IASB Chair: companies may already need to disclose climate risk

2 October 2020: Chair of the International Accounting Standards Board Hans Hoogervorst has said the growing urgency of climate change has intensified interest in sustainability reporting.

In Hoogervorst’s speech at the IFRS Foundation Virtual Conference, he commented how the principle-based nature of IFRS Standards means companies may already need to reflect climate-related risks in their financial statements, despite the words ‘climate’ and ‘sustainability’ not being mentioned in the standards.

He said financial reporting based on current IFRS Standards can – and perhaps should – be more reflective of sustainability issues than many people realise. He said: “I am convinced that ‘traditional’ financial reporting will make climate-related financial issues more visible in the years to come. I will also make clear that sustainability reporting has important added value to the financial statements.”

Hoogervorst conceded that at first sight, one might think financial reporting as it is has no relationship with sustainability issues at all. “However,” he said, “my fellow Board Member Nick Anderson – inspired by work by the Australian accounting and auditing standards boards – recently published an excellent article which makes crystal clear that this seeming disconnect between IFRS Standards and sustainability issues is deceptive. The principle-based approach of IFRS Standards means that issues that relate to, for example, climate change could be captured by our requirements, both in terms of recognition and measurement and disclosure.”

Several examples raised in the article were then set out in the speech and Hoogervorst commented: “Some of these developments are already happening, but they might remain buried in the financial statements because the company in question might not separately disclose the impact of climate change. Nick’s article, however, makes crystal clear that separate disclosures on the effects of climate change might be required based on our materiality requirements.”

In his concluding remarks, Hoogervorst said he hopes in the future financial reporting and sustainability reporting will come even closer together. 

His comments are also timely in light of the recent publication of an open letter on accounting standards from major investor groups from around the world representing assets worth over $103tn. The letter calls on companies to apply the guidance from the IASB and to fully reflect the effects of climate change in their financial reports.

An introduction to the IASB’s guidance on climate-related disclosures referred to in this article can be found in the recent webinar presented by Nick Anderson and hosted by ICAEW’s Financial Reporting Faculty.