On 25 October 2023, the European Securities and Markets Authority (ESMA) released its report ‘The Heat is On: Disclosures of Climate-Related Matters in the Financial Statements’ as part of its strategic priorities to promote high-quality sustainability disclosures. Given the spotlight on disclosures of climate-related matters, we think that the guidance and examples in the report will be helpful for all entities using IFRS accounting standards to consider, not just those reporting in the European market.
What is the objective and scope of the report?
The report aims to assist and to enhance the ability of issuers to provide more robust disclosures and to create more consistency in how climate-related matters are accounted for in financial statements drawn up in accordance with IFRS® accounting standards. However, the report is not intended to set out best practices or to prescribe the way in which the disclosure of climate-related matters should be made in the financial statements.
The report includes:
  • an educational illustration, using selected examples included in the 2022 annual financial statements of European non-financial corporate issuers;
  • a non-exhaustive reflection of IFRS accounting standard requirements that might be relevant for climate-related matters; and
  • enforcers’ views on how issuers might provide more relevant and transparent information to the market in relation to climate-related matters in IFRS financial statements.

The report includes disclosure examples, overlaid with relevant commentary and key areas of continued focus, on the following topics; these are the areas where the implications of climate-related matters are often expected to be the most material for the preparation of financial statements:
  • Significant judgements, major sources of estimation uncertainty & accounting policies
  • Impairment of non-financial assets.
  • Useful lives of tangible and intangible assets.
  • Provisions.
  • Other accounting topics:
    • Share-based payments.
    • Segments.
How is connectivity between financial statements and non-financial reporting considered?
The report sets out a reminder of the importance of connectivity between disclosures in the financial statements and non-financial reporting. This concept of connectivity is currently being explored across several standard-setters, including the IASB, ISSB and EFRAG.
ESMA and enforcers used the following principles to assess connectivity between disclosures in an issuer’s financial statements and non-financial information:
What other resources are available?
Issuers are encouraged to consult IASB® educational material, which points to areas where effects of climate-related matters might be relevant and material for financial statements (for example, those relating to operating segments, income taxes, financial instruments, or insurance contracts). See In brief INT2020-14 and In depth INT2021-11.
Where do I get more details?
For more information, please contact Henry Daubeney, Gary Berchowitz or Scott Bandura.
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