A4S response to IFRS Interpretation Committee’s consultation on climate commitments (IAS 37)

5th February 2024

Dear IFRS Interpretation Committee (“the Committee”),

We welcome the possibility to respond to the consultation on your tentative agenda decision with regards to the treatment of climate commitments. We believe that the disclosure of robust, comparable and decision-useful information is essential to address with urgency the environmental and social challenges facing the global economy.

Accounting for Sustainability (A4S)

As background, Accounting for Sustainability (A4S) was established in 2004 to mobilize action and leadership by the finance and accounting community to make sustainable business, business as usual. 

We work with the finance and accounting community to:

• Inspire finance leaders to adopt sustainable and resilient business models.

• Transform financial decision making to enable an integrated approach, reflective of the opportunities and risks posed by environmental and social issues.

• Scale up action across the global finance and accounting community.

A4S has worked with CFOs and finance teams, investors, accounting bodies, regulators and other representatives from across the finance and accounting community on reporting for many years, including setting up the International Integrated Reporting Council in 2010 and helping establish the Task Force on Climate-related Financial Disclosures (TCFD). As part of this activity, we work closely with organizations and institutional investors to understand the practicalities of the preparation and use of sustainability disclosures to enable better informed decisions. 

Our consultation response is informed by this work with the finance and accounting community globally. We welcome the possibility to respond to this consultation as an important step to meeting the needs of the finance community. 

Observations

We appreciate the Committee’s consideration of this topic and the specific fact pattern used. We would like to share the following observations in response to the consultation: 

1. The Committee should consider broadening out the range of fact patterns and scenarios beyond the narrow example already assessed. This is important both to provide additional guidance to a range of preparers in different sectors and to satisfy the Committee that the same conclusion would be reached. 

The types of net zero commitments and ambitions being disclosed by companies vary significantly. For example, some organizations are announcing long-term ambitions, while others are providing more detailed plans with targets in the short and medium term.  Some organizations are utilizing third-party certification processes, while others are joining sector initiatives on net zero, with varying degrees of details on their implementation plans at the time of announcement. These differing circumstances may result in differing levels of expectations from users of financial information, and, in some cases, obligations may arise from past events. An example might be where a company commits to offset legacy emissions. As such, consideration of further fact patterns would be useful. Guidance could also be provided on cases where transition plans evolve thanks to new technologies and better data, instances where targets are not met etc. This will enable consistency in approaches and reliability of financial disclosures.

2. The Committee should consider and express a view on what circumstances climate commitments or publicly disclosed transition plans meet the definition of restructuring as defined in IAS 37.10. 

Climate commitments and the implementation of transition plans for organizations in certain industries may significantly impact the company’s business model. As such, we encourage the Committee to clarify, through guidance, examples and real fact patterns, circumstances, if any, that might result in meeting the definition of a restructuring in IAS 37, ie “a programme that is planned and controlled by management, and materially changes either: 

a. The scope of a business undertaken by an entity; or 

b. The manner in which that business is conducted.”

3. Beyond IAS 37, clarity on whether and how climate commitments and transition plans should be represented or disclosed in the financial statements will benefit preparers and users.  

Users in particular, have struggled to assess the reliability and credibility of such announcements and disclosures, as well as assessing the actual long-term investment and performance of organizations in relation to such targets. Clearer connectivity, links and bridges in particular between IAS 37, IAS 38 and IFRS S1 and S2 need to be addressed with urgency, and this can already be actioned by the Committee. We believe the Integrated Reporting framework can be a useful tool to support the work of the IFRS Foundation in this space (for more details, you can read our response to the ISSB’s consultation on agenda priorities).

We commend the work to date by the IFRS Foundation as a whole and the intention to promote further connectivity and integration between financial and sustainability reporting. 

Thank you for the opportunity to respond to this consultation. We would be delighted to discuss any of our comments in more detail should further input be of assistance, and we look forward to continuing to support CFOs, investors, accountants and the wider finance community in navigating this rapidly evolving landscape.

Yours faithfully,

Jessica Fries, Chair

Martina Tessari, Global Reporting Lead