Climate-related resources
Climate change continues to be an area of specific focus for investors, regulators and other business stakeholders who are increasingly demanding better disclosures on climate change matters and challenging companies who are not factoring the effects of climate change into their critical accounting judgements. Investors want:
- to see how the impacts of climate change have been reflected in the measurement and recognition of assets and liabilities;
- more transparency on the assumptions used and sensitivities to those assumptions; and
- to be confident that there is consistency between climate-related information included in the narrative in the front end of the annual report and the numbers disclosed in the financial statements.
Investors have also set out their expectations for Paris-aligned accounts - accounts that adequately reflect the impact of getting to net zero emissions by 2050 for assets, liabilities, profits and losses.
Regulators and standard- setters are responding
For periods commencing on or after 1 January 2021, premium-listed commercial companies are required to include a statement in their annual financial report which sets out whether their disclosures are consistent with the Task Force on Climate-related Financial Disclosure (TCFD) recommendations, and to explain if they are not. The FCA is extending these requirements to standard-listed companies, asset managers, life insurers and FCA-regulated pension providers for periods commencing on or after 1 January 2022. The scope of businesses required to report in accordance with the TCFD recommendations is expected to increase even further across the UK economy by 2025, with the majority of requirements in place by 2023.
The IFRS Foundation has established an International Sustainability Standards Board (ISSB) to develop and issue global sustainability standards. The intention is for the first standard to be on climate-related reporting, which is expected to be published in 2022. The ISSB will play the same role for sustainability reporting as the International Accounting Standard Board (IASB) does for financial reporting. Through the Technical Readiness Working Group, the IFRS Foundation has undertaken preparatory work to refine the prototype disclosure standard developed by the leading sustainability standard-setters and frameworks built on the TCFD's recommendations. The UK government has stated that it intends to require UK businesses to report against the standards developed by the ISSB and that it will create a mechanism to adopt and endorse standards issued by the ISSB for use in the UK. These will form part of the UK government’s Sustainability Disclosure Requirements.
In 2020, the IFRS Foundation published educational material to highlight how existing requirements in IFRS Standards require companies to consider climate-related matters when their effect is material to the financial statements.
In the same year, the Financial Reporting Council (FRC) published a thematic review of climate-related considerations by boards, companies, auditors and professional bodies and investors. This highlighted that corporate reporting needs to improve to meet the expectations of investors and other users on the urgent issue of climate change. The FRC's Annual Review of Corporate Reporting emphasises that the FRC will continue to focus on the disclosure of climate-related risks within annual reports as new disclosure requirements beckon.
The European Securities and Markets Authority (ESMA) has also announced that it will focus on disclosure of risks related to climate change as part of its Common Enforcement Priorities for 2021 financial statements.
This UK Accounting plus page includes our climate-related resources to assist companies. It includes links to:
Related resources
