A review led by the U.K. Endorsement Board (UKEB), an independent body which adopts and endorses accounting standards, has identified three areas of connectivity challenges between Task Force on Climate-related Financial Disclosures (TCFD) and financial statements.
The report is based on the results of over 20 research articles which examined the connection between climate disclosures and financial statements.
It found that there is frustration from shareholders over the lack of connectivity between climate-related narrative disclosures and their associated disclosures in the financial statements. This included insufficient detail in financial statements when compared to extensive disclosures about climate-related risks and opportunities in strategic reports.
It was also noted that although there has been an increase in climate reporting in companies’ annual reports, the quality of these disclosures is still quite low. Examples of ‘low-quality’ disclosures were cited as limited evidence that climate-change issues have been considered in financial statements, a lack of quantified information and generic, rather than company-specific, information on connectivity.
UKEB also noted that more transparency is required regarding climate-related estimates and judgements used to prepare financial statements with half of the articles reviewed recording the issue as a critical area of low connectivity.
Entities with significant greenhouse gas (GHG) emissions provided limited evidence to confirm that climate change issues were considered in the preparation of financial statements, the report noted.