FSB publishes annual report on climate related disclosures: “significant further progress” on standard setting, more needed on climate disclosures

On 12^th October, the Financial Stability Board (FSB) published its annual progress report on climate related disclosures. Within this report, it also commented on the TCFD’s sixth and final Status Report (also published on the same day). 

FSB annual progress report on climate-related disclosures

“Significant further progress has been achieved on setting comparable, consistent and decision-useful climate-related financial disclosures standards and requirements over the last year”, according to the FSB.  It welcomes the publication of the ISSB Standards, which will serve as a global framework for sustainability disclosures and, when implemented, will enable disclosures by different companies around the world to be made on a common basis. The FSB will work with the ISSB, International Organization of Securities Commissions (IOSCO) and other relevant bodies to promote the timely and wide use of the standards. A key focus is on interoperability of the ISSB standards with jurisdictional disclosure frameworks – seen as necessary in order to achieve global comparability of climate-related disclosures (the work being undertaken by the ISSB and various EU bodies to support companies wishing (or needing) to apply both the ISSB’s IFRS Sustainability Disclosure Standards and ESRS together, is highlighted here).  Our earlier blog post considers the ISSB and interoperability with other key sustainability disclosure standards in greater detail. 

The FSB is also encouraged by the progress on development of a global assurance, ethics, and independence framework for sustainability disclosures – the objectives being to enhance the quality and reliability of sustainability-related information through third-party assurance (and thereby hopefully deter greenwashing)

The report describes the progress made by jurisdictions in promoting climate-related disclosure practices, including the steps being taken already to prepare for adopting and applying the International Sustainability Standards Board (ISSB) disclosure standards. All FSB member jurisdictions have now taken active steps towards the goal of companies providing climate-related disclosures as part of their mainstream disclosures - with three-quarters of jurisdictions already have measures in place (among those 20 jurisdictions that have taken additional actions to setting requirements, guidance or expectations on climate-related disclosures, TCFD Recommendations continue to be referenced as the common basis in most cases). Jurisdictions are now beginning to consider ways in which they might adopt, apply or otherwise be informed by the ISSB Standards within the context of their jurisdictional arrangements. 

The report also considers the scope of climate-related disclosures, including:

• Climate-related disclosures by financial institutions’ clients: many financial authorities or jurisdictions are setting (or plan to set) expectations for financial institutions to require or encourage their borrowers and investees/issuers of assets in which they invest to make climate-related disclosures.
• Increased focus on materiality: some jurisdictions continue to apply a “financial materiality” lens, whereas in other jurisdictions (the ESRS in the EU for example) use a “double materiality” perspective.
• Stronger focus on mandatory disclosures and deployment of enforcement/compliance mechanisms

TCFD 2023 Status Report

The 2023 TCFD Status Report describes companies’ progress in making climate-related financial disclosures and highlights some of the challenges they face in making such disclosures. The report finds that the percentage of companies reporting on climate-related risks or opportunities, board oversight, and climate-related targets increased significantly between fiscal years 2020 and 2022 but more progress is needed.  Although companies continue to make progress in their disclosures, significant gaps in data remain. In particular, reporting the impact of climate change on companies’ businesses, strategies, and financial planning is still lagging behind. 

Other key findings from the report include:

• 97 of the 100 largest companies in the world have declared support for the TCFD, report in line with the TCFD recommendations, or both.
• 58% of companies disclosed in line with at least five of the 11 recommended disclosures but only 4% disclosed in line with all 11.
• Over 80% of the largest asset managers and 50% of the largest asset owners reported in line with at least one of the 11 recommended disclosures. 
• Disclosure of climate-related financial information is limited. On average for fiscal year 2022, information aligned with the 11 recommended disclosures was four times more likely to be disclosed in sustainability and annual reports than in financial filings.
• The majority of jurisdictions with final or proposed climate-related disclosure requirements specify that such disclosures be reported in financial filings or annual reports.
• The top challenge for asset managers and owners for climate-related reporting is insufficient information from investee companies. 

Areas for further work

With the ISSB’s inaugural Standards having been released, the TCFD’s work is now complete, and the FSB has requested the ISSB to assume responsibility for monitoring progress on the state of climate-related financial disclosures by companies as of next year, which will help to support adoption of IFRS S1 and IFRS S2.  The 2023 TCFD Status Report reflects on the TCFD’s work over the past eight years, and highlights areas for further work by the ISSB, including:  

• Ensuring interoperability of the ISSB Standards with jurisdictional frameworks to support consistent company reporting across jurisdictions and avoid the need for companies to report through multiple venues.
• Developing implementation guidance on topics such as climate-related physical risk assessment and adaptation planning, climate-related scenario analysis at a sector or industry level, and Scope 3 GHG emissions measurement at a sector or industry level.
• Continuing to focus on companies’ disclosure of the resilience of their strategies under different climate-related scenarios, including a climate-related scenario aligned with the latest international agreement on climate change.
• Continuing to focus on decision-useful disclosures on other sustainability topics – such as biodiversity, water, and social issues – and consideration of the linkages between climate-related and other sustainability issues (for example, in the context of companies’ transition plans).

The FSB press release is here.

The TCFD press release is here.