IFRS launches project on climate-related disclosures

Latest effort intended to complement the ISSB’s high-profile work.

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Global accounting standard setters, operating under the IFRS Board, have announced a new project to improve the disclosure of climate-related risks in financial statements.

The project will be undertaken by the International Accounting Standards Board (IASB), one of the two-standard setting bodies operating under the foundation’s purview. It produces the IFRS Accounting Standards used for traditional financial accounting.

The IASB’s sister board is the International Sustainability Standards Board (ISSB), which was set up in 2021 to develop a global baseline framework for sustainability reporting following market demand. It is expected to publish the first two IFRS Sustainability Disclosure Standards, which address general sustainability factors and climate respectively, by June.

The IASB’s new project is intended to complement the ISSB’s high-profile work but is more limited in scope, said IASB chair Andreas Barckow. Possible outcomes include small amendments to IASB standards, limited new application guidance or new illustrative examples.

The project will not seek to develop an IASB standard on climate-related risks, broaden the objective of financial statements, or change the definitions of assets and liabilities. But the inclusion of climate-specific provisions in an accounting standard used by most of the world’s major markets, excluding the US and China, could still represent a milestone for financial reporting.

One of the issues IASB will consider is whether climate scenario analysis – when reporting against the incoming ISSB standards – could inform the measurement of assets and liabilities reported in financial statements.

The issue has long been a bugbear for some investors, who say that companies should align accounting assumptions with climate and broader sustainability realities. This is particularly material for the oil and gas sector, which relies on projections of long-term prices to justify continued production and exploration.

Figures such as the Climate Accounting Project head David Pitt-Watson and Sarasin’s stewardship head Natasha Landell-Mills have previously called on companies to abide by the existing rules, which they say already require climate change, where material, to be incorporated into company accounts.

Barckow said that while, the IFRS accounting standards requires companies to consider climate-related matters on the basis of materiality, the board had received market feedback that “climate-related risks are often perceived as remote, long-term risks” and therefore not usually considered.

The project was added to the IASB’s workplan at a board meeting which concluded on Thursday.

The IASB will now hold discussions with its consultative bodies and other external stakeholder groups, including the ISSB, to consider the next course of action. Feedback and a tentative project plan will be presented at an undisclosed future meeting.