Climate data became financial data, and most reporting teams have not caught up

For about fifteen years, the climate numbers a company published were a communications product. They sat in a separate report, on their own schedule, written by people who reported to marketing or to the head of sustainability, and nobody outside the building tested them.

That arrangement has ended, and it ended structurally rather than gradually. What surprises me is how many reporting teams are still operating as though it had not.

The year the brochure became a filing

The old sustainability report had a genuine purpose. It answered customers, staff and rankings. It was allowed to be a narrative, it could be published whenever it was ready, and if a figure turned out to be wrong you corrected it quietly in the following edition.

None of that was dishonest. It was a document with a different job.

What changed is that the numbers moved. IFRS S1 requires information prepared in accordance with the ISSB Standards — including climate information under IFRS S2 — to be included as part of the general purpose financial reports, clearly identified and not obscured by additional information. That is paragraphs 60 to 62, as set out in the ISSB's own educational material.

Paragraph 63 permits information to be included by cross-reference to another published report, subject to conditions. So the physical pages can still be separate. What cannot be separate is the reporting package the information belongs to.

What changed structurally

Four moves, and it is worth naming them separately because they are often collapsed into a general sense that climate reporting has got harder.

Location. Into the general purpose financial report, per IFRS S1 paragraphs 60 to 62.

Timing. Paragraphs 64 to 68 govern when disclosures are reported and for which period, including what happens when the reporting period changes and when information obtained after the period end must be reflected. There is a first-year relief on publication timing at paragraph E4, covered in the transition reliefs, but a deferral of publication is not a suspension of the rules.

Assurance. ISSA 5000 brings an outside practitioner into the process, and the IAASB describes it as covering both limited and reasonable assurance and applying to voluntary engagements as well as mandated ones.

Consequence. Which follows from the first three. A number in an assured section of the general purpose financial report cannot be revised by editorial decision.

Same file, and often the same firm

A caveat I want to make precisely, because it gets overstated in vendor material including, occasionally, in conversations I have had.

Nothing in the ISSB Standards requires your financial auditor to assure your climate disclosures. ISSA 5000 is deliberately profession agnostic: the IAASB describes it as designed for use by professional accountants and non-accountant assurance practitioners alike. Whether the same firm signs both is a matter for your jurisdiction and your own appointment decision.

What is true regardless is that the information now sits in the same reporting package, on a related timetable, read by the same primary users. Even where a different firm does the work, the file it is tested against is the corporate reporting file, and the questions asked of it are reporting questions.

Why the sustainability team did not sign up for this

Here is where I think the sympathy is owed, and where most commentary on this subject is unfair.

The people who built corporate sustainability reporting were hired to do something else. They were hired to run programmes, engage stakeholders, set targets and communicate progress. Many are excellent at that work. Almost none of them were hired to operate a control environment, and it would be odd if they had been.

Then the reporting requirement arrived and landed on the same desk, because that desk had the subject-matter knowledge. What it did not have was the habit that finance acquired over decades and, in listed markets, was forced into by statute — the assumption that every figure has a preparer, a reviewer, an approver, and a file behind it. I have written separately about what transfers from that experience and what does not.

So the gap is not competence and it is not diligence. It is that a team was asked to produce a regulated output using a process built for an unregulated one, and in most companies nobody explicitly decided to change the process. It simply carried on.

The objection I take seriously

The strongest counter-argument is that this comparison flatters financial data.

Financial data mostly originates inside systems the company owns. A large share of emissions data does not. A landlord's apportionment, a supplier's estimate, a utility's meter reading, an emission factor published by someone else — you cannot operate a control over a process you do not run, and pretending otherwise produces expensive theatre rather than better numbers.

I think that objection is right, and it constrains what should be expected. It does not, though, get you out of the part that is entirely within your control. You may not be able to verify a supplier's figure. You can record which supplier gave it to you, when, in what document, who reviewed it, and what they compared it against. Nobody is asking a preparer to be certain. They are asking them to be traceable.

The second objection — that this is all just more bureaucracy — I have less patience with. The disclosure requirements are demanding, and reasonable people can argue about their scope. But the specific thing being asked here is that you can say where a published number came from. That was always a reasonable expectation of a number a company puts its name to.

What I think follows

Not that sustainability teams should be replaced by accountants. That is the wrong conclusion and I have watched it go badly: subject-matter knowledge is hard to rebuild and the numbers get worse before they get better.

What follows is narrower. The process around the numbers should look like a financial reporting process, while the people producing them stay who they are. A named preparer. A reviewer who is not the preparer. An approver with the authority to hold it. Evidence attached to figures rather than filed near them. A record of changes that survives the person who made them.

None of that requires software, and I say that as someone who sells some. It requires a decision about who is accountable for which figure, which is free and unpopular.

My position, and this is the opinion rather than the citation: the hard part of climate disclosure was never the calculation. It is that a number produced for a brochure and a number produced for a filing look identical on the page and are made in completely different ways, and the standards have quietly stopped accepting the first kind. Companies that treat this as a reporting problem will spend two cycles fixing it. Companies that treat it as a communications problem with extra steps will find out during their first assurance engagement.

Common questions

Does IFRS S2 require climate disclosures to sit in the annual report?

IFRS S1 requires information prepared in accordance with the ISSB Standards, including climate disclosures under IFRS S2, to be included as part of an entity’s general purpose financial reports, clearly identified and not obscured by other information. Paragraph 63 permits including information by cross-reference to another published report, subject to conditions. So it need not be physically printed in the same pages, but it forms part of the same reporting package.

Is the same auditor required to assure climate disclosures?

Not by the ISSB Standards, and not by ISSA 5000, which the IAASB describes as designed for use by both professional accountants and non-accountant assurance practitioners. Whether your financial auditor also signs the sustainability assurance report is decided by your jurisdiction and your own appointment, not by the standards themselves.

What actually changed for a sustainability team?

Four things, none of which is about targets: where the information sits, when it is published, who tests it, and what happens when it is wrong. A number produced for a brochure could be corrected in next year’s edition. A number inside the general purpose financial report, subject to assurance, cannot be handled that way.

Is this an argument that climate reporting has become harder?

It is an argument that the evidence standard changed while the process producing the numbers largely did not. The disclosure requirements are demanding, but the thing most first-cycle teams are unprepared for is narrower: being asked to show who checked a figure, against what, and when.