Canadian Consultation: Climate-related Disclosures Exposure Draft

Paragraph 1 Objectives – The objective of [Draft] IFRS S2 “Climate-related Disclosures” is to require an entity to disclose information about its exposure to significant climate-related risks and opportunities, enabling users of an entity’s general purpose financial reporting:

1. to assess the effects of significant climate-related risks and opportunities on the entity’s enterprise value;
2. to understand how the entity’s use of resources and corresponding inputs, activities, outputs, and outcomes support the entity’s response to and strategy for managing its significant climate-related risks and opportunities; and
3. to evaluate the entity’s ability to adapt its planning, business model, and operations to significant climate-related risks and opportunities.

Paragraph 13 – “An entity shall disclose information that enables users of general purpose financial reporting to understand the effects of significant climate-related risks and opportunities on its strategy and decision-making, including its transition plans…”

The Task Force on Climate-Related Financial Disclosures’ (TCFD) 2021 status report identified the disclosure of anticipated financial effects of climate-related risks and opportunities using the TCFD recommendations as an area with little disclosure.

In paragraph 14, the Exposure Draft proposes that an entity be required to disclose the effects of significant climate-related risks and opportunities on its financial position, financial performance, and cash flows for the reporting period, and the anticipated effects over the short, medium, and long term—including how climate-related risks and opportunities are included in the entity’s financial planning.

Note: This is the least reported category of the TCFD recommendations. The U.S. SEC refers to these as financial impact metrics and provides specifics on how to conduct the analysis.

The Exposure Draft proposes that an entity be required to use climate-related scenario analysis to assess its climate resilience unless it is unable to do so. If an entity is unable to use climate-related scenario analysis, it shall use an alternative method or technique to assess its climate resilience. The proposed requirements are designed to accommodate alternative approaches to resilience assessment, such as qualitative analysis, single-point forecasts, sensitivity analysis, and stress tests.