Companies’ Readiness to adopt IFRS S2 Climate-Related Disclosures (ACCA)
Business OpportunitiesNovember 16, 2022
This is a thought leadership article from our Alliance Partner the ACCA on the challenges facing industries emitting high levels of greenhouse gas due to the forthcoming regime on climate-related disclosures.
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Forthcoming regime on climate-related disclosures ventures into uncharted territory for industries emitting high levels of greenhouse gas
Current corporate reporting by a majority of companies producing the highest levels of greenhouse gas emissions would not comply with proposed new requirements from the International Sustainability Standards Board (ISSB).
This is the key finding of research carried out by ACCA (the Association of Chartered Certified Accountants) and the Adam Smith Business School at Glasgow University, aiming to find out how prepared companies are for new climate-related reporting rules being developed by the International Sustainability Standards Board, formed last November.
The research analysed the most recent reports published by companies in the construction material and chemical industries which had the highest greenhouse gas emissions over the last three years, comparing current disclosures against the disclosure requirements of the proposed climate-related disclosure standard (IFRS S2, Climate-related Disclosures).
This analysis found that most companies fall short of the type and level of disclosure that the ISSB is proposing. Further, the research found that disclosures were often scattered and duplicated across different company sources, often with no cross-reference, and with little connection to financial information published in the financial statements.
Those companies (77% of the sample) that have adopted the Task Force on Climate-related Financial Disclosures (TCFD) are significantly better prepared to comply with the proposed new disclosure requirements. However, even these companies will need to significantly increase their climate-related reporting to meet the new requirements of the proposed standard, which the ISSB aims to finalise by the end of this year.
ACCA and the Adam Smith Business School are urging the ISSB to ensure the disclosure requirements are clear and easily understandable, and that thorough guidance is provided.
Mike Suffield, Director of Policy and Insights, ACCA, says: ‘Standard setters and regulators should focus support and guidance on those companies that have not adopted the TCFD Recommendations, including smaller businesses. It may be appropriate to allow a period of voluntary adoption before making the ISSB standards mandatory.'
He also called on regulators to help users of this climate-related information by resolving the problem of the scattered location of disclosures, the lack of cross-referencing and duplication.
He added: ‘The ISSB also has an important role to play by providing greater clarity around location and cross-referencing in the standards, and by collaborating with the regulators to achieve a consistent approach.
"This research is not about pointing fingers at businesses. It is about understanding where they are at in their climate disclosures and working out how to help them improve, this is vital work for all of us" Mike Suffield, Director of Policy and Insights at ACCA
The research was carried out by the University of Glasgow Adam Smith Business School funded by ACCA and the Adam Smith Observatory of Corporate Reporting Practices.
The researchers looked at the information from 50 companies producing materials for the construction sector and 50 chemical companies which, on average, had the highest Scope 1 and Scope 2 greenhouse gas emissions (measured in CO2 equivalent in tonnes) between 2018-2020. Both sectors face significant risks due to climate change and also contribute negatively to climate change due to their high levels of CO2 emissions from their operations.
The majority of listed companies operate worldwide and are already providing some information on sustainability and climate change-related matters, either on a voluntary basis or due to local regulations. The research compared companies’ current reporting practices with those proposed by the ISSB’s ED IFRS S2.
The last two decades has seen a plethora of different reporting frameworks, the product of different standard setters or other global bodies that have different focuses, capacities and objectives, as well as support from different governments and stakeholders worldwide. This has resulted in the existence of standards/frameworks that are not always mandatory and, importantly, vary significantly in their requirements.
Alongside this research in August 2022 ACCA has welcome and responded to consultations on disclosure requirements from the ISSB and EFRAG.
ACCA and the University of Glasgow Adam Smith Business School have jointly published two research papers on climate change risk-related disclosures in the extractives industries in 2021.