Climate-Related Financial Reporting
FASAB Contact: Robin Gilliam, email@example.com, 202-512-7356
See FASAB’s staff paper titled Statements of Federal Financial Accounting Standards That May Be Relevant to Climate-Related Financial Reporting.
This FASAB staff paper catalogs existing SFFASs that may be relevant to account for or report on the effects of climate-related events that have occurred and the potential effects of climate-related financial risks that may occur in the future. This staff paper is not an authoritative pronouncement and does not change or modify current FASAB guidance. If you would like training on this staff paper, please contact Sherry Lee at LeeSL@fasab.gov.
Outreach: AGA and AFERM released a podcast featuring Robin Gilliam, assistant director, about climate-related financial reporting. Click the link here to listen.
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 Deliberations
February 22-23, 2023
At the February 2023 meeting, staff presented research to help develop the climate-related financial disclosure framework by addressing the Board’s question about the Security and Exchange Commission (SEC) proposal titled Enhancement and Standardization of Climate-Related Disclosures.
Two panelists from SEC—Luna Bloom, chief of the Office of Rulemaking, Division of Corporation Finance, and Larry Yusuf, a professional accounting fellow, Office of Chief Accountant—addressed the highlights of the proposal and comments received.
The SEC is proposing the following:
- A climate-related disclosure in a separately captioned section to improve the consistency of and accessibility to information that investors can identify and analyze
- An attestation for the climate-related disclosures, such as the financial metrics in the S-X proposed amendments, which would be included in the financial statement footnotes and be subject to the standard audit
- An attestation (outside of the proposed attestation in the financial statements) for the greenhouse gas (GHG) emissions scopes 1 and 2 metrics
- There is a phased-in requirement, which starts with a limited assurance in fiscal years two and three, after the scope 1 and 2 emission disclosure compliance date. Then there is a reasonable assurance for fiscal year four and beyond.
- This attestation would be applicable to accelerated filers and large accelerated filers.
The Board agreed that research should include the following:
- how to leverage and reference other required federal climate-related reporting to focus on what information is relevant for financial statements financial report
- how to include financial impacts for climate-related risks
- how to include climate-related risks related to the ability to continue with operations
- how to present climate-related risks in financial reports (for example, is RSI appropriate?)
- whether tiered reporting is an option for reporting entities in relation to size or how much activity each focuses on for managing climate-related risks compared to the reporting entity’s mission
- whether GHG emission scopes 1, 2, or 3 are useful for climate-related federal financial statement disclosures
Briefing materials – Topic A & slides
December 13-14, 2022
At the December 2022 meeting, staff presented research to help with the development of the climate-related financial disclosure framework by addressing the Board’s question about which governments use the Task Force on Climate-related Financial Disclosures (TCFD) framework for disclosures in their financial reports.
Staff reviewed the TCFD recommendations, the make-up of the FASAB climate task force, and research done to date. The task force includes 65 preparers, users, auditors, and climate subject matter experts. Staff divided the task force into two working groups. The agency working group is collecting data about the agency’s climate-related activity and reporting that staff will present to the Board at a future meeting. The TCFD working group provided research for this meeting.
The TCFD research showed that, while many countries now require commercial entities such as banks, insurance companies, and a pension fund to adapt TCFD reporting to educate investors about climate-related risks and opportunities, only Canada is disclosing climate-related information in its financial reports. Research for this presentation focused on the Canadian cities of Toronto, Mississauga, Montreal, and Vancouver, which are voluntarily reporting TCFD.
Two panelists addressed how the cities are implementing TCFD, the challenges of implementation, and the lessons learned. Ms. Corinne Dougherty, a partner with KPMG Environmental, Social, and Governance (ESG), presented government climate reporting research and Mr. Wes Anderson, manager of business planning and finance at the City of Mississauga presented, Mississauga’s ESG Reporting Journey.
