Comparative climate-related disclosures following changes in the group structure

AASB S2 Climate-related Disclosures requires the following regarding comparative amounts for climate-related disclosures:

• Disclose comparative information for the preceding period: This applies to all amounts reported in the current period, unless another Australian Sustainability Reporting Standard permits or requires otherwise (Appendix D, paragraphs 70 and B49)
• Revision of metric estimation: If the entity identifies new information about estimated amounts disclosed in the preceding period, and that new information provides evidence of circumstances that existed in that period, then (subject to materiality) the entity must disclose revised comparatives that reflect this new information (Appendix D, paragraph B50).

A question arises regarding the application of these comparative requirements when there is a change in the group structure, i.e.:

The impact of these requirements can be seen in two scenarios discussed below. First, however, it’s necessary to consider several other AASB S2 requirements that affect comparative disclosures.

Other relevant requirements in AASB S2 impacting comparative disclosures

Although AASB S2 requires comparative information to be disclosed for all amounts presented in the current reporting period, there are other requirements that must also be considered:

• Information about all climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance, or cost of capital over the short, medium or long term: This is collectively referred to as those which could ‘reasonably be expected to affect the entity’s prospects’ (AASB S2, paragraph 2)
• Same reporting entity: Climate-related financial disclosures must be for the same reporting entity as the related financial statements (AASB S2, Appendix D, paragraph Aus 20.1).
• Connected information:
  • Entities must provide information about connections between the entity’s climate-related financial disclosures and other general purposes financial reports published by an entity, such as its financial statements (AASB S2, Appendix D, paragraph 21(b)(ii))
  • The financial statements to which the climate-related financial disclosures relate must be identified (AASB S2, Appendix D, paragraph 22)
  • Consistency of data and assumptions: The data and assumptions used to prepare the climate-related financial disclosures must be consistent, to the extent possible, with the corresponding data and assumptions that have been used in preparing the related financial statements (AASB S2, Appendix D, paragraph 23)
  • Disclose information that enables users to understand the effects of climate-related risks and opportunities on the entity’s financial position, financial performance and cash flows for the reporting period (current financial effects) as well as for the entity’s prospects (AASB S2, paragraph 15).

Scenario 1: Disposal of Entity B in 20X1

In this scenario:

• Entity A is a parent with multiple subsidiaries and has an annual reporting date of 31 December
• On 1 January 20X1, Entity A disposed of 100% of Entity B
• The acquirer of Entity B was not related to Entity A’s group from a control and/or value chain perspective
• From the date of Entity B’s disposal, the climate-related risks and opportunities identified in 20X0 related to Entity B’s operations and value chain would not affect the prospects of the remaining group
• Therefore, for its 31 December 20X1 year-end climate-related financial disclosures, Entity A reassessed which climate-related risks and opportunities could reasonably be expected to affect the remaining group’s prospects, and identified material information about them
• Entity A concluded that the information identified in 20X0 related to the operations and value chain of Entity B was no longer relevant for 20X1
• Entity A prepares its consolidated financial statements in accordance with Australian Accounting Standards. Entity B is, therefore, included in the consolidated financial statements up to the point at which it was disposed of, and the comparative financial information for the year ended 31 December 20X0 is not restated to exclude Entity B
• There is currently no other Australian Sustainability Reporting Standard that permits or requires disclosure of comparative information that differs from that required by AASB S2.

Analysis

• Entity B was part of the group in 20X0 but was disposed of on 1 January 20X1
• Read in isolation, AASB S2, Appendix D, paragraph 70 requires comparatives for amounts disclosed in 20X1
• Since Entity B’s climate-related risks are no longer relevant, and no amounts for Entity B are disclosed in 20X1, Entity A might conclude that comparatives for Entity B are not required in Entity A’s consolidated climate report for the year ended 31 December 20X1
• However, adjusting the disclosures previously presented in Entity A’s consolidated climate report for the year ended 31 December 20X0 to exclude Entity B conflicts with the requirements regarding: presenting climate-related disclosures for the same reporting entity as the financial statements; and having consistency of data and assumptions between the climate-related disclosures and the financial statements.

