International Accounting Board proposes enhanced climate change reporting guidelines to boost investor clarity

The International Accounting Standards Board (IASB) on Wednesday proposed new guidance that would mandate companies to better capture the impact of climate change on financial performance. It hopes to improve stand-alone disclosures—investors argue these lack clarity for informed decision-making.

Their norms are already applied by the listed companies in more than 140 jurisdictions including the European Union, Canada, Japan, and Britain. The United States has its own set of rules, though the proposed guidance may set a global precedent. The IASB has launched a consultation on the proposed guidance designed to better reflect climate change impacts in financial statements.

Currently, regulators have already begun to roll out sustainability disclosures for listed companies, but most of these disclosures are published separately from the financial statements, not being subject to rigorous auditing processes. The IASB proposal attempts to fill this gap with examples of how such sustainability commitments—net-zero carbon emissions goals and transition plans, impact a company's financial figures on assets, liabilities, income and expenses.

Investors have said they want to know whether assets will retain their value going forward as climate change impairs them, such as through flood damage.

"They expressed concerns that information about climate-related uncertainties in financial statements was sometimes insufficient or appeared to be inconsistent with information provided outside the financial statements," the IASB said in a statement.

Currently, companies dealing with oil and gas have already started addressing the impact of climate change by putting notes attached to their financial statements. It is this practice that the IASB intends to standardise among all industry players by ensuring that all companies give a succinct account of how climate-related uncertainties affect their financial performance.

The IASB explains that the proposed guidelines aim to improve transparency and consistency in reporting so that investors have an easier time understanding how climate change issues bear on the financial health of a corporation. This could be expected to enhance investor confidence, leading to better decision-making in the markets for the attainment of a more sustainable financial system.