The International Accounting Standards Board (IASB) has released the final version of the agenda decision developed by the International Financial Reporting Standards (IFRS) Interpretations Committee in respect of climate-related commitments.

The committee’s work was formally ratified last month by the IASB.

During that meeting, IASB chair Andreas Barckow said: “In this instance, I think the [Interpretations] Committee was absolutely clear when they said […] there is a clear rationale in here […] and therefore there is no need to do any further work.”

The IFRS IC first considered a request to tackle the accounting for climate-related transition commitments under International Accounting Standard 37 last November.

Critics say that while companies are making generous statements about their net zero commitments in public, they are failing to account for the cost of those pledges in their accounts.

The agenda decision is one of the IASB’s first forays into the financial effects of sustainability reporting.

Guidance for climate commitments

While taking no steps to change any of IAS 37’s requirements, the agenda decision aims to explain why the IFRS IC believes the requirements of IAS 37 are sufficient to deal with the challenge of net zero commitments.

According to the decision notice, a company has a constructive obligation if it has publicly stated its commitment to reduce or offset its emissions and has taken actions to affirm that. However, it goes on to explain that it only recognises a provision when it has a present obligation, which arises when it emits those greenhouse gases.

The cost of reducing emissions does not, on that fact pattern, amount to a present obligation because it is a future operating cost.

IFRS model questioned

Under IAS 37, the entity would only recognise an expense when it settles the obligation to offset the emissions.

Tim Bush, head of governance and financial analysis at Pensions & Investment Research Consultants (PIRC), said he does not believe the IFRS IC’s actions will make a great deal of difference to current reporting practice.

“The problem we have at the moment is that the biggest greenhouse gas emitters are making all manner of bold claims about their future intentions but failing to recognise even token liabilities in their accounts.

“I am perhaps even more surprised that the Interpretations Committee missed the opportunity to weigh in on the oil and gas sector, where bold claims proliferate.”

He added: “ISSB chair Emmanuel Faber has already said that his board’s standards are not about helping to ’save the world’ but rather about allocating capital, so I do not expect any great breakthrough when companies publish their first reporting under IFRS S-1 and S-2 next year. I am not holding my breath.”

Read the digital edition of IPE’s latest magazine