Conclusion

For 31 December 20X1 reporting, Entity B is no longer part of Entity A’s consolidated group. Information about its climate-related risks and opportunities is therefore, not included in the group’s consolidated climate-related disclosures for the year ended 31 December 20X1. However, comparative amounts and disclosures must be provided for the year ended 31 December 20X0, when Entity B was still part of the consolidated group.

If the disposal of Entity B met the criteria in IFRS 5 Non‑current Assets Held for Sale and Discontinued Operations for presentation as a disposal group in the consolidated financial statements for the year ended 31 December 20X0, the climate disclosures for Entity B may already have been presented in the consolidated sustainability report for that year separately from continuing operations. In such cases, Entity A’s climate disclosures for 20X1 are comparable to those for continuing operations in 20X0.

If the disposal did not meet the discontinued operations criteria in IFRS 5 in 20X0 (such as if the disposal of Entity B had incurred later in the 20X1 financial year), Entity A may wish to provide additional information, separating information for the ongoing operations from the discontinued operations in both 20X1 and 20X0.

Scenario 2: Acquisition of Entity E in 20X1

In this scenario:

• On 1 January 20X1, Entity A acquired 100% of Entity E
• Entity E was acquired from another group that was not related to Entity A’s group from a control and/or value chain perspective
• Therefore, the climate-related risks and opportunities of Entity E were not relevant for the purposes of Entity A’s assessment and identification of climate-related risks and opportunities that could reasonably be expected to affect the group’s prospects for the year ended 31 December 20X0
• However, for the year ended 31 December 20X1, Entity A reassessed which climate-related risks and opportunities could reasonably be expected to affect the group’s prospects, and identified the material information about them
• Entity A concluded that the information related to the operations and value chain of Entity E was material for the reporting entity
• There is currently no other Australian Sustainability Reporting Standard that permits or requires disclosure of comparative information that differs from that required by AASB S2.

Analysis

• Entity E was acquired on 1 January 20X1 and is included in the climate-related financial disclosures for the year ended 31 December 20X1
• Read in isolation, AASB S2, Appendix D, paragraph 70 requires comparatives for amounts disclosed in 20X1
• Entity E, therefore, might conclude that the comparatives for Entity A’s consolidated climate report for the year ended 31 December 20X1 must be restated to include amounts and disclosures for Entity E
• However, creating hypothetical comparatives for 20X0 as if Entity E was part of the group conflicts with the requirements regarding: presenting climate-related disclosures for the same reporting entity as the financial statements; and having consistency of data and assumptions between the climate-related disclosures and the financial statements.

Conclusion

For 31 December 20X1 reporting, Entity E is part of Entity A’s consolidated group but was not part of the group in the prior period (comparative period). Information about Entity E’s climate-related risks and opportunities is therefore:

• Included in the group’s consolidated climate-related disclosures for the year ended 31 December 20X1
• Not included as part of the comparative amounts and disclosures for the 31 December 20X0 comparative period. That is, comparatives reflect the actual group structure in 20X0 without adjustments.

Further considerations

Entity A must disclose additional information if compliance with the specific requirements in Australian Sustainability Reporting Standards is insufficient to enable users of general purpose financial reports to understand the effects of climate-related risks and opportunities on the entity’s cash flows, its access to finance and cost of capital over the short, medium and long term.

In both scenarios 1 and 2, additional information that might be disclosed could be:

• Scenario 1: Comparative information that excludes amounts and disclosures for Entity B, and
• Scenario 2: Comparative information that includes amounts and disclosures for Entity E.

Any additional information provided should clearly explain what it represents and why it has been provided.

Revision of metrics

AASB S2, Appendix D, paragraph B50 requires restatement of comparative information regarding metrics in certain circumstances. It is important to note that this requirement does not apply where there has been a change in the group structure.

How BDO can help

Preparing climate-related disclosures under AASB S2 requires careful judgement, particularly when you have changes in your group structure and need to update your organisational and operational boundaries.

Contact our sustainability reporting team to discuss how we can support your AASB S2 reporting journey.