This article summarizes the development of global climate disclosure proposed by the IFRS Foundation in its 2024 Corporate Climate Disclosure Report.
In October 2023, the Taskforce on Climate-related Financial Disclosures (TCFD) released a report proposing the development direction of climate disclosure that International Sustainability Standards Board (ISSB) needs to consider.
Global Climate Disclosure Interoperability
The ISSB is improving the interoperability between ISSB standards and various jurisdictional frameworks. In February 2024, the ISSB released the first Preview of the Inaugural Judicial Guide for the Adoption or Other Use of ISSB Standards, ensuring that companies’ climate disclosure based on ISSB standards is consistent with that of jurisdictions and avoiding duplicate reporting, therefore reducing the burden of enterprises.
The ISSB standard is based on the framework released by the TCFD (governance, strategy, risk management, metrics & targets), and some jurisdictions also release regulatory policies based on this framework. In May 2024, the IFRS Foundation and the European Financial Reporting Advisory Group (EFRAG) released the ESRS-ISSB Standards Interoperability Guidance, aimed at demonstrating the interoperability between EU sustainable disclosure standards and ISSB standards.
Global Climate Disclosure Guidance
The TCFD believes that issuing guidance and case studies on climate disclosure can help companies understand how to develop climate disclosure. Therefore, the ISSB needs to continue this work. TCFD believes that additional guidance is needed in the following three areas:
- Physical risk assessment and adaptation planning.
- Climate related scenario analysis.
- Scope 3 Greenhouse gas emissions.
The ISSB has launched educational activities and materials based on the ISSB standards to help stakeholders such as businesses, regulatory agencies, and investors understand IFRS S1 and IFRS S2. The ISSB and the United Nations Sustainable Stock Exchanges Initiative have launched the Fundamentals of Sustainability Accounting Credential, which introduces the relationship between sustainability and financial performance. The IFRS Sustainability Knowledge Hub has also released sustainable education materials for the public to obtain knowledge.
Global Climate Disclosure Resilience
The TCFD recommends that companies disclose their resilience under different climate scenarios in order to understand the potential impacts of climate change. These climate scenarios should be consistent with international climate change agreements, as only 11% of companies disclosed this information in 2023. IFRS S2 does not specify specific climate scenarios for businesses, but requires businesses to select relevant climate scenarios and disclose whether they are related to physical and transition risks, in order to provide valuable information to financial reporting users.
The ISSB believes that it is necessary to provide climate scenario analysis application guidelines for enterprises with limited resources, so that they can complete information disclosure at a lower cost. The guide will consider the climate related risks and opportunities faced by businesses, as well as the skills, capabilities, and resources available in climate scenario analysis.
Climate and Other Sustainability Topics
The TCFD believes that sustainable topics such as biodiversity and water resources may be related to climate disclosure, which can also affect the sustainability risks and opportunities of enterprises. IFRS S1 requires companies to disclose substantive information and provide relationships between sustainability issues. The ISSB plans to develop sustainable information disclosure standards in the areas of biodiversity and human capital. ISSB may also amend IFRS S1 because of the additional sustainability disclosure standards.
Global Climate Disclosure by Sovereigns
The TCFD believes that sovereign countries’ climate disclosure will help enterprises complete disclosure work and also assist investors in assessing and pricing climate related risks. In October 2024, the International Public Sector Accounting Standards Board (IPSASB) released a draft of climate disclosure standards for the public sector, based on IFRS S2.
Reference:
