1May2025ApplyingIFRS-ConnectedFinancialReporting-AccountingforClimateChange

Contents

Overview3

1.Disclosurerequirements8

1.1Whatistheissue?8

1.2Whatistheimpact?8

2.Property,plantandequipment24

2.1Whatistheissue?24

2.2Whatistheimpact?24

3.Impairmentofassets28

3.1Whatistheissue?28

3.2Whatistheimpact?28

4.Provisions,contingentliabilitiesandcontingentassets48

4.1Whatistheissue?48

4.2Whatistheimpact?49

5.Fairvaluemeasurement57

5.1Whatistheissue?57

5.2Whatistheimpact?57

6.Financialinstruments64

6.1Whatistheissue?64

6.2Whatistheimpact?64

7.Carboncreditsandrenewableenergycertificates78

7.1Whatistheissue?78

7.2Whatistheimpact?80

8.Nature-dependentElectricityContracts89

8.1Whatistheissue?89

8.2Whatistheimpact?90

Appendix1:Otherclimate-relatedaccountingconsiderations101

Appendix2:Summaryofimportantchangestothispublication104

2May2025ApplyingIFRS-ConnectedFinancialReporting-AccountingforClimateChange

Whatyouneedtoknow

Thereiscontinuedfocusonconnectivitybetweensustainabilityreportandfinancialstatementsandspecificallyonthemeasurementand

disclosureofclimate-relatedmattersinanentity’sfinancialstatements.

Thedeterminationoftheeffectsofclimatechangeonanentity’sfinancialstatementsmayrequiresignificanteffortandjudgement.

Entitiesarerequired,ataminimum,tofollowthespecificdisclosurerequirementsineachIFRSaccountingstandard.Entitiesmayneedtoprovideadditionaldisclosuresintheirfinancialstatementsinordertomeetthestandards’disclosureobjectives.Hence,indeterminingtheextentofdisclosure,entitiesarerequiredtocarefullyevaluatewhat

informationisrequiredforuserstobeabletoassesstheeffectsof

sustainabilityrisksandspecificallyofclimatechangeontheirfinancialposition,financialperformanceandcashflows.

Thispublicationisintendedtosupportentitiesinassessingandreportingonconnectivityandspecificallyontheeffectsofclimatechangefor

accountingpurposesbyprovidinghelpfulobservationsandillustrations.Considerationsprovidedinthispublicationwillalsoberelevantforotheruncertainties.

3May2025ApplyingIFRS-ConnectedFinancialReporting-AccountingforClimateChange

Overview

Theeffortstoreducethesociety’simpactonclimatechangehaveneverbeengreater.Atthesametime,thereisunprecedentedpressurefromstakeholdersforentitiestocommunicateclearcommitmentswhichissettocontinuefor

theforeseeablefuture.Investorshavehighlightedtheimportanceof

understandingentities’impactontheenvironmentintheirinvestment-makingdecisionsandtheirassessmentofmanagement’sstewardship.

Although,thereisnosingleexplicitstandardonclimate-relatedmattersinIFRSaccountingstandards,climateriskandotherclimate-relatedmattersmay

impactanumberofareasofaccounting.Financialstatements,asapartof

generalpurposefinancialreports,playasignificantroleinprovidingrelevant

informationtousersformakingdecisions.Whiletheimmediateimpactonthe

financialstatementsmaynotnecessarilybequantitativelysignificant,thereareincreasingexpectationsfromstakeholdersthatentitiesexplainhowclimate-

relatedmattersareconsideredinpreparingtheirfinancialstatementstotheextenttheyaremateria

l1

fromaqualitativeperspective.Stakeholdersalsoexpectrobustdisclosuresonthemostsignificantassumptions,estimatesandjudgementsmaderelatedtoclimatechange.

Climatechangeisexpectedtoimpactbusinessesinthedecadestocome.Whileitisimperativeforentitiestomoreexplicitlyaddressclimate-relatedrisksin

theirfinancialstatements,consideringdevelopmentsinpreviousandrecent

years,accountingpracticemayevolvegraduallyoverthenextfewyears.

