Navigating The Global Landscape Of Climate-Related Accounting Standards: A Look At The Three Current Proposals

Climate-related accounting manages financial risks from climate change in business strategy. The SEC (United States), ESRS (European Union) and IFRS (International) have proposed global standards on how to measure and report these risks. Challenges include disclosing scope 3 emissions, with ongoing revisions reflecting feedback from companies and investors.

by Yara van Ingen

What is climate-related accounting?

Investors’ interest in a company’s climate-related financial risks has surged over the past decade.  Until this year, the absence of regulatory mandates meant only several voluntary reporting standards existed. Whilst these systems raised awareness about climate change as a business concern, the standards were confusing, prompting a global push  for the harmonisation of reporting standards [1]. Climate-related accounting is different to greenhouse gas emission (GHG) accounting, but may encompass emissions within its scope. Broadly speaking,  climate-related accounting addresses the financial risks associated with climate change, and how a company may account for them within its business strategy. The introduction of global climate-related accounting standards signals a shift away from the consideration of sustainability as a mere moral imperative towards seeing it as a business risk and of equal importance in financial reporting.

In financial reporting, companies generally apply historical cost and fair value trends to measure transactions in financial statements, and the measurement of these are heavily regulated by accounting standards. No comparable framework or standards exist for climate risk and the impact such risks may have on a company. The introduction of climate-related accounting standards will be a step in the right direction to fight greenwashing [2].

In 2021, the International Organisation of Securities Commissions reported the demand from investors for consistent and comparable climate-related disclosures which would disclose climate risks and opportunities [3]. In response, the International Sustainability Standards Board (ISSB) was created at COP26 in November  2021 to set a worldwide baseline of accounting standards for sustainability in companies [4]. This has led to the introduction of three frameworks with different but broad geographical jurisdictions as listed below. 

Three key climate-related accounting proposals

There are three key formal proposals for climate-related accounting standards, each with different jurisdictions, but all three with overlapping principles in their content. These are:

  • SEC: the United States Securities and Exchange Commission
  • ESRS: the European Sustainability Reporting Standards
  • IFRS: the International Financial Reporting Standards

In the United States, the SEC proposed a climate disclosure rule that would require all public companies to report on their expected climate-related risks, greenhouse gas emissions and transition plans.[5] In Europe, the European Financial Reporting Advisory Group (EFRAG) presented ESRS to the European Commission. The ESRS will apply to all large companies in the EU, of which there are 49k.This marks a significant increase from the current 11k companies covered by the existing sustainability disclosure rule [6]. The IFRS is an international and independent standard-setting organisation and relies on governments to mandate its standards [7]. All three standards are pushing for companies to begin collecting data in this fiscal year, 2023, and prepare for filing and compliance by 2024.

The three proposals (IFRS, SEC and ESRS) heavily draw from the prior-existing voluntary framework developed by the Task Force on Climate-related Financial Disclosures (TCFD)[8], with focus on four key aspects[9]:

  • How does the company’s board or management oversee climate-related risks and opportunities?
  • What are the climate-related risks and opportunities identified? 
  • What is the resilience of the organisation’s strategy to climate-related scenarios?
Risk Management:
  • How are climate-related risks identified and managed?
  • How are these integrated into the overall risk management?
Metrics & Targets:
  • What metrics does the company use to assess the risks and opportunities?
  • Requirements to disclose GHG emissions and their associated risks classified by Scope 1 (direct) and Scope 2 (indirect) emissions exist in all three frameworks, whilst Scope 3 (indirect from companies’ value chains) disclosure is still under discussion.
  • The targets used to manage risks and opportunities and how performance is measured against these. 

Comparing the proposals 

The key differences between the proposals are in the level of detail, the scope of companies covered and the jurisdiction that is enforcing the standards [9]. Assurance of the requirements by third-party auditing is included by both the SEC and ESRS which will necessitate third parties with expertise in the standards to review the reports. Such expertise does not currently exist. The ESRS has the most comprehensive metrics as per its initial proposal and has the highest level of detail on how assurance will be achieved [10].

In 2022, comments from companies and investors were requested on the proposed frameworks.The SEC received over 11k comments on the proposal, which has caused a delay in its implementation [11]. Similarly, the ESRS received a large number of comments, leading to a revision of the proposal after which 12 ‘near-final’ requirements were introduced in July 2023, representing a substantial reduction of nearly half of the initial disclosure requirements [12]. 

The main discussion point for all proposal comments surrounds the requirement to disclose scope 3 emissions  which are indirect emissions in the down- or up-stream value chain of a company. Both ESRS and IFRS standards’ proposal requires the disclosure of emissions that fall under scope 3, whilst the SEC merely encourages such disclosure [9][10]. Scope 3 emissions are challenging to measure and companies voiced concerns about being able to accurately gather such data  and report it. In response, the ESRS has omitted this requirement in the first year of implementation [12]. 

Accurate disclosure of all GHG emissions would be a monumental step towards holding companies accountable for their direct and indirect climate impact and help combat greenwashing. The final implementation of the standards will clarify the extent to which companies will have to record their climate-related financial risks, but also their carbon footprints.


[1] PRI (2020). accessed on 10th Nov. 2023. 
[2] A4S (2023). accessed on 10th Nov. 2023
[3] IOSCO (2021). Report on Sustainability-related Issuer Disclosures. accessed on 10th Nov. 2023
[4] IFRS (2023). International Sustainability Standards Board.,disclosures%20in%20capital%20markets%20worldwide accessed on 10th Nov. 2023
[5] SEC (2022). SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors. accessed on 10th Nov. 2023
[6] EFRAG (2023). First Set of draft ESRS. accessed on 10th Nov. 2023.
[7] IFRS (2023). ISSB issues inaugural global sustainability disclosure standards. accessed on 10th Nov. 2023.
[8] TCFD (2023). accessed on 10th Nov. 2023.
[9] The SustainAbility Institute by ERM, Persefoni (2022). The Evolution of Sustainability Disclosure. accessed on 10th Nov. 2023.
[10] Eccles, R. G. (2022). A Comparative Analysis of Three Proposals For Climate-Related Disclosures. accessed on 10th Nov. 2023.
[11] Mishra, S. (2022). SEC Climate Disclosure Comments Reveal Diversity of Views. accessed on 10th Nov. 2023
[12] pwc (2023). The revised draft European Sustainability Reporting Standards have been released for feedback. accessed 10th Nov. 2023.
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