Monitoring of Climate-related Disclosures Transfers from TCFD to IFRS

The Financial Stability Board (FSB) has officially transferred the responsibility of monitoring companies’ climate-related disclosures from the Task Force on Climate-related Financial Disclosures (TCFD) to the International Financial Reporting Standards Foundation (IFRS), following the release of the 2023 TCFD status report.

In response to this transition, WSP has prepared the following information to help inform the expectations for companies operating under the supervision of the IFRS.

What Does This Mean for Companies?

In June, the IFRS released its ISSB (International Sustainability Standards Board) standards (S1 and S2). These standards aim to create a global baseline for consistent sustainability-related disclosures for companies to report in tandem with their financial statements.

The standards incorporate recommendations from the TCFD, as well as feedback and considerations from the FSB, the Group of 20 and the International Organization of Securities Commissions.

IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) provides a framework for communicating a company’s sustainability-related risks and opportunities to investors across short, medium and long-term time horizons.

Building on IFRS 1, IFRS S2 (Climate-related Disclosures) aims to provide specific climate-related risk and opportunity disclosures.

How Are the IFRS S1 and S2 Standards Different from TCFD?

While IFRS S1 and S2 fully incorporate recommendations from the TCFD, IFRS S2 has notable differences from the TCFD guidance that will require more detailed information from participating organizations.

For example, IFRS S2 is largely consistent with the “TCFD Risk Management recommended disclosure b,” which states the following: “Describe the organization’s processes for managing climate-related risks.” However, IFRS 2 expands upon the TCFD recommendation and requires additional information, including “…the processes used to identify, assess, prioritize and monitor climate-related risks and opportunities.”

Documentation comparing the TCFD recommended disclosures to the IFRS S2 can be found here.

Should I Align my Disclosures to the IFRS S1 and S2 Standards Instead of TCFD?

Because the IFRS fully incorporate the TCFD recommendations, current TCFD-aligned disclosures will broadly align with IFRS S1, but may not fully include some of the specific, additional requirements listed in IFRS S2.

Companies with current TCFD-aligned disclosures should consider taking steps to further align their reports to IFRS S2. That being said, there are many reasons why a company may choose to align with S2, or to remain aligned with the TCFD recommendations instead.

It is important to understand the potential drivers for alignment, such as regulatory indicators or stakeholder pressures. Companies that haven’t yet started to disclose their climate-related risk and opportunities must also understand these drivers before they begin reporting.

In the case of regulatory indicators, compliance should be a top priority. Alignment with the TCFD or the IFRS S2 is a journey, and company alignment is expected to be an evolving process that will take time.

WSP will continue to monitor and share any news on these climate-related disclosure frameworks. For more information and assistance, please reach out to Susan Kemball-Cook, Dana Davis or your WSP consultant.

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