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IFAC Report: Climate Disclosures Hampered by Inconsistencies

S.J. Steinhardt
Published Date:
Nov 10, 2022

A lack of consistency and comparability in corporate sustainability disclosure may pose challenges for investors, regulators, and other stakeholders who require decision-useful information, according to a new report from the International Federations of Accountants (IFAC).

The report, Getting to Net Zero: A Global Review of Corporate Disclosures, analyzed disclosure trends in emissions reduction targets and transition plans of the 40 largest exchange-listed companies in 15 jurisdictions, for a total of 600 companies. The jurisdictions include G7 countries and 8 non-G7 countries for the 2020 reporting year.

The report was issued a day after an announcement that the International Sustainability Standards Board (ISSB)’s upcoming climate-related disclosure standards will be incorporated into the platform of the nonprofit whose environmental disclosures are used by more than 18,000 companies. That announcement, and this report, came during the 2022 U.N. Climate Change Conference, more commonly referred to as the Conference of the Parties of the U.N. Framework Convention on Climate Change (COP27) in Sharm el Sheikh, Egypt. 

The IFAC report cited key policy considerations that include consistent terminology, Scope 3 emissions (15 categories of indirect emissions from an entity’s value chain), standardized transition plan disclosures, and the transparency of financial implications of decarbonization.

The report called on the accounting profession to play an important role in enabling reporting entities to comply with new climate reporting regulations and standards by:

• Enhancing the quality of climate-related financial disclosures;
• Assisting with the implementation of robust reporting processes; and
• Ensuring that climate disclosure is decision useful for management and boards, investors and all stakeholders.

“The accountancy profession is well positioned to drive improvements in climate reporting, ensuring information is trusted and decision-useful for management and boards, investors, and all stakeholders,” IFAC CEO Kevin Dancey said in a statement.

The report found that 66 percent of the large, exchange-traded companies reviewed by IFAC included some type of emissions reduction target in their corporate disclosures. Only 39 percent incorporated Scope 3 emissions. Ninety percent of those that disclose emissions targets also provide a disclosure about how they plan to reach their target, but only 24 percent of those with a plan include some past expenditure or future estimate of expenditures to implement the actions in the plan.

One problem is that the terms "carbon neutral" and "net zero" are often used interchangeably. The report cited that as an issue that can lead to inconsistencies in what stakeholders understand about what is or is not included in an entity's emissions reduction target. According to the report's glossary, "carbon neutral" means the reduction or offset of carbon emissions to zero or near zero levels, while "net zero" means the reduction or offset of all greenhouse gases to zero or near zero levels.

The report also found that Scope 3 disclosures can vary. Some companies may include all 15 categories from the Greenhouse Gas Protocol standards, only material categories or only selected categories of Scope 3 emissions.

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