The International Accounting Standards Board (IASB), the accounting standards-setting body of the IFRS Foundation, announced today the launch of a new project aimed at exploring potential changes to the requirements by companies to disclose climate-related risks in financial statements.
According to the IASB, the new project follows feedback to its recent Agenda Consultation, a public consultation held by the board every five years on its activities and work plan, with responses calling for enhancements to the reporting of climate-related risks in financial statements.
While the current standards don’t refer explicitly to climate-related matters, companies are required to consider climate-related issues in their financial statements if the effects of those matters are material to investors. According to the consultation feedback, however, respondents reported that climate-related risks are often perceived as remote and may not be appropriately considered in financial statements, and that investors need better information about the effect of climate-related risks on the carrying amounts of assets and liabilities.
In a statement from IASB Chair Andreas Barckow, the chair highlighted some of the questions received from stakeholders regarding reporting of climate-related risks, including:
- why companies that are expected to be affected by climate-related risks do not provide information about these effects in their financial statements;
- why companies that have made net zero commitments do not recognise liabilities or impair the value of their assets as a result of those commitments; and
- how companies should factor long-term uncertainties into the measurement of amounts in the financial statements.
Barckow said that the project will start by “by exploring, through research and outreach, the nature and causes of stakeholder concerns about the reporting of climate-related risks in the financial statements,” and added that it will not be seeking to develop an IASB Standard on climate-related risks, but rather that the potential outcomes of the project would be narrow in scope, such as minor amendments to the standards or new application guidance.
The IASB also noted that it will consider the work of the International Sustainability Standards Board (ISSB), which is currently in the process of completing its first two reporting standards, covering general requirements for sustainability-related financial information and climate-related disclosures, adding that any information required by the two boards would be complementary.
Barckow added that the IASB could potentially leverage the work of the ISSB and consider issues such as covering opportunities as well as risks, whether sustainability-related risks and opportunities beyond climate should be covered, and how scenario analysis from applying the ISSB standards could inform the measurement of assets and liabilities.