The International Accounting Standards Board (IASB) has given the green light to its staff to lay the groundwork for a project to deal with climate-related risks in financial reporting.

IASB chair Andreas Barckow warned, however, during the board’s 20 March meeting, that there were concerns they might struggle to limit the project once it got under way.

He said: “I think what we’ve heard from various board members is the strong desire to keep this focused and limited-scope project.”

Proposals developed by staff call for the IASB to examine “whether and, if so, how financial statements can better communicate information about climate-related risks”.

The board’s decision came ahead of a push by the IASB and its sister board, the International Sustainability Standards Board (ISSB), to emphasise the need for connectivity across financial and non-financial reporting.

In a jointly penned briefing released on 23 March, Barckow and ISSB chair Emmanuel Faber traced a three-point vision for tackling connectivity under International Financial Reporting Standards (IFRS) centred on connectivity in reports, products and processes.

Users of financial statements complain that they have too little information about the impact of climate-related risks and opportunities on the carrying amounts of companies’ assets and liabilities.

In particular, they say the requirements in the IASB’s standards are unclear, compliance is weak, and there is too little disclosure about the effects of climate-related risks.

They also point to a mismatch between their informational needs and the objective of financial reporting.

Andreas Barckow at IASB

Andreas Barckow at IASB

In response, the staff propose a narrow-scope maintenance project to identify “high-priority actions that can be taken relatively quickly”.

Staff have explicitly ruled out far-reaching amendments such as changes to the conceptual framework.

They have also come out against developing a new accounting standard on climate-related risks or extensive application guidance.

As part of their next steps on the project, the staff will conduct further outreach and analysis to bring back to a future board meeting.

The staff paper does, however, explain that the staff will consider options for expanding the project to go beyond climate change-related risks and cover opportunities.

IASB member Ana Tarca flagged the risk that the project could stray beyond its planned remit into sticking points such as “materiality and […] behavioural issues”.

Her board colleague Bruce Mackenzie added: “[W]e all know we could explode this into a massive project, [and] that this could definitely be a main project and take us years and years to complete.”

Despite the board’s tacit approval to begin work on the project, the IASB has insisted for quite some time that its standards already tackle the issues arising from climate change.

In November 2020, the board issued educational materials on the effects of climate-related matters on financial statements, having published an in-house article dealing with IFRSs and climate-related disclosures in November 2019.

Additionally, the IASB already has a related project addressing pollutant-pricing mechanisms on its reserve list of potential projects to tackle.

Subsequently, at this week’s meeting of the IFRS Foundation’s Accounting Standards Advisory Forum, a presentation prepared for a session dealing with connectivity reveals that the two boards have appointed their respective vice chairs, Linda Mezon-Hutter and Sue Lloyd, to take “strategic responsibility for connectivity”.

Lloyd, IASB vice-chair, told the meeting: “I think the first thing to emphasise is that the ISSB is really aware of the importance of our standards working well together for those who are using both sets of standards and the dream, and that also that the reporting that we require works well together.”

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