Asclimate-relatedmatterscontinuetoevolveandentitiesmakefurther

commitmentsandtakeadditionalactionstotackleclimatechange,itis

importantforthemtoensurethattheirfinancialstatementsreflectthemost

up-to-dateassessmentofclimate-relatedrisks,theirintegrationintostrategiesorbusinessplansand,therefore,their(expected)impactonthefinancial

statements.Furthermore,entitiesneedtoensureconsistencybetween

informationcommunicatedinthefinancialstatementsandtheinformation

communicatedtostakeholdersoutsidethefinancialstatements,suchasinpressreleases,investorupdatesanddisclosuresinotherpartsof

theannualreport.

Connectivity

ThereleaseoftheInternationalSustainabilityStandardsBoard’sfirsttwoIFRSSustainabilityDisclosureStandardsinJune2023,alongwithrequirementsinCorporateSustainabilityReportingDirective(CSRD)applicabletotheEuropeanUnion,demonstratethattheimportanceofsustainabilityreportingwillonly

increase.Sotoowilltheimportanceofconsistentandcoherentinformation

betweenthefinancialstatementsandthesustainabilityreporting.Entitiesthathaveconnectedsustainability,financeandriskmanagementteamsarewell

placedtoensureidentifiedrisksandopportunities,aswellasanyplannedstepstomitigaterisks,arebuiltintotheirstrategy,businessplansandbudgeting,

whicharekeytosupportingconnectedreporting.

1Inaccordancewithparagraph7ofIAS1PresentationofFinancialStatements,informationismaterialifomitting,misstatingorobscuringitcouldreasonablybeexpectedtoinfluence

decisionsthattheprimaryusersofgeneralpurposefinancialstatementsmakeonthebasisofthosefinancialstatements.

4May2025ApplyingIFRS-ConnectedFinancialReporting-AccountingforClimateChange

TheInternationalAccountingStandardsBoard(IASB)willconsidertheworkoftheInternationalSustainabilityStandardsBoard(ISSB)totheextentrelevanttofinancialstatements.Together,theIASBandtheISSB(theBoards)intendtheirworktobecomplementaryandfacilitateconnectivityingeneral

purposefinancialreports

.2

SimilarinitiativesareexpectedinrelationtotherequirementsintheEuropeanUnion.Theseareimportanttohelpensurethatentitiesunderstand,andrespondto,expectationsofconnectedreportinginboththeirfinancialstatementsandsustainabilityreporting.Thisiscritical

because,whilethereareexpectationsofconnectivity,theconceptisnotuniformlydefined.

Theconceptof’connectivity’mightbebroaderthantheterm‘connected

information’describedintherequirementsofIFRSS1GeneralRequirements

forDisclosureofSustainability-relatedFinancialInformation.Aspartofits

requirementson‘connectedinformation’,IFRSS1requiresanentitytoprovideinformationexplainingtheconnectionsbetweendisclosuresprovidedacrossitssustainability-relatedfinancialdisclosuresandothergeneralpurposefinancialreportspublishedbytheentity,suchasitsrelatedfinancialstatements.Italsorequiresinformationaboutthecurrentandanticipatedeffectsofsustainability-relatedrisksandopportunitiesonanentity’sfinancialposition,financial

performanceandcashflows

.3

Topromotethisconnectivity,IFRSS1requiresentitiestouseconsistentdataandassumptionsinpreparingthesustainabilityrelatedfinancialdisclosureswiththerelatedfinancialstatementstotheextentpossibleconsideringtherequirementsofIFRSaccountingstandards.

ManyrespondentstotheISSB’sConsultationonAgendaPrioritiesprovided

feedbackonconnectivitydespitenoquestionsaboutconnectivitybeingincludedintheISSB’sRequestforInformation.Withthisinmind,theBoardswillcontinuetocollaborateinvariouswaysto“facilitatethedeliveryofacoherentand

comprehensivesystemofgeneralpurposefinancialreportingthatincludessustainability-relatedfinancialdisclosuresandfinancialstatements”

.4

Therearesomeexamplesofsustainability-relatedfinancialdisclosuresthatbothBoardshavecreated(e.g.,theIASBproject,ClimateandOtherUncertaintiesintheFinancialStatements)

.5

However,continuedjudgementwillbeneededin

determiningwhatinformationtoprovide,howtodemonstrateconnectivity

andthedegreetowhichcross-referencesispossible.Regulatoryrequirementsmightleadentitiestorepeatinformation,whichmightbeprovidedonadifferentbasis(e.g.,forward-lookingvshistorical).Transparencyandunderstandability

will,therefore,beimportantincommunicationwithusers.

