Climate disclosures could fall short

The majority of companies producing the highest levels of greenhouse gas emissions are not ready to comply with the proposed sustainability standard due out later this year.

According to research carried out by ACCA and the Adam Smith Business School at Glasgow University, disclosures currently made by companies fall short of the requirements of the International Sustainability Standards Board’s (ISSB) exposure draft to IFRS S2, Climate-related Disclosures.

However, the research found that those companies that have adopted the recommendations published by the Task Force on Climate-related Financial Disclosures (TCFD) – 77% of the companies surveyed – are significantly better prepared to comply with IFRS S2 than those that have not. Those disclosure requirements that are not covered by the TCFD recommendations see very low to zero disclosure.

Guidance needed

The report warns that businesses may struggle to comply, and urges national standard-setters and regulators to align their disclosure requirements to the TCFD recommendations. It also urges the ISSB to ensure that the disclosure requirements are clear and easily understandable, as companies are likely to need extensive application guidance and illustrative examples.

‘It may be appropriate to allow a period of voluntary adoption before making the ISSB standards mandatory,’ says Mike Suffield, director, policy and insights, at ACCA.

Scattered and duplicated

The research found that companies in the construction material and chemical industries were the least prepared for the type and level of disclosure that the ISSB is proposing.

It also reports that companies’ reporting of information required by ED IFRS S2 was scattered and duplicated across their corporate reporting sources, often with no cross-reference, and little or no connection to financial information published in the financial statements.

‘This research is not about pointing fingers at businesses,’ Suffield says. ‘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.’