The Board learned that 1) TCFD was not the only model the cities used—some cities created their own framework from multiple models to report on ESG and not just climate; and 2) the cities determined the scope of ESG/climate reporting by understanding what is material and relevant to stakeholders.
Members agreed that staff should continue to analyze TCFD recommendations and monitor the standardization of other climate reporting standards to find the balance between relevant information for users and preparer burden. Staff will present information to help identify the purpose, goals, and scope of climate reporting within the FASAB reporting model. Members want to understand how agencies calculate and track the cost and budget information for climate and what information Chief Financial Officer Act agencies are reporting based on the optional Office of Management and Budget Circular A-136 TCFD recommendations.
Briefing materials – Topic A & slides
On July 21, 2022, staff sent a news release calling for task force (TF) members to help develop the climate-related financial disclosure framework. Staff has received approximately 60 requests to join the TF and is mapping each participant’s area of expertise to working groups. Working groups will provide education sessions about 1) common themes from the 10,000+ response letters SEC received on the proposed climate-related disclosure rules; 2) what agencies are doing and reporting on in relation to climate-related executive orders; and 3) other governments’ [for example, Canada and California] experience and lessons learned on implementing TCFD for reporting climate-related disclosures in their financial statements.
June 22-23, 2022
Members approved the second phase of the project to develop a climate-related financial disclosure (CRFD) framework. The project plan is tentative until members determine a clear direction. FASAB completed the first phase on May 17, 2022, with the publication of the staff paper Statements of Federal Financial Accounting Standards That May Be Relevant to Climate-Related Financial Reporting on the FASAB website.
Members agreed to analyze the Task Force for Climate-Related Financial Disclosures (TCFD) model as a starting point for developing the FASAB CRFD framework. TCFD is for commercial industries to help investors understand financial risk from climate changes and will need to be modified for the federal government. At this time, only Canada and California have implemented TCFD for government reporting. Members requested an education session to learn about California and Canada’s experience with implementing TCFD, how the information is being used, and any lessons learned.
Recruitment is underway for a climate task force to support this project. task force members will include users of climate-related information, preparers and auditors, and subject matter experts. Members are interested in the following information from the climate task force to help develop the CRFD:
- Climate-related government executive orders (EOs) and other reporting
- What are agencies doing and reporting in response to the climate-related EOs?
- What information is available to agencies or is under development that could inform FASAB’s efforts and help determine drivers for financial disclosures?
- What information will agencies provide in relation to recommendations and requirements in Circular A-136, Financial Reporting Requirements?
- Do agencies presently have systems to capture climate-related financial information for EO reporting and/or for financial impacts?
- What would be the burden (cost/benefit) to capture meaningful climate-related financial information?
- How could climate-related issues affect FASAB guidance for contingencies?
- What are the common themes resulting from the 10,000+ responses to the Securities and Exchange Commission’s proposed climate-related financial disclosure rules?
- Information and decisions
- What decisions will users make from climate-related financial disclosures?
- What information do users need from CRFD for those decisions?
- Does current FASAB guidance identified in the staff paper provide enough information for climate-related decisions?
- Are disclosures at certain agencies more important than from other agencies? If so, which agencies?
- Will management use information from CRFD to make decisions? If so, what information/reports will management need?
- What historical data is available for amounts spent on past climate-related activities?
- What decisions will users make from climate-related financial disclosures?
- TCFD model
- How can each piece of the TCFD model be translated to federal user needs instead of investor needs? What are the pros and cons and is anything outside of FASAB’s remit?
- How does FASAB define transition risks, opportunities, and physical risks, and the overall applicability as related to federal financial impact?
- Are there commonalities across reporting entities for the TCFD risks and opportunities?
Briefing materials – Topic D
April 26-27, 2022
At the April meeting, members reviewed the staff paper titled Statements of Federal Financial Accounting Standards That May Be Relevant to Climate-Related Financial Reporting. Members provided a few minor edits. No members objected to posting the document to the website. This document is now posted to the top of this project page.