IASBprojectsandIFRSInterpretationsCommitteediscussions

IntheIASB’sThirdAgendaConsultation,stakeholdersexpressedaviewthat

theremaybeinconsistentapplicationofIFRSaccountingstandardstoclimate-relatedrisksandinsufficientinformationdisclosedaboutclimate-relatedrisks

2PressRelease,IASBtoexplorewaystoimprovereportingofclimate-relatedandother

uncertaintiesinthefinancialstatements,20September2023,Availableon

3IFRSS1GeneralRequirementsforDisclosureofSustainability-relatedFinancialInformation,paragraph21(b)(ii)andparagraph23.

4Table1,TheISSB’sactivities,RequestforInformation:ConsultationonAgendaPriorities,Availableonwww,May2023.

5ConnectedresourcesarecompiledontheIFRSFoundation’swebsite,includingawebcastseriesthatillustratesconnectivity.

5May2025ApplyingIFRS-ConnectedFinancialReporting-AccountingforClimateChange

inthefinancialstatements.Inresponsetothatfeedback,theIASBadded

amaintenanceprojectonClimate-relatedRisksintheFinancialStatements.

TheIASBgeneralisedthepurposeoftheprojecttoincludeotherrelevantrisksinadditiontoclimate-relatedriskandrenamedtheprojectClimate-relatedandOtherUncertaintiesintheFinancialStatements.

InJuly2024,theIASBpublishedanexposuredraft,Climate-relatedandOtherUncertaintiesintheFinancialStatements.Theexposuredraftproposedthe

additionofeightexamplesillustratinghowanentityappliestherequirementsinIFRSaccountingstandardstoreporttheeffectsofclimate-relatedandotheruncertaintiesinitsfinancialstatements.Theproposedillustrativeexamplesareintendedtohelpimprovethereportingoftheeffectsofclimate-relatedand

otheruncertaintiesinthefinancialstatements.

Thecommentperiodfortheexposuredraftendedon28November2024.At

thetimeofwriting,theIASBhaddiscussedthefeedbackreceived,considered

possiblewaysforwardandwasexpectedtodecidetheproject’sdirectioninMay2025

.6

TheIASBalsohasanumberofotherongoingandcompletedprojectsrelated

toclimatechange.TheamendmentstoIFRS9andIFRS7addressingthe

accountingfornature-dependentelectricitycontractswereissuedinDecember

2024.(seesection8below).Thestandard-settingproject,Provisions-TargetedImprovements,isintendedtotackleissuesraisedbystakeholderswithsome

aspectsofexistingstandards.(seefurtherdetailsinsection4below).In

addition,theIASBiscurrentlyintheresearchphasefortheproject,IntangibleAssetsandplanstodefinethescopeoftheproject.Atthetimeofwriting,theIASBhadnotdecidedwhethertoexcludecarboncreditsfromthescopeofthisproject

.7

TheIASBdecidedtodeferthedecisionaboutwhethertoaddpollutantpricingmechanisms(PPMs)

8

toitsworkplanuntilthenextagendaconsultation,

althoughtheIASBstaffacknowledgedthat“…thereisdiversityinaccountingpracticeforPPMs“and“…theprevalenceandsignificanceofPPMsis

increasing”.Section7ofthispublicationdiscussesaccountingconsiderationsforcarboncreditsincomplianceandvoluntarymarkets

.9

Inaddition,theIFRSInterpretationsCommittee(theCommittee)hasdiscussedclimate-relatedaccountingissuesandissuedanagendadecisiononclimate-

related(netzero)commitments,whicharediscussedinSection4below.ThesubmissionandtheCommittee’sdiscussionhavedrawntheattentionofmanystakeholdersaroundtheworld.

