Enhanced climate-related disclosures would make climate change a boardroom issue, but must not mean annual reports become less useful to investors as the volume of information increases, ICAEW has warned
In its official response to the Financial Stability Board’s report on climate-related financial disclosure (TCFD), the ICAEW has strongly endorsed the recommendations as a first step towards ensuring these critical issues are embedded in company strategy but has warned that the requirements should not add extraneous detail to already long annual reports.
Dr Nigel Sleigh-Johnson, head of ICAEW’s Financial Reporting Faculty, said: ‘More information on climate change in financial reports would encourage greater analysis of the risks climate change represents to business models, strategy and viability, especially at board level.’
On the downside, the additional disclosures will add to the volume of information in annual reports, which have been growing year on year despite calls from the accounting regulator, the Financial Reporting Council (FRC), to reduce the level of data published to improve transparency for stakeholders.
ICAEW has suggested careful application of the materiality concept when implementing the recommendations with only high level strategic disclosures included in the annual report and any additional disclosures published on company websites so that investors and others can choose to access that more detailed information.
Sleigh-Johnson said: ‘Putting some of the more detailed disclosures online will make it easier for report users to choose how much they want to access – and gives the option of including graphs or interactive features to make it more readable.’
ICAEW also supports the voluntary approach adopted by the TCFD which – in the short term – will encourage companies to experiment and allow best practice to evolve.
Sleigh-Johnson said: ‘The voluntary approach to the recommendations could result in diversity of quality and style of disclosures, making them difficult to compare like for like. We recommend a three to five year experimentation period, subject to close monitoring, with a view to reviewing the case for taking steps in the direction of a mandatory approach.’
The ICAEW submission on climate change reporting is available here
Report by Sara White