Briefing materials – Topic A
Members provided edits for the non-authoritative FASAB staff paper titled Generally Accepted Accounting Principles Applicable to Climate-Related Financial Reporting. Staff incorporated these edits in preparation for the Board’s final review at the April 2022 Board meeting. If a majority of members do not object, the staff paper will be posted to the FASAB website.
December 14, 2021
Environmental, Social, and Governance Education Session
Corinne Dougherty, a partner at KPMG’s Washington, DC office, presented an environmental, social, and governance (ESG) education session to introduce the Board to ESG and connect the topic to climate. The presentation slides can be found at attachment 1 of the December meeting minutes.
Briefing Materials – Topic A
Topic B Discussion
Members reviewed the draft staff education paper that will address generally accepted accounting principles applicable to climate-related financial reporting. This document will catalog the GAAP that preparers and users of federal financial reports can use as a reference tool when accounting for and reporting impacts from climate-related events and climate-related financial risks. This staff educational paper is not an authoritative pronouncement and does not change or modify existing GAAP.
Staff will make the following edits:
- Update the introduction section with the scope information
- Remove references to definitions
- Streamline paragraph references to contextualize and connect to climate-related matters
- Update the topic titled “arrangements” to “other”
- Remove social insurance, tax expenditures, sustainability reporting, and social insurance in MD&A
Briefing Materials – Topic B
October 26, 2021
At the October meeting, the Board reviewed the draft format presented in the topic B memorandum and provided staff with feedback on how to proceed with the document that will catalog existing standards to provide guidance on accounting for and reporting of climate-related financial risk.
What format does the Board prefer?
The Board agreed on a hybrid format with topics, such as assets, liabilities, and sustainability, organized with questions and answers. Assets could include property, plant, and equipment that was damaged, impaired, or needs deferred maintenance. Liabilities could include clean-up costs. Sustainability could include the standards that account for economic effects and assumptions.
Staff will provide an introduction in the next draft, which will include the following context:
- What this document hopes to accomplish
- Who the audience is
- Why this document does not create new standards
- What current standards are included and why and how they apply
- How climate-related matters may affect financial statement line items
- Definitions to establish boundaries around terms such as “matters” and “impact”
- An explanation about the relationship between weather events and climate change
Members also wanted to be sure that this document did not add any burden or extra work for preparers.
Which standards does the Board want to include?
Members did not want to remove any standards from the draft. However, members will assess whether Statement of Federal Financial Accounting Standards (SFFAS) 59, Accounting and Reporting of Government Land, should remain after reviewing future drafts.
Members agreed to add the following standards: SFFAS 3, Accounting for Inventory and Related Property; SFFAS 17, Accounting for Social Insurance; SFFAS 38, Accounting for Federal Oil and Gas Resources; and SFFAS 49, Public-Private Partnerships: Disclosure Requirements.
Which document type does the Board prefer?
In August 2021, staff only presented a Staff Implementation Guidance (SIG) as a proposed document type. However, the other standard setters published non-authoritative documents (see the August meeting minutes for a list of documents). Therefore, at the October meeting staff presented the available non-authoritative documents and documents at a lower level of the GAAP hierarchy for the Board to consider. The Board reviewed the following options: staff paper, SIG, and Technical Release (TR). Members also discussed the GAAP hierarchy level and due process for each document.
A staff paper is non-authoritative with no required due process by the Board. A SIG is level D in the GAAP hierarchy and has a moderate level of due process and Board involvement. A TR is level C in the GAAP hierarchy and is deliberated by the Accounting and Auditing Policy Council (AAPC) before the Board reviews. None of these documents amend existing standards.
Members decided on a staff paper because it is non-authoritative, which follows precedent from other standard setters. However, Board members will review and provide comments during the document’s development.
Briefing materials – Topic B
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:
- Staff will develop Staff Implementation Guidance first, which is level D in the GAAP hierarchy.
- Staff will develop a climate-related financial disclosure framework. The framework should consider but not be limited to the TCFD recommendations.
- 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