AFREF, Public Citizen, The Sunrise Project, and Sierra Club submitted a comment to the International Sustainability Standards Board on their Climate-related Disclosures Exposure Draft.
The Board requested broad stakeholder feedback on its proposal, which reflected the need for users of general purpose financial reporting to understand how companies are navigating the risks and opportunities from physical impacts of climate change and the energy transition. Both sources of risk can affect a company’s immediate financial condition and long-term business outlook. In order for investors and other market participants to protect their investments and thrive in these changing markets, they need access to decision-useful, comparable, and accurate information.
The Board issued this proposal in recognition of the importance of globally recognized climate disclosure standards for investors, companies, and other market participants, and at a time when various market regulators are contemplating their own requirements. There is significant overlap between this draft and the U.S. Securities and Exchange Commission’s (SEC’s) recent proposal (see our comment here).
In addition to supporting the proposed disclosures by the Board, AFR and partners recommend the Board:
- Amend the proposed definitions of physical risks, transition risks, and carbon offsets to account for community-level and environmental justice impacts;
- Require disclosure of the location of assets subject to physical risks;
- Require companies to disclose all climate-impacted assumptions and estimates, in keeping with the SEC’s proposed rule and existing guidance from accounting standard setters;
- Add detail about the kinds of assumptions, estimates, and contextual information the financial disclosures should include, including perhaps impacts to specific financial statement line items;
- Require Scope 3 emissions regardless of materiality, because users need information on climate-risks identified within a company’s immediate operations but also to the entire value chain;
- Require Scope 1, 2, and 3 emissions disclosure for the consolidated accounting group and for unconsolidated subsidiaries and joint ventures;
- Require companies that are unable to use climate-related scenario analysis to assess the climate resilience of their strategies to disclose the reason why and explain any efforts it is making to address those reasons;
- Require disclosure of companies’ capital deployment towards climate-related risks and opportunities, internal carbon prices, and the percentage of executive management remuneration that is linked to climate-related considerations; and
- Require companies to describe whether and to what extent the company can meet its targets or goals using currently available methods and technologies, the extent to which its plan relies on the availability of any new or non-commercial technology or the availability of non-sectoral offsets, and the extent to which it depends on any other factors outside of the control of the company.