Certain industries face transition risks when moving towards a greener economy, including big shifts in asset values or higher costs of doing business. Many entities are now choosing to reduce investments in certain sectors (e.g. coal) to help manage these risks. Transition risk includes policy changes, reputational impacts, and shifts in market preferences, norms and technology. There are also transition opportunities such as resource efficiency and the development of new technologies, products and services which could capture new markets.
Current IFRS requirements regarding climate-change
In November 2020, the IFRS Foundation published educational material on the effects of climate-related matters on financial statements. This material highlights how existing IFRS requirements may require companies to consider climate-related matters when their effect is material to financial statements. Some of the relevant standards to note are:
|IAS 1 Presentation of Financial Statements
||IAS 37 Provisions, Contingent Liabilities and Contingent Assets
|IAS 2 Inventories
||IFRS 7 Financial Instruments: Disclosures
|IAS 12 Income Taxes
||IFRS 9 Financial Instruments
|IAS 16 Property, plant and equipment
||IFRS 13 Fair Value Measurement
|IAS 36 Impairment of Assets
||IFRS 17 Insurance Contracts
|IAS 38 Intangible Assets
IFRB 2020/14 includes further information.
The future of sustainability reporting
The IFRS Foundation Trustees are also considering how the IFRS Foundation may contribute to the development of consistent, global requirements for sustainability reporting, which would enhance the usefulness and comparability of information provided to stakeholders (e.g. investors, the corporate sector, central banks and market regulators). Their provisional approach is the creation of a Sustainability Standards Board to fall within the governance structure of the IFRS Foundation, alongside the International Accounting Standards Board.
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