Guidelines for Transition Plan Disclosure
IFRS releases guidelines for transition plan disclosure, aimed at providing guidance for companies to disclose climate-related transition information based on IFRS S2.
IFRS S2 includes multiple disclosure requirements related to transition plan, which companies that have already developed transition plan are required to disclose. IFRS S2 does not require companies that have not developed a transition plan to do so.
Related Post: IOSCO Releases Report on Transition Plan Disclosures
Background of Guidelines for Transition Plan Disclosure
IFRS considers a transition plan as a strategic process, and if a company sets strategic goals, it needs to disclose information about the transition to a low-carbon economy, such as how the company is addressing climate-related risks and opportunities, possible changes in its business model, climate mitigation or adaptation measures being implemented or planned. Enterprises also need to disclose their greenhouse gas targets, voluntary responses to climate risks, and progress made compared to previous disclosures.
Enterprises may disclose their transition plan for various reasons. On the one hand, companies believe that transition plans can more clearly express the transition process and provide all transition related information to financial report users. On the other hand, some jurisdictions may require companies to disclose their transition plan. The disclosure guidelines for transition plans developed by IFRS are based on the disclosure guidelines released by the Transition Plan Taskforce (TPT) in the UK but modify disclosure requirements beyond the scope of IFRS S2 requirements.
Introduction to Guidelines for Transition Plan Disclosure
The disclosure guidelines for transition plans have a similar structure to IFRS S2, which includes governance, strategy, metrics and targets. The guidelines will not add or change the contents of IFRS S2.
- Governance: The goal of climate-related financial disclosure in governance is for financial report users to understand the governance processes, controls, and procedures used by businesses to monitor, manage, and oversee climate-related risks and opportunities. Enterprises need to disclose the institutions or individuals responsible for strategic goals, the role of management in the strategy, incentives and compensation linked to the strategy, as well as the skills, abilities, and knowledge required to achieve strategic goals.
- Strategy: The objective of climate-related financial disclosure in strategy is to enable financial report users to understand the company’s strategy for managing climate-related risks and opportunities. Enterprises need to disclose climate-related transition plans, the impact of climate transition on business models and value chains, climate mitigation and adaptation measures related to transition, and plans to achieve climate-related goals. Enterprises also need to disclose the impact of implementing strategic goals on their financial performance and cash flow.
- Metrics and Targets: The climate-related financial disclosure objectives in metrics and targets are to enable financial report users to understand a company’s performance in climate-related risks and opportunities, including progress towards its set climate goals. Enterprises need to disclose governance, participation, business and operational indicators and targets, as well as greenhouse gas emissions and removal information.
The guidelines for transition plan disclosure also provide some industry resources, such as industry summaries for the Transition Plan Taskforce. This summary contains recommendations for transition plans in 30 industries, aimed at providing guidance for companies in writing transition plans. The summary includes information on decarbonization leverage, governance, engagement, as well as greenhouse gas indicators and targets. The transition plan working group focuses on the information disclosure framework of seven industries (asset managers, asset owners, banking, power industry, food and beverage industry, metal and mining industry, oil and gas industry), and IFRS recommends that companies in these industries pay attention to both industry summaries and disclosure frameworks.
Reference:
IFRS Foundation Publishes Guidance on Disclosures about Transition Plans
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