Here’s some fascinating news from Responsible Investor – the International Accounting Standards Board (IASB) is developing illustrative examples of climate-related financial information that should be included in company disclosures and accounting. This action is the result of an IASB project that launched March 2023. In IASB’s announcement of that project, they pointed out that in their initial outreach on the question of whether/how to consider climate-related matters in financial statements,
“Respondents to that consultation told us:
- climate-related risks are often perceived as remote, long-term risks and may not be appropriately considered in the financial statements; and
- investors need better qualitative and quantitative information about the effect of climate-related risks on the carrying amounts of assets and liabilities reported in the financial statements.
For example, some stakeholders have asked:
- why companies that are expected to be affected by climate-related risks do not provide information about these effects in their financial statements;
- why companies that have made net zero commitments do not recognise liabilities or impair the value of their assets as a result of those commitments; and
- how companies should factor long-term uncertainties into the measurement of amounts in the financial statements.”
According to the article,
“the IASB will develop eight examples in total to address three areas of decision-making when putting together financial reports. The first relates to how companies decide what is material enough for inclusion in their financial statements. The second addresses how climate- related assumptions affect the valuation of assets and liabilities, and the third covers whether companies should provide additional detail and disaggregate information based on their exposure to climate risks.”
IASB is not planning to make changes to accounting standards as the organization believes the existing standards are robust enough to compel disclosure of climate-related financial risks. IFRS/IASB accounting and disclosure standards are not determinative in the US (the US uses Generally Accepted Accounting Principles, or GAAP, under the US Financial Accounting Standards Board, or FASB). However, US companies may find IASB’s examples instructive once they are published.
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