International Financial Reporting Standards (IFRS) is taking over the monitoring of companies’ progress on climate-related disclosures from the Task Force on Climate-related Financial Disclosures.
The TCFD was created by the Financial Stability Board to develop recommendations on the types of information companies should disclose to support investors, lenders, and insurance underwriters in appropriately assessing and pricing risks related to climate change.
The transition of responsibility comes a few weeks after IFRS introduced the first-ever standards related to environmental sustainability disclosures. The standards, IFRS 1 and IFRS 2, incorporate the recommendations of TCFD and provide for a global baseline of sustainability-related disclosures worldwide. The standards also offer stability in environmental, social, and corporate governance reporting as these topics become increasingly important across industries.
IFRS S1 specifically communicates to investors the sustainability-related risks and opportunities faced over the short, medium, and long term. IFRS S2 sets climate-related disclosures, designed to be used with IFRS 1. ISSB is also consulting on further potential standards beyond IFRS 1 and IFRS 2.
“The TCFD has been a trailblazer in raising the practice and quality of climate-related disclosures, providing much-needed information to investors about climate-related risks and opportunities,” ISSB Chair Emmanuel Faber said in a statement. “The ISSB has built from and consolidated the market-leading investor-focused sustainability-reporting initiatives to deliver the ISSB Standards, with the TCFD recommendations at the heart of this. As such, the ISSB welcomes the FSB's request to transfer the TCFD’s monitoring responsibilities to the ISSB from 2024 and the opportunity to build on TCFD’s legacy. This announcement provides yet further clarification of the so-called ‘alphabet soup’ of ESG initiatives for companies and investors.”
The change in monitoring will start in 2024, with the IFRS Foundation taking over the responsibilities from TCFD. The task force has been monitoring progress toward climate-related disclosures against the recommendations since they were published, according to the IFRS.
The standards come as ESG disclosures are becoming common practice among businesses and organizations. ESG reporting can help boost a company’s image among consumers, who increasingly care about the impact of their purchasing decisions on the environment. Stakeholders have also demanded more transparency on sustainability, pushing ESG reporting further into the limelight. These trends are expected to continue as sustainability-related disclosures become standardized.