6Projectpage:Climate-relatedandOtherUncertaintiesintheFinancialStatements,IFRSFoundationwebsite,accessed14April2025.

7Projectpage:IntangibleAssets,IFRSFoundationwebsite,accessed14April2025.

8Pollutantpricingmechanismsaremechanismsdesignedtocreateeconomicincentivesfor

reducingemissionsofgreenhousegasesandotherpollutants,whichcanbecategorisedaseithercompliancemarketsorvoluntarymarkets,IASBStaffpaper10AforthePollutantPricing

Mechanismsproject,IASBmeetinginJune2024,Availableon

.

9IASBstaffpaper10A,Availableon

.InMarch2025

,IASBstarteditsIASB’sFourthAgendaConsultation,coveringtheperiodbeginningin2027,Availableon

.

6May2025ApplyingIFRS-ConnectedFinancialReporting-AccountingforClimateChange

Regulators’focus

Regulatorsaroundtheworldhaveincreasedtheirfocusonreportingtheimpactofclimate-relatedrisksonfinancialstatementsandconsistencybetween

sustainabilityreportingand/orothercommunicationsononehand,andthe

relateddisclosuresinthefinancialstatementsontheother.Forexample,in

October2022,theUK’sFinancialReportingCouncil(FRC)publishedtheFRC

Labreport,NetZeroDisclosures

,10

toassistreportingteamsastheyprepare

disclosuresonnetzeroandothergreenhousegasemissionreduction

commitments.IntheEuropeancommonenforcementprioritiesfor2023annualfinancialreports

,11

theEuropeanSecuritiesandMarketsAuthority(ESMA)notedthat“consistenttreatmentofclimate-relatedmattersacrosstheannualfinancialreportisakeyelementtomitigatetheriskofgreenwashing”.InMarch2023

,12

ESMApresentedtwoenforcementdecisionstakenbynationalenforcers

(membersofESMA)requiringissuerstosupplementtheirdisclosureswith

morespecificclimate-relatedinformation.Thedecisions,whichrelatedto

theimpairmenttestsanddisclosuresofsourcesofestimationuncertainty,

concluded,thatinthefinancialstatementsthatweresubjecttothedecisions,informationprovidedinthefinancialstatementswasnotsufficient,particularlyinlightofclimate-relatedinformationstatedinthenon-financialsectionoftheannualfinancialreport.Thedecisionsemphasisetheimportanceofconsistencybetweenfinancialandnon-financialreportingintermsofclimate-related

assumptionsandinformation.ESMAcontinuestoemphasisetheimportanceofconsistencyandconnectivitybetweentheclimate-relatedinformationincludedbothinthefinancialstatementsandoutsidethefinancialstatements

.13

InApril2024,theESRB(EuropeanSystemicRiskBoard)publishedthereport,Climate-relatedrisksandaccounting,inwhichithasassessedhowclimate-relatedrisksareaddressedinexistingIFRSaccountingstandardsandreflectedinfinancialstatements,identifyingfourrelevantissuesforfinancialstability.Also,inthe

globalfinancialmarket,therehavebeeninitiativesrelatedtoclimate-relateddisclosures.InNovember2023,forexample,theBaselCommitteeonBankingSupervisionundertookpublicconsultationonDisclosureofclimate-related

financialriskstoaddressclimate-relatedfinancialriskstotheglobalbankingsystem

.14

Purposeofthispublication

Thispublicationisintendedtosupportentitiesinassessinganddisclosingthe

extenttowhichclimatechangeandclimate-relatedrisksaffecttheirfinancial

statementspreparedinaccordancewithIFRSaccountingstandards.Significantjudgementmayberequiredtoidentifytheaccountingconsiderationsthat

arerelevanttotheentity’sspecificfactsandcircumstances.Anyinformationincludedinthispublicationis,therefore,solelyintendedtoprovidehelpful

observationsandillustrationsandshouldnotbeinterpretedasanindication

10FinancialReportingCouncil,October2022,FRCLabReport:Netzerodisclosures,

.uk

11ESMA,25October2023,Europeancommonenforcementprioritiesfor2023annualfinancialreports,

https://www.esma.europa.eu

12ESMA,27thExtractfromtheEECS’sDatabaseofEnforcement,29March2023,

https://

www.esma.europa.eu

13ESMA,Europeancommonenforcementprioritiesfor2024corporatereporting,section4,24October2024,

https://www.esma.europa.eu

14BaselCommitteeonBankingSupervision,Disclosureofclimate-relatedfinancialrisks,29November2023,Availableon

