The IASB recently added a project to its work plan to explore whether and how companies can provide better information about climate-related risks in their financial statements.

Here’s how the news release summed it up:

• The initiation of the project responds to feedback received from the IASB’s recent Agenda Consultation for the IASB to enhance the reporting of climate-related risks in the financial statements.
• In undertaking the project, the IASB will consider the work of the International Sustainability Standards Board (ISSB) to ensure any proposals work well with IFRS Sustainability Disclosure Standards and that any information required by the two boards would be complementary. The first two IFRS Sustainability Disclosure Standards are due to be issued by the end of Q2 2023….
• The project was discussed at the IASB meeting this week for the first time. The project will research to what extent the educational material published in 2020 is helping companies reflect the effects of climate‑related risks in the financial statements, and what actions, if any, the IASB could take to further improve information about these matters.

At the same time, the IASB issued two separate articles with “connectivity” in the title. Here’s an extract from one of them:

• The ultimate outcome of connectivity is holistic, comprehensive and coherent general purpose financial reports. Connectivity in our products and connectivity in our processes contribute to that goal. 
• Investors are the primary audience for general purpose financial reports, which include sustainability-related financial disclosures and financial statements…
• Sustainability-related financial disclosures and financial statements complement each other. For example, sustainability-related financial disclosures may explain the sustainability-related risks and opportunities arising from an entity’s activities and its assets and liabilities. Such disclosures may also provide early indications of matters that will subsequently be reflected in financial statements. For example, a company’s commitment to net zero emissions could, over time, result in liabilities being reported in the financial statements.
• Investors need general purpose financial reports to give them a holistic, comprehensive and coherent picture of a company. They want to understand how matters reported in financial statements and in sustainability-related financial disclosures are connected.

The other article gave examples of questions asked by “some stakeholders” in this respect:

• why companies that are expected to be affected by climate-related risks do not provide information about these effects in their financial statements;
• why companies that have made net zero commitments do not recognize liabilities or impair the value of their assets as a result of those commitments; and
• how companies should factor long-term uncertainties into the measurement of amounts in the financial statements. 

Of course, that covers a lot of ground: the first question might be answered through a fairly simple explanation of reporting scope and limitations, but the second and third appear somewhat more involved. Anyway, to emphasize the importance of all this, one of the articles was co-authored by the two Chairs, Faber and Barckow, and came with a nice picture of them smiling together, as if the true sought-after connectivity is of the kind mustered by, say, Newman and Redford in The Sting. Part of me thinks this should all be too obvious even to need addressing. But as we know, the history of unwarranted silos and competitiveness is deep and wide. For example:

• …it would be a mistake to believe the 1990s brought the type of cooperation between federal agencies that was envisioned or truly needed. Serious institutional rifts and petty competitiveness continued. For example, some in the CIA saw the FBI’s foreign activities as encroaching on their territory and a slap in the face meant to penalize the agency for its inability to root out its major spy, Aldrich Ames.
• And even (former FBI head of counterterrorism) John O’Neill sometimes had his doubts. According to one agent who worked for him, he counseled wariness of the CIA, which he suspected was often working behind the bureau’s back.
• His instincts proved correct. It is now clear the CIA withheld information from the FBI — information that could possibly have helped them connect the dots to the Sept. 11 conspirators — and saved O’Neill’s life. 

Of course, the dot-connecting involved in financial reporting ought to be simple by comparison, insofar as it all relates to inter-related aspects of the same company. And yet, we’ve likely all seen examples of (say) an MD&A which in its tone and emphasis barely seemed to relate to the financial statements on which it was officially based. If a company regards sustainability reporting as a shiny new stand-alone toy, or primarily as an exercise in legalism, the challenge to the overall coherence of its corporate reporting will certainly be greater than when the various aspects of that reporting are viewed as parts of an integrated whole, and planned and executed as such. And as we noted the other week, it’s probably for the benefit of the profession (which, as much covered lately, is having greater difficulty in appealing to young people) to encourage accountants to keep a foot in both camps…

The opinions expressed are solely those of the author.