FRC Lab publishes a report on better practice TCFD reporting

01 Nov, 2021

The Financial Reporting Lab ("the Lab") has published a report to help companies prepare for mandatory Taskforce on Climate-related Financial Disclosures (TCFD) reporting.

For accounting periods beginning on or after 1 January 2021, UK premium listed companies will be required to report against the TCFD recommendations on a comply or explain basis in their annual reports, with other companies following in the future.  In advance of these requirements, the Lab has carried out a review of current reporting practice to provide practical guidance to companies on how to provide better TCFD disclosures to meet the demands of investors and to highlight areas where improvements are needed.  

The Lab flags some key issues raised by investors and the TCFD pillars that those align to most closely, and expects that high quality reporting under TCFD should address all of these challenges.  The Lab indicates that answering these questions will help companies prepare disclosures that are consistent with the TCFD framework.  When preparing TCFD disclosures, the Lab also highlights that companies should be considering existing related requirements in particular those set out in the Guidance on the Strategic Report, the Corporate Governance Code and the Streamlined Energy and Carbon Reporting Rules.  Companies also need to consider the impact of climate-risk in the financial statements.

The key areas of improvement raised in the report and flagged by investors are: 

  • There is a lack of sufficient detail and specificity on the impact of climate on business model and strategy which would be useful to investors.
  • Disclosures of risks and opportunities arising from climate change impacts on the business model are of mixed quality, with a lack of substance on how strategy will be adapted, or much more emphasis on opportunities than on risks.
  • Reporting on scenarios remains a key area of investor interest, and an area of weaker disclosure. Some companies disclose climate change scenarios that may affect viability, but detail is scarce.
  • Pledges and indicators related to Net Zero are often ill-defined and difficult to understand and compare, and have the potential to be misleading.
  • There is a lack of explanation of performance against set targets and a disproportionate focus on ‘good news stories’ related to a small part of the business. Outcomes for the business as a whole should be reported.
  • Scope and basis of calculation of metrics is often unclear.

The Lab also highlights key questions for companies to consider for each of the four TCFD disclosure pillars.

Alongside the report, the Lab has also published a snapshot of the status of current reporting against the TCFD framework in the UK, which highlights the increased uptake in the last year.

Additionally, the Financial Reporting Council (FRC) has published research by the Alliance Manchester Business School which investigates climate-related scenario analysis in more detail. The research highlights the various approaches companies have adopted, instances of good practice, typical challenges faced, and the common steps taken to conduct the analysis. 

The press release, FRC Lab report, FRC Lab snapshot and FRC research are available on the FRC website. 

Updated IASB work plan — Analysis (October 2021)

01 Nov, 2021

Following the IASB's October 2021 meeting, we have analysed the IASB work plan to see what changes have resulted from the meetings and other developments since the work plan was last revised in September 2021.

Below is an analysis of all changes made to the work plan since our last analysis on 27 September 2021.

Standard-setting projects

  • Management commentary Feedback on the exposure draft will now be discussed in Q1 2022 (previously H1 2022)
  • Rate-regulated activities The discussion of feedback to the exposure draft will continue in November 2021

Maintenance projects

  • Initial application of IFRS 17 and IFRS 9 — Comparative Information — After discussion of the feedback received at the October 2021 meeting, final amendments are expected in December 2021
  • IAS 21 — Lack of exchangeability — The discussion of feedback is now expected in January 2021 (previously Q1 2022)
  • Lease liability in a sale and leaseback — a decision on the project direction is now expected in December 2021 (previously Q4 2021)

Research projects

  • Business combinations under common control — Feedback received on the discussion paper will now be discussed in December 2021 (previously Q4 2021)
  • Goodwill and impairment — A decision on the project direction is now expected in Q1 2022 (previously H1 2022)
  • Pension benefits that depend on asset returns The IASB decided at the October 2021 meeting to discontinue this project; the publication of a project summary will be the final project step (no date given)
  • Post-implementation review of IFRS 10-12 A feedback statement is now expected in H1 2022 (previously Q1 2022)
  • Post-implementation review of IFRS 9 A request for information was published on 30 September 2021, the discussion of the feedback received is expected in H1 2022

Other projects

  • IFRS Taxonomy Update — 2021 General improvements and common practice newly added to the work plan; a proposed update is expected in December 2021
  • IFRS Taxonomy Update — Amendments to IAS 1, IAS 8 and IFRS Practice Statement 2 a final update is now expected in December 2021 (previously November 2021)
  • IFRS Taxonomy Update — Initial Application of IFRS 17 and IFRS 9 ― Comparative Information newly added to the work plan; a proposed update is expected in December 2021
  • Sustainability-related reporting While the work plan still says that the discussion of the feedback on the exposure draft is expected to occur in October 2021, the publicly expected next step is a formal announcement of the current state of developments at COP26

The above is a faithful comparison of the IASB work plan at 27 September 2021 and 1 November 2021. For access to the current IASB work plan at any time, please click here.

G20 supports IFRS Foundation sustainable standard-setting

01 Nov, 2021

The Group of 20 (G20) has released its G20 Leaders' Declaration from the G20 Leaders' summit held in Rome on 30-31 October 2021.

Generally, the declaration stresses that sustainable finance is crucial for promoting orderly and just transitions towards green and more sustainable economies and inclusive societies, in line with the 2030 Agenda for Sustainable Development and the Paris Agreement. On the setting of sustainable disclosure standards, the declaration notes:

We also welcome the work programme of the International Financial Reporting Standards Foundation to develop a baseline global reporting standard under robust governance and public oversight, building upon the FSB’s Task Force on Climate-Related Financial Disclosures framework and the work of sustainability standard-setters.

Please click to access the full G20 Leaders' Declaration.

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