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Climate change – comprehensive reporting urgently called for!

Financial Reporting Brief: September 2022

We have enjoyed a good summer, particularly good at times with record temperatures experienced on days in both July and August. We should be thankful that, although there may be challenges with low rainfall and warnings of water shortages, we have been spared the worst extremes of global weather.

The summer of 2022 has seen significant, sustained drought across the globe, from Europe to China, to the US and Africa. Europe is facing its worst drought in at least 500 years, according to the European Drought Observatory which is overseen by the European Commission. Two-thirds of the continent is in a state of extreme weather alert or warning. The searing “megadrought” that has gripped the southwest U.S. for more than two decades is the driest 22-year period in at least 1,200 years.

Many places now suffering from severe heat and drought – like the UK – don’t necessarily have the infrastructure to deal with such weather extremes. When rain does eventually fall, it is likely to cause flooding due to sustained heat and dryness, as well as the sheer amount of built-up precipitation released at once.

Heat waves are likely to get more severe in the future – contributing to further drought. Wildfires will continue and there will be increasing difficulties for agriculture, electricity production, and inland water transport. This will be a major challenge globally. In poor countries there is a growing risk of even more displacement and famine.

While drought and its consequences are to the forefront of media coverage, sight should not be lost of polar ice-caps melting by an area equivalent to half of the size of Ireland each year. The consequences for coastal areas are apparent throughout the globe, even in Ireland.

Our entire civilisation has unfolded under the skies of a remarkably stable climate. Now, thanks largely to human actions, that stability has come crashing to an end. Scientists tell us we need to keep global temperature rise to a maximum of 2 degrees Celsius – preferably 1.5 degrees – to avoid catastrophic consequences. 2022 is a year when we have been given, perhaps like never before, a forewarning of what the catastrophic consequences may be.

There is no single solution, but there are factors that can contribute to delaying the inevitable or possibly reaching an overall solution. Each of them requires an absolute global commitment and can only be achieved by high levels of investment. Contributors include – remove the use of fossil fuels and embrace renewables, electrify transport, retrofit houses, reduce waste, restore nature’s capacity to absorb carbon, reduce consumption and promote circular economy.


Investors Demand Information

Investors say they currently cannot readily use companies’ sustainability disclosures and find themselves having to reconcile different company reporting in order to gather the information they need for decision making on a comparable basis. Over the past decade, a number of bodies have produced nearly a dozen major reporting frameworks and standards, which businesses have discretion to apply as they see fit. This is an unsatisfactory position and has given rise to an escalating demand for a comprehensive corporate reporting framework, to include both financial reporting and sustainability reporting on an interconnected basis.

Regulators and standard-setters are responding and of particular note is the establishment of the International Sustainability Standards Board (ISSB) announced at COP 26 in November 2021. The ISSB operates under the oversight of the IFRS Foundation. The intention is for the ISSB to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions. In March 2022, the ISSB published drafts of its first two standards on general disclosure requirements and on climate-related disclosure requirements.

In Europe, there have been significant developments in 2022 with publication of the drafts of the European Sustainability Reporting Standards (ESRS) on foot of the draft Corporate Sustainability Reporting Directive (CSRD) which was published by the European Commission in April 2021. Both may be expected to see substantial progress towards completion over the coming months.

In the US, the Securities and Exchange Commission earlier this year proposed rule changes that would require registrants to include certain climate-related disclosures in their registration statements and periodic reports.

Draft standards or their equivalent may also be expected to be published by other regional standard-setters in the coming months.

The ISSB has formed a working group comprised of several jurisdictions to enhance the compatibility between the ISSB’s exposure drafts on sustainability disclosures and jurisdictional initiatives.

Specifically, the jurisdictional working group will discuss compatibility of those initiatives to establish how the global baseline, fully responding to the needs of global market participants, can contribute to optimising reporting efficiency for companies in those jurisdictions and how those jurisdictions can build upon the global baseline according to their needs.


FSB Road-Map

In July 2021, the G20 endorsed the Financial Stability Board (FSB) Road-Map for Addressing Climate-related Financial Risks. In July 2022, the FSB published its first annual progress report.

The progress report comments that extreme weather events during 2022 show that financial risks related to climate change, including transition risks, are not just a long-term issue or long-tail event, they are immediate. Developments highlight the challenges that lie ahead and underscore the importance of continued progress to embed effective risk management practices and build up financial system resilience.

Encouraging progress has been made across all four blocks of the road-map:

  • Firm-wide disclosures – the initiation of the ISSB in November and the publication of the draft standards are fundamental to establishing a global baseline for reporting;
  • Data – work has continued on improving the availability and cross-border comparability of climate-related data more broadly. A priority is to further co-ordinate the establishment of common metrics for financial risks, including forward-looking metrics anchored in real world climate targets;
  • Vulnerabilities analysis – there has been continuing progress along three strands – ongoing monitoring using the tools currently available, development of conceptual frameworks and further development of scenario analysis;
  • Regulatory and supervisory practices and tools – a number of initiatives are in progress including supervisory risk management expectations and supervisory guidance covering the bank, insurance and asset management sectors.

