EFRAG briefing summary sheds light on climate-related risks in financial statement
EFRAG recently published insights into the International Accounting Standards Board’s (IASB) project on climate-related risks in the financial statements. The briefing covers key findings from EFRAG’s outreach and reviews of European companies’ reporting of climate-related risks.
The research project stems from respondents to the 2021 IASB Third Agenda Consultation identifying climate-related risk in financial statements as a high priority. EFRAG’s briefing summary delves into results from outreach and analysis conducted in summer 2023, based on surveys and stakeholder meetings.
The findings highlight the nature and prevalence of concerns related to climate-related risk reporting in financial statements. While there is an improving trend in the reporting of climate risk, issues persist, including a disconnect between the front end of the annual report and financial statements.
EFRAG found that climate-related risks reported are sometimes too high-level and inadequate. There is also a perceived lack of full compliance with IFRS Accounting Standards, with concerns around how the concept of materiality is required, and varying interpretations of IFRS requirements. The suggested course of action is for the IASB to enhance capacity with better, more illustrative guidance.
However, these concerns predate the adoption of mandatory sustainability reporting requirements – and, with new sustainability reporting requirements including connectivity, there is a hope that the general trend will move towards better identification of material sustainability risks.
Based on these results, the IASB will decide on a project direction this September.
Read the summary here.