Simplification of the alphabet soup of sustainability reporting initiatives took another positive step forward last month after the IFRS Foundation – the body responsible for developing globally accepted accounting and sustainability disclosure standards – said a comparison of the requirements of the IFRS S2 Climate-related Disclosures and the TCFD recommendations showed consistency between the two.
The analysis shows that the recently-published IFRS S2 Climate-related Disclosures integrates the four core recommendations and 11 recommended disclosures published by the Task Force on Climate-related Financial Disclosures (TCFD).
It means that companies applying the ISSB Standards will meet the TCFD recommendations and so will not need to apply the TCFD recommendations in addition to the ISSB Standards. The comparison also highlights areas where IFRS S2 places additional requirements on reporters, strengthening the case for adopting ISSB standards, experts argue.
In requiring disclosures of a company’s strategy for managing climate-related risks and opportunities, IFRS S2 requires additional information regarding resiliency; for example, information regarding an entity’s capacity to adjust and adapt its strategy and business model over time.
IFRS S2 also includes requirements for companies to disclose industry-based metrics, to disclose information about their planned use of carbon credits to achieve net emissions targets and, in certain cases, to disclose additional information about financed emissions.
Given their basis on the TCFD recommendations, the inaugural IFRS Sustainability Disclosure Standards issued last month can be seen as a culmination of the work of the TCFD.
Established by the Financial Stability Board (FSB) in 2017, the TCFD’s voluntary disclosure recommendations sought to address fragmentation in reporting frameworks at the time.
Following the publication of IFRS S1 and IFRS S2, and at the FSB’s request, the TCFD itself is now being subsumed into the ISSB with the standard-setter taking over the monitoring of the progress on companies’ climate-related disclosures from 2024. This marks a further important step in the streamlining of sustainability reporting frameworks and further simplification of disclosure initiatives for companies and investors.
The TCFD recommendations remain available for companies to use should they choose to, however, and are a good entry point for companies as they move to use the ISSB Standards. The process of endorsing ISSB Standards for use in the UK is underway, with the UK Sustainability Disclosure Technical Advisory Committee having recently issued a call for evidence.
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