand the country context will be critical to specific environment in the jurisdiction. In some cases, it the success of the assessment and value of the may also be useful to convene a focus group discussion resulting policy recommendations. It will also be among peers from different SOEs (for example, chief important to ensuring a thorough perspective on the financial officers, corporate social responsibility lead SOE landscape, jurisdictional commitment, alignment staff, environmental compliance staff, representatives of with various environmental and climate-related treaties/ emerging corporate task forces/working groups on the accords/agreements, and degree of political will in and subject of environmental impact and climate change, commitment to this thematic area. and chief accountants) as this can facilitate an in-depth understanding of the challenges faced by SOEs and To gain a proper understanding of the rationale broaden the evidence base for the diagnostic. behind the SOE sector’s climate-related financial disclosure requirements and/or application in During the interviews and discussions, the practice, the team will need to meet several country assessment team should clarify or confirm any counterparts. A first group would include the institutions aspects addressed by questionnaire responses to responsible for setting these disclosure requirements, for fill in gaps or corroborate findings. The questionnaire example, SOE oversight agencies and/or regulators. A should not be readministered in its entirety. Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 28 At this stage, it would be important to understand with other dimensions of SOE performance (such as the nature of the relationships between different corporate governance), appropriate cross-references entities charged with oversight over SOE reporting should be included. The report will require a detailed and environmental performance. Interviews with the evaluation of the information gathered and involve representatives of key counterpart(s) would facilitate professional judgments. Based on a rigorous assessment a nuanced understanding of this as well as the current and understanding of the current arrangements and legal regulations and practices in the jurisdiction. Follow-up requirements for SOEs within the jurisdiction, the team meetings might be requested with specific departments of should be able to develop options for addressing any the institution(s), and/or the team might ask for additional existing gaps and weaknesses. The analysis contained information to support the assessment, for example, in the written report should be discussed with country annual reports, sustainability reports, integrated reports, stakeholders to help build buy-in on findings and and/or draft legislation. recommendations, strengthen commitment to reform, and potentially identify further reform steps and needs for assistance. STEP 4. Reviewing Additional Documents and Validating Information The table 3 below has been provided to give direction to assessors regarding the degree of disclosure and level of alignment with the four The team will need to review carefully and critically dimensions. Additionally, the chart may offer insight into the responses to the questionnaire(s) and other the path toward progress on and further alignment with information provided by counterparts against international standards and good practice for individual key corroborating documentation. Other important SOEs. Finally, it should be noted that the chart is meant documents and information to be reviewed include: to offer guidance and serve as one of several inputs into an assessment of and recommendations on improving • Laws and regulations (including internal regulations) SOE climate-related financial disclosures. on the SOE sector and those concerning climate- related financial disclosure or non-financial reporting more broadly Post-Report • Any draft laws and regulations that may affect the current disclosure requirements in the jurisdiction in The completion and delivery of the Climate-Related the future, if any Financial Disclosures Module and the iSOEF • The three most recent reports published by the SAI Assessment Report to jurisdictional counterparts related to the SOE sector (i.e., SOE regulator/s) should mark the end of the evaluation period and the beginning of an ongoing STEP 5. Summarizing the Results and dialogue on areas for improvement. As with other Writing the Assessment Report World Bank review methodologies, the end focus is not merely on developing a robust system of assessment, but also on identifying areas for improvement, engaging in Upon completion of steps 1–4, the team will finalize constructive guidance with counterparts, and developing the analysis, summarize results, and draft a report a plan for further strengthening. To assist in this process, presenting the findings of the review. The report this iSOEF module has been designed in concert with should follow a standard structure based on the four the Toolkit, which provides insight and guidance on dimensions of climate-related financial disclosure how technical assistance and support can be provided, (governance, strategy, risk management, and metrics phased in, and sustained over time to enhance the and targets). If the disclosure is assessed in conjunction jurisdiction’s level of alignment with assessment criteria. Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 29 Table 3. Guidelines for Assessing Individual SOE Alignment and Developing Pathways for Further Harmonization TCFD Recommended Disclosure of Climate-Related Risks and Opportunities – Guidelines for Assessing Individual SOE Alignment and Developing Pathways for Further Harmonization Disclosures in financial filings Limited Moderate Full Governance The SOE board In addition to the elements In addition to the elements maintains some level mentioned under “Limited mentioned under the previous of oversight of climate- Disclosures,” the SOE two sections, the SOE related risks. provides a detailed explanation maintains board capacity and of how the board considers competence to respond to The role of management risks and opportunities. risks and issues related to in this area is defined. climate change. The board maintains The SOE maintains sufficient knowledge pf key The SOE maintains a some level of policy/ environmental and climate- standing discussion on risks commitment to the related issues and risks as and opportunities on the various dimensions of well as the requirements of board’s agenda climate-related risks as non-financial reporting. well as to disclosure. Financial incentives for The SOE maintains a executives are tied not only named individual (who is to financial performance but competent and capable) also to indicators related to responsible for overseeing climate change mitigation and alignment with climate-related environmental impact. disclosure requirements. Strategy The SOE maintains In addition to the “Limited” In addition to the previous operational GHG level of strategic engagement, two levels of alignment, the emission reductions the SOE explores the risks and SOE will utilize scenarios efforts. opportunities over the short, to assess impact, maintain medium, and longer terms and some kind of carbon pricing also seeks to understand and strategy, and seek to be active address the impact on strategy advocates for climate change and financial planning. mitigation and lower-carbon alternatives industry-wide. Risk The SOE acknowledges In addition to the elements In addition to the elements management the need to reduce and listed under the “Limited” level mentioned under the reassess reliance on of alignment, the SOE board previous two categories, the fossil fuels and other actively seeks to identify risks SOE maintains procedures petro-chemicals. and opportunities for climate for identifying, assessing, change mitigation. managing, and integrating climate-related risks. Additionally, the SOE actively works to determine and report the impact on value creation and financials. The SOE undertakes active efforts in mitigation. Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 30 Table 3 continued TCFD Recommended Disclosure of Climate-Related Risks and Opportunities – Guidelines for Assessing Individual SOE Alignment and Developing Pathways for Further Harmonization Disclosures in Financial Filings Limited Moderate Full Metrics and The SOE employs Scope The SOE undertakes Scope In addition to the elements targets 1 and Scope 2 emissions 1 and Scope 2, as well mentioned in the previous measurements. as Scope 3 if appropriate, categories of alignments, measurements and the SOE uses the metrics programming and considers actively, its targets are the related risks. The SOE largely science based, its also employs good practice performance is appropriately methodologies in this space measured and reported. and and seeks to utilize quantified there is a degree of third- targets and to assess party assurance over results performance against them. (assurance engagement). Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 31 Notes 1. Full text of the TCFD recommendations can be found at: https://assets.bbhub.io/ company/sites/60/2020/10/FINAL-2017-TCFD-Report-11052018.pdf. 2. For more information, see the website for the Greenhouse Gas Protocol at https://ghgprotocol.org/. 3. https://ghgprotocol.org/. Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 32 Appendix 1. Report Outline List of Acronyms Preface Executive Summary I. Introduction II. SOE Landscape in Jurisdiction III. Legal and Regulatory Framework for SOE Climate-Related Financial Disclosure IV. SOE Climate-Related Financial Disclosure in Practice V. Assessment of Relevant Local Capacity, Skills, and Knowledge Gaps VI. Training and Capacity-Building Needs VII. Areas for Consideration VIII. Annex Integration of Climate-Related Financial Disclosures into SOEs | Thematic Guidance Note 33 A Adapting Fiscal Decentralization Design to Combat Climate Change