PRI calls on regulators to support IASB guidance for better reflecting climate in financial statements

The PRI has written to regulators in the EU, UK, Canada and Australia urging them to strengthen climate-related financial reporting by endorsing new illustrative examples from the International Accounting Standards Board (IASB), which demonstrate how companies can report climate-related and other uncertainties in their financial statements under existing IFRS Accounting Standards. Ceres and the Institutional Investors Group on Climate Change (IIGCC) co-published the letters to EU and Canadian regulators, and IIGCC also co-published the letter to the UK regulator.

Investors have long warned that climate-related and other uncertainties are not adequately reflected in company accounts, even as they hold increasingly significant accounting implications for a growing number of companies, both in terms of financial statement materiality and consistency with information across the annual report.

Our letters call on the European Securities and Markets Authority (ESMA), the Australian Securities and Investments Commission (ASIC), the Canadian Securities Administrators (CSA), and the Financial Reporting Council (FRC) to:

• Formally welcome the IASB’s examples and clarify that companies should consider them – and the requirements of the IFRS Accounting Standards they illustrate – when determining disclosures on climate-related matters.
• Engage with auditors to promote consistency across financial reports.
• Monitor company practice and consider supervision measures where material climate-related uncertainties remain unaddressed in financials.
• Coordinate with other regulators to ensure consistent expectations and messaging. 

Nathan Fabian, Chief Sustainable Systems Officer at the PRI, said: “It’s no secret that financial statements often don’t tell investors everything they need to know about the financial risks and opportunities facing a company. Market uptake of the IASB’s illustrative examples would be an important step toward making financial statements more reflective of climate-related risks and other uncertainties. We’re calling on regulators to publicly support their use so investors can make better-informed decisions and fulfil their duties to clients and beneficiaries.”

Steven M. Rothstein, Chief Program Officer at Ceres, said: “Stronger corporate accounting is needed to provide investors with greater transparency on material uncertainties, including climate risk. The IASB’s illustrative examples represent an important step towards improving the reliability and utility of financial statements for more effective capital allocation and decision-making, while addressing critical information gaps for investors.” 

Stephanie Pfeifer, Chief Executive Officer at Institutional Investors Group on Climate Change (IIGCC), said: “Climate change is already having material impacts on companies’ financial position and long-term prospects, and that reality needs to be visible in the financial statements investors rely on. Building on IIGCC’s recent investor expectations on integrating climate risks into financial statements, the IASB’s newly published illustrative examples offer much needed practical support to companies and auditors as they apply existing accounting requirements. Regulators have a crucial role in promoting the illustrative examples and ensuring consistent application of the standards. This will improve transparency, strengthen market integrity, and enable investors to allocate capital in line with sustainable long term value creation.”

Download the letters below.