Global Alignment for Climate Risk Reporting – Our Takeaways from the IFRS Sustainability Symposium
Last Friday, I attended the first sustainability symposium hosted by the International Financial Reporting Standards (IFRS) Foundation. The symposium gathered ESG-focused investors, regulators, CSOs, CFOs, and showcased leaders from Bank of America, Johnson & Johnson, Mastercard, and Dow Chemical. The event was a celebration of a major achievement: last June, the IFRS standard development group, ISSB, issued the first two sustainability standards – S1 & S2. And because these standards incorporate (and somewhat cannibalize) others (SASB and TCFD) their issuance is rightfully heralded as a major step toward the consolidation of global ESG reporting frameworks.
Themes from IFRS Sustainability Symposium
In addition to celebrating the S1 and S2 standards, other overarching themes of the event included:
Clarifying the Investor Perspective: Providers of capital (investors, banks, and insurers) want consistent reporting. They want to see that your company is fully and accurately measuring and managing your climate-related risks and prepared to take advantage of emerging “transition” (decarbonization) opportunities. For these groups, your company’s climate actions and strategies are an important indicator of your company’s current financial position and future performance and creditworthiness
Ensuring Consistent Regulatory Uptake: How can the IFRS global community convert investors’ informational needs into consistent reporting mandates across regulatory jurisdictions. There was palpable anticipation of the soon-to-be-announced final SEC climate disclosures rule, now expected for early March
Verifying that the Data Collection & Reporting is a Feasible & Valuable Activity for Reporting Companies: The application of “Proportionality” - which, in this context, means that companies of all sizes and structures should be able to feasibly report against the IFRS framework. And there was the occasional grumble in reference to Scope 3 emissions, with certain investors sharing skepticism about the accuracy and value of this information.
Goodbye TCFD, Hello IFRS S1 & S2
TCFD, the Taskforce on Climate-related Financial Disclosures, published its Recommendations in 2017. Reporting against the TCFD Recommendations is mandated for financial institutions and publicly traded companies by the UK, Canada, Japan, and in about a dozen other jurisdictions. In some cases, regional stock exchanges have mandated TCFD reporting as well.
And just as we were all developing familiarity with TCFD…<plot twist!> In October 2023, TCFD announced that it would be disbanded, and its requirements are now integrated within the IFRS S2 Standard for Climate-Related Disclosures. The S1 Standard, meanwhile, sets general reporting requirements. Thankfully, S1 and S2 Standard are intentionally structured exactly like TCFD – with its four reporting topic pillars Strategy, Governance, Risk Management, and Metrics and Targets. Supposedly, IFRS will issue an S3, an S4, and so on…tackling reporting areas beyond S2’s climate focus, but we don’t have information on what categories those will be.
California’s Mandated Climate Risk Reporting Aligns with TCFD
California jumped the gun on the SEC by enacting SB-261 in October 2023 which requires public and privately held companies operating in the state to publish climate risk reports every two years in alignment with TCFD, starting on January 1, 2026. The law, SB-261, also explicitly acknowledges and accepts the IFRS Sustainability Standards, referring to them by the name of the independent standard development group, the International Sustainability Standards Board (ISSB).
Inevitably, because TCFD is now subsumed by IFRS, California and other regional and national regulators will consider when to update their reporting requirements and shift from TCFD to the IFRS S2 Standard, or even to all IFRS Standards, extending reporting requirements from climate-related risks and opportunities to sustainability-related ones (water, waste, social, etc).
Providers of Capital are Focused on Climate Risk
At the IFRS Symposium, investors, banks, and insurers shared their perspectives on how Climate Risk Reports provide decision-useful information. Some of the speakers covered three types of information provided by reports:
Binary Indicators (Yes/No): (For example): This company has committed to set and achieve Science-Based Targets (SBTs)
Quantitative Data: (For example): The company’s total absolute emissions, emissions categories, and emissions normalized by the company’s size and revenue
Qualitative Information: (For example): This company has a strong/detailed strategy for identifying, verifying, and managing its climate-related risks
During the symposium, Nawar Alsaadi, CEO and founder of Kanata Advisors, cited numerous studies showcasing the correlation between sustainability efforts and financial performance. Companies that prioritize decarbonization, develop greener products, and engage their employees tend to be viewed more favorably by investors and are perceived as more creditworthy. Additionally, speakers emphasized the potential for climate events and inadequate positioning to erode value, while highlighting decarbonization efforts, low-carbon products, and robust sustainability strategies as drivers for value creation.
IFRS standards emerged as both simplifiers and bar-raisers in this context, extending beyond climate impacts to encompass broader sustainability considerations. By providing clear metrics and Key Performance Indicators (KPIs) through the SASB industry-specific standards, IFRS standards facilitate informed decision-making and promote transparency in reporting.
Confirmation of a Strong Sustainability Strategy
Several IFRS speakers emphasized that a company’s sustainability strategy is a "pre-financial indicator" of stability. A detailed, strong, understandable strategy, underpinned by verified commitments and assured data, signals to these groups that this company is well positioned to thrive and grow, ready to navigate the choppy waters of future regulations, market drivers, and recover swiftly from physical weather events.
Looking Ahead:
Uplift will be staying informed on the following developments:
California's (CARB’s) regulatory decisions on implementing the climate risk laws.
Awaiting new guidance and sustainability standards from IFRS beyond S2.
Monitoring global regulatory bodies' transition from TCFD to IFRS standards.
Awaiting the SEC's final rule on non-financial reporting, due out in March
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