The Israel Securities Authority has published the findings of a cross-sector review on how reporting corporations disclose environmental and climate-related risks — and the staff positions it sets out are ones every public company should know and prepare for. What must be disclosed about the environmental risks relevant to a company’s activity and about climate impact, which costs must be identified and quantified within the company’s systems, and what role do the board and management play in shaping risk-management policy and overseeing its implementation?
On 3 September 2024, the Israel Securities Authority published a report consolidating the findings of a cross-sector review concerning the disclosure and reporting of environmental risks by reporting corporations (the “Review Report”), following questionnaires that had been distributed among reporting corporations.
The Review Report details the principal issues that arose in the course of the review, with a view to reflecting the Authority staff’s position on the matter to corporations, and to contributing to improvements in their conduct and in the quality of the data they report, in accordance with the requirements of the law.
The following is a summary of the main positions of the Authority staff in light of the review findings:
(a) Disclosure regarding environmental risks – Reporting corporations must provide, in their periodic reports, information on the environmental risks relevant to their activity, including a rating of the impact of those risks under the “Discussion of Risk Factors” section. To this end, it is recommended that corporations work to institutionalize processes ensuring comprehensive identification of all environmental risks relevant to the corporation, including a well-founded assessment of the implications of those risks and the extent of their impact on the corporation, for the purpose of rating them in the reports.
(b) Disclosure regarding climate impact – When the company’s management comes to rate and quantify the potential impact of climate change on its activity, it must conduct an orderly process for assessing all of the implications arising from the materialization of climate risks, as part of the process of identifying and assessing environmental risks.
(c) Quantitative disclosure – The corporation’s management must examine and establish criteria enabling the identification and classification of costs that have been incurred, or that are expected to be paid, as part of the company’s preparedness for and handling of environmental risks. These criteria must be embedded, in practice, in the company’s systems for the purpose of quantifying the costs the corporation has actually incurred, and must also be taken into account as part of assessing anticipated costs.
(a) Board and management involvement – The board, in its role as the body responsible for setting corporate policy, plays a central and decisive role in shaping the corporation’s risk-management culture, including with respect to environmental risks, and in setting out how to address exposures of this kind. The board’s involvement in the environmental sphere is essential to achieving the corporation’s long-term business objectives in light of its interaction with the environment, and to developing organizational environmental commitment. This involvement is in any event also necessary for the corporation to meet the disclosure obligations imposed on it in these matters. Such involvement may be expressed on a number of levels, for example:
(b) Identifying and assessing environmental risks – It is recommended that environmental risk assessment be conducted on the basis of an accepted methodology and at a frequency suited to the complexity of the processes and the risk levels at the corporation, encompassing the full range of potential environmental risks and including a plan to reduce identified exposures, and that its results and implications be brought to the knowledge and approval of the board as part of its oversight role.
(c) Setting a work plan and overseeing its implementation – It is recommended that the company’s management work to define a work plan in the field of environmental risk management where the company has identified such risks as relevant to its activity. This plan should derive from the environmental risk-management policy formulated by the board and from the environmental risk assessment, and should set out courses of action for the company to address environmental risks, both by reducing the likelihood of their materialization and by minimizing the implications arising from them.
