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Developing your climate-related reporting

Dec 05, 2019

While it’s easy to see that climate-related corporate reporting is important, companies are finding it difficult to know where to begin. Hannah Armitage outlines the suggestions made by the FRC Financial Reporting Lab.

Understanding of climate change has grown in recent years and society, business, government and regulators are responding. It has become clear that investors, companies and accountants are seen as part of the solution. In response, the Financial Reporting Council’s Financial Reporting Lab (the Lab) has recently released a report, Climate-related corporate reporting: where to next?, looking at the developing practice of climate-related corporate reporting.

This project sought to understand the challenges companies face in reporting on climate change, and what investors want to understand from company reporting. This project received an unprecedented amount of investor involvement, and those investors saw climate change as being material to a wide range of businesses and want reporting to reflect this.

Reporting on climate change?

Reporting itself can’t solve climate change, but it plays a key role in providing information to investors and other stakeholders. Unfortunately, companies grapple with how best to report on climate-related issues. To help companies, the Lab’s report sets out what investors expect from reporting on climate change and assesses what best practice reporting looks like from an investor’s viewpoint.

The Lab found that reporting in this area is a developing practice. Investor expectations are high and there is a need for company reporting to develop further to meet their needs. To help fill this gap, the Lab’s report outlines what investors seek to see articulated by companies and what companies should try to answer for themselves:

  • How boards consider and assess the topic of climate change;
  • Whether, and how, the business model may be affected by climate change, whether it remains sustainable, and how the company may respond to the challenge posed by climate change;
  • What the opportunities and risks are, including the prioritisation of risks and their likelihood and impact;
  • What strategic changes the company might need to make to capitalise on a changing climate and related opportunities;
  • What scenarios might affect the company’s sustainability and viability, and how; and
  • How the company measures the impact of climate-related challenges and the success of its strategy through reliable, transparent metrics and financially-relevant information.

While many of these disclosures may be more on the narrative end of reporting, companies will also face financial statement impacts. Auditors have an important role to play. The IASB recently issued a useful briefing paper on IFRS Standards and climate-related disclosures.  This sets out how existing accounting standards address issues that relate to climate-change risks and other emerging risks.

The Lab’s report also provides more detail on participants’ views and a range of examples of the developing reporting. Both companies and investors are building experience, capability and tools, but there is not a lot of time. The Lab’s report aims to help move this reporting practice forward.

Hannah Armitage is a Project Manager in the Financial Reporting Council’s Financial Reporting Lab.