A new report from the UK Financial Reporting Council (FRC) Lab is designed to assist in the preparation of disclosures on net-zero and other greenhouse gas (GHG) emission reduction commitments.
The report, Net Zero Disclosures, explores investor needs and highlights issues, interesting practice, and practical questions for preparers to consider, according to the FRC. The report also explores processes and provides tips from companies the FRC Lab spoke to for the project.
“Companies are increasingly setting net-zero targets. This report provides practical guidance to help companies effectively communicate what their commitments are and what they mean for the business in the future,” FRC Lab Director Philip Fitz-Gerald said in a statement.
During discussions with investors and companies, the Lab identified three elements of net-zero commitments that investors want to understand from disclosures:
Commitments: The level of ambition, scope, nature, and timing of the commitment, and what is included and excluded.
Impacts: How the commitment impacts the strategy and business model, including information on transition plans, assumptions, uncertainties, and risks and opportunities.
Performance: How performance is being measured in the short, medium, and long term. How high-quality data and accountability will be ensured, and actions management is taking in response to changes.
The report said that, at a foundational level, investors want to understand:
- The types of GHG emissions in scope, and any scopes excluded.
- Whether the commitment relates to absolute and/or intensity-based reductions.
- The boundaries of the commitment, including any regions or operations excluded.
- The timelines management expects to meet the commitment in.
- Whether the company intends to rely on offsets and, if so, the nature and extent of reliance.
The report is supported by a detailed example bank providing current good practice examples to help companies improve their disclosures.
— To comment on this article or to suggest an idea for another article, contact Steph Brown at Stephanie.Brown@aicpa-cima.com.