Climate-Related Financial Reporting

FASAB Contact: Robin Gilliam, gilliamr@fasab.gov, 202-512-7356

Project Objective:

In August 2021, the Board approved transitioning the research topic titled climate-related impacts and risk reporting to an active project on the technical agenda titled climate-related financial reporting.

The objective of the climate-related financial reporting project is to provide guidance for reporting entities on reporting the financial impact of climate-related matters in financial statements. First the Board will prepare implementation guidance on existing standards with no amendments. The Board will then review standards for any necessary amendments.

Please submit technical inquiries to help staff understand climate-related scenarios of concern and assist the Board in understanding what standards might need to be amended.

History of Board Activities

August 24-25, 2021

At the August Board meeting, the Board approved this project as an active project and moved it to the technical agenda.

On May 20, 2021, President Biden signed Executive Order (EO) 14030: Climate-Related Financial Risk. Sections 2(a) and 5(a) provide an expanded scope beyond the property, plant, and equipment (PP&E) focus presented at the December 2020 meeting.

Staff presented the following work completed and in progress by standard setters and other organizations.

OMB published Climate Change: The Fiscal Risks Facing the Federal Government-A Preliminary Assessment in November 2016. The report states,The impacts of climate change will also affect the Federal balance sheet.”

In 2017, the task force for climate-related financial disclosures (TCFD) published the Final Report – Recommendations of the Task Force on Climate-related Financial Disclosures. TCFD recommendations for disclosures include the following:

  • Four core elements—governance, strategy, risk management, and metrics and targets—mapped to 11 disclosures
  • Transition risks related to transitioning to a lower carbon economy
  • Physical risks resulting from events driven from climate change
  • Risks and opportunities mapped to financial impacts in the financial statements

Other organizations have provided TCFD implementation guidance. The Climate Disclosures Standards Board (CDSB) and the Sustainability Accounting Standards Board (SASB) published a TCFD Implementation Guide in May 2019. CPA Canada published Enhancing Climate-related Disclosure by Cities: A Guide to Adopting the Recommendations of the Task Force on Climate related Financial Disclosures (TCFD) in October 2019. The following Canadian cities are implementing TCFD guidance by CPA Canada: Edmonton, Montreal, Toronto, and Vancouver (unaudited).

Five organizations—Disclosure Insight Action, CDSB, Global Reporting Initiative, International Integrated Reporting Council, and SASB—collaborated to publish Reporting on enterprise value: Illustrated with a prototype climate-related financial disclosure standard in December 2020. This is a joint statement outlining how existing sustainability standards and frameworks can complement generally accepted accounting principles.

The CDSB published Accounting for climate: integrating climate-related matters into financial reporting in December 2020. The U.S. Securities and Exchange Commission issued a 90-day call for public comments on climate disclosures on March 15, 2021.

Some standard setters have provided guides identifying relevant climate standards. The Financial Accounting Standards Advisory Board published a Staff Education Paper titled Intersection of Environmental, Social, and Governance Matters with Financial Accounting Standards in March 2021. The International Public Sector Accounting Standards Board (IPSASB) published a Staff Questions and Answers document titled Climate Change: Relevant IPSASB Guidance in June 2020. The International Financial Reporting Standards Foundation (IFRS) published education material titled the effects of climate-related matters on financial statements prepared applying IFRS standards in November 2020.

The Board agreed to move forward with the following plan:

  1. Staff will develop Staff Implementation Guidance first, which is level D in the GAAP hierarchy.
  2. Staff will develop a climate-related financial disclosure framework. The framework should consider but not be limited to the TCFD recommendations.
  3. Staff will monitor EO 14030 strategy releases from OMB and Treasury and update the Board as necessary.

Briefing materials – Topic F

December 15-16, 2020

At the December meeting, staff coordinated an education session to inform members about the fiscal exposure and climate risk for the federal government. There were four subject matter experts on the panel:

  • Adam Smith, the lead scientist for the National Oceanic and Atmospheric Administration’s (NOAA) U.S. Billion-dollar Weather and Climate Disasters research, analysis and public/private data partnerships
  • J. Alfredo Gómez, a director of the Natural Resources and Environment team of the U.S. Government Accountability Office (GAO)
  • Joe Thompson, an assistant director in GAO’s Natural Resources and Environment team
  • Ann Kosmal, an architect at the General Services Administration’s (GSA) Office of Federal High-Performance Buildings

Climate Education Session: Fiscal Exposure and Climate Risk for the Federal Government Briefing materials – TAB F

At the December meeting, staff also proposed a technical plan for a climate impact and risk reporting project due to an extensive history of staff outreach and interest concerning climate impact on federal property, plant and equipment (PP&E).

Staff outreach included a toolbox of available standards for a presentation titled Federal Accounting for Climate-Related Events. (Please see appendix A in tab G to view the slide deck.) Staff has presented this toolbox numerous times with continued requests from many organizations.

In addition to the extensive staff outreach on this topic, the U.S. Commodity Futures Trading Commission (CFTC) issued a report titled Managing Climate Risk in the U.S. Financial System, with the following [7B] recommendation related to FASAB:

United States should direct the Federal Accounting Standards Advisory Board to study and pilot the development of climate-related federal accounting standards, disclosure procedures and practices for U.S. Government departments, agencies, and administrative units.                         

Members deliberated and came to the following agreements:

  • This is an important issue but in a pre-project research phase.
  • Staff should present a clear scope and objectives through outputs and outcomes.
  • Understanding the event that triggers accounting for adaption and resilience is necessary; however, if the event relates to policy it could be difficult to develop related accounting standards.
  • Forward-looking risk exposure discussed in the MD&A is not limited to climate.
  • The Board will determine in the future whether this is a standalone project or included in another project, such as MD&A or reexamination of existing standards.

Briefing materials – TAB G