/

7May2025ApplyingIFRS-ConnectedFinancialReporting-AccountingforClimateChange

thatthesewouldapplyorbesufficientinallcircumstances.Whilethis

publicationfocusesonthedisclosuresonclimate-relatedrisks,someentities

alsoincludeexplanationsoftheirsustainabilitystrategyorrisksimpacts

theirfinancialstatements.Forexample,ValeS.A.inits2023annualreport

discloseditsstrategyforsustainabilityinitiativesandtheimpactonfinancial

statementsinonenote.Thecompanyexplainedtheimpactsunderseparate

headingsforEnvironmental,SocialandGovernance.Althoughthispublicationhighlightedtheneedforconsistencywithclimate-relateddisclosuresinotherpartsoftheannualreport,itdidnotaddressthemanagementcommentary(orMD&A)norotherreportsoutsidetheIFRSfinancialstatements(forexample,

anyseparatesustainabilityreporting).

Extractsfromfinancialstatementspresentedhereinarereproducedfor

illustrativepurposes.Theyhavenotbeensubjecttoanyreviewastotheir

compliancewithIFRSoranyotherrequirements,suchaslocalcapitalmarket

rules.Thus,theydocumentpracticesthatentitieshavedevelopedtodate;theyarenotintendedtorepresent’bestpractice’.Theextractspresentedshouldbereadinconjunctionwiththerestoftheinformationprovidedinthefinancial

statementsinordertounderstandtheirintendedpurpose.

Althoughtheextractsaddressentities’sometimeshighlyspecificfactsand

circumstances,thejudgementsinvolvedandtherequirementsinIFRSstandardstodiscloserelevantinformationapplytoallreportingentities.Therefore,

werecommendthatentitiesfromallsectorsconsidertheseexampleswhen

reportingontheimpactofclimatechangetakingintoaccounttheirownspecificfactsandcircumstances.

ThispublicationgenerallycoversIFRSaccountingstandardscurrentlyeffectiveatthetimeofwriting,withlimitedexceptions.Itaddressestheamendments

toIFRS9andIFRS7,Contractsreferencingnature-dependentelectricityinSection8,butdoesnotaddress,forexample,IFRS18Presentationand

DisclosureinFinancialStatements,whichiseffectiveforannualreportingperiodsbeginningonorafter1January2027.

Pleasesee/IFRSforourmostrecentIFRSpublications.Inparticular,refertothe‘ApplyingIFRStotheEnergyTransition’seriesthatseekstoexplore

theaccountingimplicationsofemergingbusinessmodelsandarrangementsrelatedtotheenergytransition.Theseriescurrentlycoverspowerpurchaseagreements,carboncaptureandstorage.

8May2025ApplyingIFRS-ConnectedFinancialReporting-AccountingforClimateChange

1.Disclosurerequirements

1.1Whatistheissue?

IAS1PresentationofFinancialStatementsstatesthattheobjectiveoffinancialstatementsistoprovideinformationaboutthefinancialposition,financial

performanceandcashflowsofanentitythatisusefultoawiderangeofusersinmakingeconomicdecisions.Inordertosupportdecision-makingbytheusersoffinancialstatements,informationshouldhave,atleastinpart,aforward-

lookingorpredictivequality.Informationpertainingtoclimate-relatedmatterswillberelevantifinvestorscouldreasonablyexpectthatitwillhaveasignificantimpactontheentityand,therefore,influencetheirinvestmentdecisions.

Furthermore,IAS1requiresanentitytoconsiderwhetheranymaterialinformationismissingfromits?nancialstatements.

