What’s the issue?
Investors are seeking to understand companies’ readiness to transition to a lower carbon economy; to do that, they need more transparent and granular disclosures. If the disclosure requirements are too high-level, then there is a risk that companies may ‘greenwash’ their reporting by providing vague information.
Feedback on the International Sustainability Standards Board (ISSB) climate proposal1 highlighted this risk, with many respondents stating that the disclosure requirements were too high level and lacked clarity.
Providing investors with clear disclosures on transition plans and climate-related targets is a key step towards eliminating greenwashing from reporting and achieving the transparency that they need to understand companies’ true readiness for a lower carbon economy.
What was proposed?
Under the climate proposal, companies would need to disclose information to help investors understand the impact of climate-related risks and opportunities on their strategy and decision making, including their transition plans. They would also need to disclose information about any climate-related targets.
Companies would not be required to create a transition plan or targets. However, a company would need to disclose the plans and targets that it has set or is required to have, including how it plans to achieve any climate-related targets.
See our guide for more detail on the climate proposal.
What’s the ISSB’s latest thinking?
Acknowledging respondents’ feedback, the ISSB has confirmed the proposed requirements, with suggested clarifications, and has proposed disclosure of additional information on transition plans and climate-related targets.
The clarifications would include:
- reducing the overlap between requirements to disclose transition plans and targets; and
- distinguishing more clearly between information about the effects of climate-related risks and opportunities on overall strategy and disclosure on transition plans.
The additional disclosure requirements are designed to increase transparency of:
- transition plans – including information on the assumptions and dependencies that a company uses in developing its transition plan; and
- climate-related targets – including information on:
- the scope of the targets – i.e. making it clear whether they relate to the whole business or to specific areas only;
- which greenhouse gases (GHG) and which of the GHG emissions scopes (i.e. Scopes 1, 2 and/or 3) are covered; and
- which international agreement2 on climate change the entity refers to when applying the requirements.
What’s the impact?
Companies would need to undertake a robust exercise to provide more transparent disclosures on their transition plans and climate-related targets. Commitments or targets would need to be supported by a clear action plan.
Investors could also challenge a company when its stated strategy in the transition plan is based on unlikely assumptions or dependencies – e.g. when it is dependent on unproven technology or unfunded activities.
Actions for management
- Familiarise yourself with our guide for more detail on the climate proposal.
- Consider whether you have the detailed plans and targets to provide the disclosures required. If not, accelerate your activities to ensure that you will be ready.
- Ensure that the right people from across your organisation are involved in developing your transition plan so that it is rigorous, achievable and approved by appropriate bodies.
- Familiarise yourself with guidance on creating transition plans. For example, the UK Transition Plan Taskforce aims to create a gold standard framework for companies to consider when developing their transition strategy.
How did we get here?
|Proposed IFRS S2
|Published 31 March 2022
|ISSB Board meeting: 15–16 November 2022; Frankfurt
|The ISSB clarified and discussed additions to the requirements on transition planning and climate-related targets
1 Proposed IFRS S2 Climate-related Disclosures
2 The ISSB proposals refer to the ‘latest international agreement on climate change’, which represents the Paris Agreement (2016) at the time of publication.
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