Progress is being made but there is still a long way to go in measuring and evaluating the financial risks of climate change. The FSB road-map will support progress over the coming year and beyond.


TCFD Recommendations

The Task Force for Climate-related Financial Disclosures (TCFD) is the brainchild of the FSB. The FSB-TCFD’s fundamental goal is to provide a consistent framework upon which entities – companies, cities, and even non-profits – can measure and report climate risk threats and opportunities to their stakeholders.

The TCFD first published its recommendations in 2017 based on four main pillars – Governance, Strategy, Risk Management, Metrics & Targets – with eleven recommended disclosures.

The TCFD Recommendations have been strongly endorsed by the Irish government as best practice for companies, opening up access to more sustainable pools of capital while addressing the needs of investors for greater transparency. The UK has gone even further, legislating for mandatory implementation reaching over 1,300 of the largest UK registered companies and financial institutions.


ISSB Draft Standard

The ISSB draft standard is largely based on TCFD Recommendation and when publishing its draft standard the ISSB included a comparison statement. The comparison statement commences with a clear statement that the ‘requirements proposed by the ISSB in the Exposure Draft Climate-related Disclosures (the Exposure Draft) are consistent with the four recommendations and 11 recommended disclosures published by the TCFD.’

Areas of specific difference include:

  • in describing the impact of risks and opportunities, additional, more granular information is required which is outlined in detail in the comparison statement;
  • a slightly different approach to transition plans with explicit requirements around disclosure of emission reduction targets and use of carbon offsets;
  • requires some additional information regarding resilience;
  • requirements are introduced to provide new disclosure of industry-based metrics relevant to an entity’s industry and activities;
  • a different disclosure treatment of greenhouse gases is required with Scope 3 emission disclosure a core requirement.

In FRB articles over the coming months, we shall review the responses to the consultations on draft standards and the developments towards the final standards.



The demand from investors and other stakeholders for a comprehensive corporate reporting framework, to include sustainability reporting, will drive the programme for completion of standards over the coming months.

Time and resources must be committed by companies to develop their knowledge of and familiarity with current developments and completion of standards. The standards when finalised are likely to have a relatively short lead-in period.

Fail to prepare, prepare to fail will become a reality for companies that do not make the commitment. The ability to provide the highest standard of disclosure as soon as the standards become applicable will be essential to inspiring and maintaining confidence and support in the investor community.

Resources and Publications

Closing Out 2021

Welcome to our one-stop guide covering the issues relevant to the preparation of December 2021 annual reports.


Governance in focus — On the board agenda 2022

Our annual review of board topics will stimulate your thinking and help prepare you for the year ahead. Across the board, expectations of business are rising and it is this demanding environment which shapes the articles in this year’s publication.


Annual Report Insights 2021 - Surveying FTSE Reporting

Surveying FTSE reporting. Our yearly survey scours the annual reports of 100 listed UK companies and provides insight and inspiration ahead of the next reporting season.


IFRS Model Financial Statements 2021

The Model for 2021 illustrates the presentation and disclosure requirements of IFRS Standards and also contains ‘best practice’ examples.


IFRS in your pocket 2021

IFRS in your pocket is a comprehensive summary of the current IFRS Standards and Interpretations along with details of the projects on the standard-setting agenda of the International Accounting Standards Board.


Understanding the differences between U.S. GAAP and IFRS Standards

A comprehensive 380-page publication focusing on some of the most common and significant differences that may affect financial statements when converting from U.S. GAAP to IFRS Standards and vice versa. Updated to 2022.


IFRS Foundation Trustees' sustainability reporting initiative

Summary of continuing developments.


Climate & Sustainability

Today’s climate crisis urges us to reinvent our economy. Business needs to change to meet higher expectations of sustainability and Deloitte is well-equipped to guide organisations through this change. Together we can rewrite the playbook on authentic business responsibility.


Operations Transformation

Operations reimagined and reconfigured - how do we embrace a future of change without losing focus on our purpose? We help you think holistically about the transformation process, so you're reskilling your people, redeploying your assets, and refreshing your technology stack.


Brexit Resources

Deloitte resources on financial reporting implications of Brexit, including links to news and publications.


New IAS Plus resource page

Highlights some of the key accounting and disclosure issues to be considered by entities that may arise as a result of COVID-19 in preparing financial statements.


Enhanced IFRS e-learning website

Our IFRS e-learning platform allows external users to complete over 40 of Deloitte’s IFRS e-learnings free of charge with 6 million+ uses in recent years.

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