ESRB report on climate-related risks in the financial statements
04 Apr, 2024
The European Systemic Risk Board (ESRB) has published a report on how climate-related risks are reflected in IFRS financial statements. The report finds that while IFRSs generally enable entities to effectively reflect climate-related risks in their financial statements, minor amendments would increase financial stability.
The report focuses on IFRS Accounting Standards and does not consider sustainability reporting standards such as the European Sustainability Reporting Standards (ESRSs) or standards issued by the International Sustainability Standards Board (ISSB).
According to the report, minor amendments in the following areas would have positive implications for financial stability:
- The application of the materiality principle in IAS 1 may need to be enhanced, as even if the transaction involved is immaterial in quantitative terms, user expectations or peer practice may justify information on it
- The addition of climate factors to the list of indicators of impairment of non-financial assets in IAS 36
- How provisions and contingent liabilities should be recognised according to IAS 37 in view of climate-related risks
- Additional disclosure requirements, examples and guidance on how climate-related risks should be incorporated into the estimation of expected credit losses and the fair value of financial instruments.
In addition, the ESRB recommends that the IASB prioritise the work on pollutant pricing mechanisms. This project is currently on the IASB's reserve list.
For access to the full report, please see the ESRB website.