Asanoverarchingprinciple,IAS1requiresentitiestodiscloseinformation,forinstance,climate-relatedmatters,thatisnotspeci?callyrequiredby

IFRSstandardsandnotpresentedelsewhere,butwhichisrelevanttoan

understandingofthe?nancialstatements

.15

TherequirementsinIAS1arerelevanttotheentirefinancialstatements.

1.2Whatistheimpact?

Assumptionsandestimates

Disclosureofassumptionsinrespectofclimate-

relatedmattersmayberequired.

IAS1requiresdisclosureofinformationabouttheassumptionsanentitymakesaboutthefuturethathaveasignificantriskofresultinginamaterialadjustmentwithinthenextfinancialyear

.16

Assuch,assumptionsinrespectofclimate-

relatedmattersmayberequired.Insomecases,changesinkeyassumptionsrelatedtoclimateriskmaynotbeexpectedtoresultinmaterialadjustmentsintheshort-term,butthechanceofmaterialadjustmentsinthelongertermmaybesignificant.Inthatcontext,itisimportanttoacknowledgethatentities

mustprovideadditionaldisclosuresbeyondthespecificrequirementsin

IFRSstandardswhenthoserequirementsareinsufficienttoenableusersto

understandtheimpactofparticulartransactions,othereventsandconditionsonanentity’sfinancialpositionandperformance.Thus,disclosuresaboutkeyassumptionsmayberequiredalthoughtheriskofmaterialadjustmentsinthe

short-termmaybeconsideredaslow.Furthermore,thefactthatinvestorsandotherusersarerequestingmoretransparencyonclimate-relatedmatters,may,initself,suggestthatsuchdisclosuresarequalitativelymaterial,althoughthe

quantitativeimpactonfinancialmeasuresinisolationmaybedeemedoflittlesignificance,asinthecaseof,forinstance,assetswithrelativelyshortusefullives.

L’AirLiquideS.A.notesinitsdisclosuresontheuseofestimatesand

assumptions,thatitconsidersclimate-relatedriskstobematerialeventhoughthequantifiedimpactofclimate-relatedrisksontheentity’sconsolidated

financialstatementsisnotmaterial.

15RefertoIAS1.31andIAS1.112(c).

16RefertoIAS1.125.

9May2025ApplyingIFRS-ConnectedFinancialReporting-AccountingforClimateChange

Illustration1-1—L’AirLiquideS.A.-2024UNIVERSALREGISTRATIONDOCUMENT(Chemicalsector)

Useofestimatesandassumptions

Inits2024annualfinancialstatements,HeinekenN.V.notedthatclimate

changeisconsideredinitsestimatesandmanagementjudgementsalthoughithadnomaterialimpactonitsfinancialreporting.

Illustration1-2—HeinekenN.V.-2024annualreport(Brewerysector)

3.Significanteventsintheperiodandaccountingestimatesandjudgements

AvivaPlcdiscussesinitsriskmanagementdisclosuresinthefinancial

statements,howithasincorporateditscommitmenttoalowcarboneconomyinitsfinancialstatements.

10May2025ApplyingIFRS-ConnectedFinancialReporting-AccountingforClimateChange

Illustration1-3—AvivaPlc-2024annualreport(Financialservicessector-insurance,wealthandretirementservices)

52-RiskmanagementRiskEnvironment

EssilorLuxotticastatedinits2024UniversalRegistrationDocumentthatitsexposuretotheconsequencesofclimatechangeislimited.Italsoprovidedinformationhowitscommitmenttosustainabilityaffectsthefinancial

statements.

Illustration1-4—EssilorLuxottica-2024UNIVERSAL

REGISTRATIONDOCUMENT(MedicalEquipmentandServices)

BasisofPreparationoftheFinancialStatements

11May2025ApplyingIFRS-ConnectedFinancialReporting-AccountingforClimateChange

Illustration1-4—EssilorLuxottica–2024UNIVERSAL

REGISTRATIONDOCUMENT(MedicalEquipmentandServices)(cont’d)

Whenentitiesconsiderclimate-relatedassumptions,theymayneedtoupdatetheirprocesses.Historically,manyoftheassumptionsthatunderpinfinancial

reportinghavebeenmadeusinghistoricalexperience.However,withth