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Climate change has impacts that reach far beyond the more extreme weather patterns and overall global temperatures we are experiencing today.
These changes affect everything in our lives, from the crops we can grow to where we can live and work.
With eight in 10 Australians concerned about Climate change, businesses and governments alike are facing increasing scrutiny. This has seen significant changes in legislation and oversight, as investors and regulators expect greater transparency and more comprehensive insights into corporate responsibility and green practises.
To this end there has been significant focus globally on developing a framework for disclosure of climate-related financial risks. In late June 2023, the International Sustainability Standards Board (ISSB) issued the first two IFRS Sustainability Disclosure Standards:
- IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (‘IFRS S1’); and
- IFRS S2 Climate-related Disclosures (‘IFRS S2’).
IFRS S1 requires an entity to disclose information about its sustainability-related risks and opportunities which may arise from dependencies and relationships the organisation maintains, whether they be short, medium or long term. IFRS S2 complements IFRS S1 by focusing on the disclosure of climate-related risks and opportunities to the entity and must be used in conjunction with IFRS S1..
Together IFRS S1 and S2 are designed to assess risks and opportunities affecting the current period reported, but also to assess the likely future impact of climate-related matters on the company.
Concurrently, on 2 August 2023, the International Auditing and Assurance Standards Board (IAASB) issued its proposed International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements, which aims to improve confidence and trust in sustainability reporting. It is expected to complement the work of other standard setters, including the ISSB.
In Australia, the Government is undergoing public consultation on the implementation of standards for disclosing climate related financial risks and opportunities in Australia, which are expected to come into force for large Australian entities as early as July 2024. The current proposal involved three stages, starting with large, publicly listed Australian entities, and then progressively expanding over to apply to all businesses with over 100 employees by July 2027. The process is not finished, but considering our Australian Accounting Standards (‘AASB’) are equivalent to IFRS, it is expected that we will soon have Australia equivalents of IFRS S1 and IFRS S2. (you can find more details on this process in our article Launch of the new ISSB Standards – What does this mean for you?)
What areas entities in the Manufacturing sector should consider?
Historically the Manufacturing sector has one of the largest carbon footprints the new standards will therefore have a significant impact in the financial statements of companies in the manufacturing sector., no other standards since introduction of revenue and leases standards in 2018 and 2019 have had such a significant impact on reporting for manufacturing businesses. .
To help manufacturing businesses assess the impacts of the new standards on their procedures and reporting we’ve outlined five common areas where Climate-related matters will potentially impact the financial statements of entities in the manufacturing sector:
FOR MORE INFORMATION
For further information, please contact your RSM contact or your nearest RSM office.
