Risk Factor Disclosure Guidelines

What is IFRS S1 and why does it matter? IFRS S1 is a new sustainability disclosure standard issued by the International Sustainability Standards Board (ISSB) in June 2023. It is part of the IFRS Foundation’s initiative to develop a global baseline of sustainability-related financial information for capital markets.   IFRS S1 sets out general requirements for the content and presentation of sustainability-related information, when reporting in accordance with IFRS sustainability disclosure standards, to aid primary users in their financial decision making relevant to the entity. It applies to all entities that prepare general-purpose financial reports in accordance with IFRS Standards.   The objective of IFRS S1 is to enable primary users to assess how sustainability-related risks and opportunities could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term.    These risks and opportunities may arise from environmental, social and governance (ESG) factors, such as climate change, human rights, diversity and inclusion, anti-corruption, etc.   IFRS S1 requires an entity to disclose information about four core areas: governance, strategy, risk management, and metrics and targets. These areas are aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB) Standards.   Governance disclosures provide information about the governance processes, controls and procedures the entity uses to monitor, manage and oversee sustainability-related risks and opportunities.    Strategy disclosures provide information about the entity’s strategic objectives, plans and actions related to sustainability-related risks and opportunities, and how they affect the entity’s financial performance and position.    Risk management disclosures provide information about the entity’s processes for identifying, assessing and managing sustainability-related risks and opportunities, and how they are integrated with the entity’s overall risk management framework.    Metrics and targets disclosures provide information about the quantitative and qualitative indicators the entity uses to measure and monitor its exposure to sustainability-related risks and opportunities, and the targets it sets and tracks to manage them. IFRS S1 is effective for annual reporting periods beginning on or after 1 January 2024, with earlier application permitted. Entities that adopt IFRS S1 are encouraged to also adopt IFRS S2, the climate-related disclosure standard, which complements IFRS S1 by providing more specific and detailed requirements for disclosing information about the entity’s climate-related risks and opportunities.

One of the wicked problems in climate risk disclosures whether to comply with TCFD, ISSB, ESRS or for strategic reasons, is quantification of climate transition risks. While the financial sector and some companies themselves have developed methodologies for transition risk quantification, these methodologies have often not been publicly disclosed, are not based on any peer-reviewed methodology and are not standardized across the economy or industry or sector. Bringing some standardization to transition risk quantification will be imperative to make risk disclosures comparable and meaningful. In our new paper, myself, David Carlin, Edward Byers and Keywan Riahi propose fundamental principles that are based in the science of climate scenarios, and should be followed when doing company level climate transition risk quantifications. These principles include;  1. Climate risks are more than just carbon emissions and won’t be mitigated by emissions reduction only. 2. At least two scenarios should be used for one risk disclosure statement. Risk has to be measured against a ‘business-as-usual’ scenario. 3. There should be transparency around which transition risks are assessed quantitatively and qualitatively, and which are excluded. 4. Lack of extreme events coverage should be acknowledged in the disclosures. 5. Risk model assumptions should not differ from underlying climate scenario assumptions. It would be important to build fora to standardize risk quantification and expand on this set of principles and methodologies. If you want to contribute to this important exercise please don’t hesitate to reach out. You can read the complete paper at https://lnkd.in/dHWsAyER

Criteria for Climate & Net Zero Reporting 🌎 This framework, developed by KPMG, provides a clear and practical benchmark to evaluate the quality of corporate climate and net zero disclosures. It is based on international best practices and draws heavily from the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The criteria are grouped into four focus areas: Governance, Risk Identification, Impacts, and Net Zero Transition. Each area outlines specific reporting elements that reflect the maturity and robustness of a company’s approach to climate-related issues. Under Governance, disclosures should show that board-level responsibility has been assigned to oversee climate matters. In addition, climate risks should be referenced in the Chair or CEO’s message, and the company should clearly acknowledge climate change as a material financial risk. In the Risk Identification category, strong reporting includes a dedicated climate risk section in the annual report or a standalone TCFD-aligned report. It should also cover both physical risks (e.g., extreme weather) and transitional risks (e.g., policy shifts or market changes). Impacts criteria emphasize the importance of scenario analysis to understand how different climate outcomes could affect the business. Companies are expected to report using multiple warming scenarios and clear timeframes, relying on reputable sources such as the IPCC or IEA. The Net Zero Transition section highlights the need for science-based or net zero targets. A credible strategy for decarbonization should be disclosed, including the actions the company will take and the timelines involved. Transparent progress tracking is also essential. Disclosures should communicate whether the company is on track to meet its targets, identifying any challenges or adjustments made along the way. Finally, the use of an internal carbon price is seen as a strong indicator of preparedness for future regulation. It demonstrates that climate-related financial risks are being factored into planning and investment decisions. Source: KPMG #sustainability #sustainable #business #esg #reporting

U.S. Securities and Exchange Commission's Guidance: Crypto Asset Offerings and Registrations. •Issuers offering #securities in the crypto asset markets under the Securities Act or registering a class of securities under the Exchange Act should base their disclosures on issuer-specific facts and circumstances, focusing on common issues identified during the Division's reviews. •Issuers should consider their own facts and circumstances when preparing disclosures and provide scaled disclosure where appropriate, but should not omit information where a particular disclosure requirement is not applicable or they believe it is not responsive. •Similar disclosure items should be read together, and issuers should avoid redundant disclosure in multiple places. •For the Description of Business, SEC rules require a narrative description of the material aspects of the issuer's business, including their general development, intended business, and information material to understanding the business as a whole. •Disclosure should be tailored to the issuer's business and presented in clear, concise, and understandable language. •Specific disclosure areas for the business include current and proposed business, stage of development, public statements and promotional materials, and current or proposed business plans. •Issuers developing or acquiring a network or application should provide a narrative description of the network or application and its operation, including details about the development team, current state and timeline, milestones, objectives, technology, intellectual property, validation process, and products/services offered. •The Risk Factors section requires disclosure of the material factors that make an investment in the registrant or the offering speculative or risky, considering the unique aspects of crypto asset markets. •The Description of Securities requires a materially complete description of the securities, depending on the particular type of security . For subject crypto assets, this includes the terms, rights, and characteristics of the security in their specific context. •Key aspects of the description of securities include rights, obligations, and preferences of holders; voting rights; rights related to transactions impacting the issuer or network; transferability, term, and other characteristics EmpowerEdge Ventures