IFRS Foundation Reports Progress on Corporate Climate-Related Disclosures

On 12 November 2024, the IFRS Foundation released a progress report on corporate climate-related disclosures (2024 Report). The 2024 Report analyses the progress made since the sixth and final status report that was published by the Task Force on Climate-related Financial Disclosures (TCFD) in October 2023. 

Background

In June 2023, the International Sustainability Standards Board (ISSB), established by the IFRS Foundation, issued its inaugural standards: IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) (ISSB Standards).IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information, and IFRS S2: Climate-related Disclosures. The IFRS S2 incorporate the climate disclosure recommendations of the TCFD, and the ISSB was asked to take over the monitoring responsibilities of the TCFD.

The IFRS Foundation is therefore tasked with recording companies’ progress in making climate-related disclosures, by monitoring companies’ early take-up of ISSB Standards, as well as the ISSB’s progress in achieving interoperability between ISSB Standards and other standards and frameworks. 

The 2024 Report details companies’ progress in climate-related disclosures, including the transition from companies preparing disclosures using TCFD recommendations to using ISSB Standards. The 2024 Report also details the actions of a number of jurisdictions that have taken steps to introduce sustainability-related disclosure requirements, including through the adoption or use of ISSB Standards.

Global Adoption of ISSB Standards

According to the 2024 Report, as of September 2024, around 30 jurisdictions have introduced, or are taking steps to introduce, ISSB Standards into their legal or regulatory frameworks. Together, these jurisdictions represent (1) approximately 57% of global gross domestic product (GDP), (2) more than 40% of global market capitalisation, and (3) more than half of global greenhouse gas (GHG) emissions. 

The 2024 Report notes that these jurisdictions include those that have previously issued proposed disclosure requirements aligned with the TCFD recommendations (14 jurisdictions) and other jurisdictions, mainly in Africa, Latin America and the Caribbean, and Asia-Oceania, that are introducing sustainability-related disclosure requirements for the first time (an additional 16 jurisdictions).Refer to Section 4.2 – 4.3 of the 2024 Report for more information, including a summary of the status of all jurisdictions that have proposed or issued TCFD-aligned disclosure requirements. 

State of Climate-Related Financial Disclosures

The 2024 Report also provides an analysis of the state of climate-related financial disclosures by looking at reporting aligned with the TCFD recommendations. The requirements in IFRS S2 integrate, and are consistent with, the TCFD’s 11 recommended disclosures (with minor variations). 

In fiscal year 2023, based on a sample of 3,814 public companies, 82% disclosed information consistent with at least one of TCFD’s 11 recommended disclosures, reflecting growth from 73% in 2022. However, the 2024 Report also states that full compliance with all 11 recommendations remained limited to 2-3% of companies, and the ISSB believes this underscores the need for continued progress.

Regional performance varied, with European companies demonstrating the highest alignment rates, particularly in disclosing GHG emissions and other metrics. The Asia-Oceania region experienced the most significant year-on-year improvement in alignment. Among industries, energy and insurance sectors emerged as leaders in climate reporting, consistently providing more comprehensive disclosures. 

Companies reported the least on the resilience of their strategies under climate-related scenarios, an area identified as more challenging to implement due to its complexity and reliance on scenario analysis.

Update on Areas for Continued Focus and Next Steps

In a final section, the 2024 Report provides an update on the areas of continued focus identified by the TCFD in its 2023 status report, as well as considerations on next steps. 

The areas of continued focus identified by the TCFD in 2023 were: (1) interoperability; (2) guidance; (3) disclosing resilience of strategy under different climate-related scenarios; (4) decision-useful disclosure on other sustainability topics; and (5) climate-related disclosure by sovereigns. Specifically, the 2024 Report states that areas of focus for the ISSB will be to continue to prioritise supporting the implementation of ISSB Standards, including via the publication of educational material, in order to help companies, regulators, and other stakeholders prepare for use of the ISSB Standards. 

In relation to the interoperability of ISSB standards with jurisdictional frameworks in particular, in May 2024, the IFRS published its Inaugural Jurisdictional Guide for the adoption or other use of ISSB Standards (Jurisdictional Guide). The 2024 Report notes that the Jurisdictional Guide intends to bring transparency on the level of compliance of local standards with ISSB standards, aiming to promote consistency and avoid duplicative reporting. 

The ISSB has also worked with existing standard-setters on the issue of interoperability, resulting in guidance to clarify interoperability considerations:

• In January 2024, the IFRS Foundation and the Global Reporting Initiative (GRI) published Interoperability considerations for GHG emissions when applying GRI Standards and ISSB Standards.
• In May 2024, the IFRS Foundation and EFRAG published the ESRS–ISSB Standards Interoperability Guidance, which explains the alignment and interoperability between European Sustainability Reporting Standards (ESRS) and ISSB Standards.

To further support consistent reporting, ISSB introduced digital taxonomies that enable companies to report climate-related data in a structured and comparable manner. These digital tools represent a step towards ensuring transparency and facilitating the adoption of the ISSB framework across jurisdictions.

In terms of next steps, the 2024 Report identifies: (1) alignment between jurisdictional disclosure requirements and ISSB Standards; and (2) introduction of assurance requirements to improve the reliability and credibility of sustainability disclosures, as additional areas to monitor more closely in the future. Assurance requirements, coupled with the ongoing adoption of ISSB Standards, are expected to drive further progress towards achieving globally consistent climate-related financial disclosures.

Latham & Watkins will continue to monitor developments regarding sustainability reporting globally. 

This post was prepared with the assistance of Toon Dictus.