ESMA’s ‘Heat is On’ Report - Practical illustrations for integrating climate disclosures into financial reports

Disclosure of climate-related matters in financial statements has been an enforcement priority for securities regulators for several years, including the European Securities and Markets Authority (ESMA) and the Australian Securities and Investments Commission (ASIC). Following the release of the International Accounting Standards Board’s education materials, Effects of climate-related matters on financial statements, ESMA’s October 2023 Report, The Heat is On: Disclosures of Climate-Related Matters in the Financial Statements (Report), provides real-life examples of disclosures to help:

  • Companies improve the way they communicate the impact of climate on their financial statements, and
  • Investors and other stakeholders better understand these disclosures.

We recommend that entities preparing 31 December 2023 financial statements consider the examples in ESMA’s Report to assist them to improve the quality of their climate-related disclosures.

Disclosure topics

The Report reviews disclosures related to climate matters included in the 2022 annual financial statements of European non-financial corporate issuers. It focuses on topics for which climate-related matters likely have a greater impact, including:

  • Significant judgements, major sources of estimation uncertainty and accounting policies
  • Impairment of non-financial assets
  • Useful lives of tangible and intangible assets
  • Provisions
  • Share-based payments
  • Events after the reporting period. 

Key issues

Key issues to note about the Report:

  • It includes practical illustrations on how climate-related matters may be presented in IFRS financial statements
  • For each example, ESMA highlights key aspects and provides insights that explain why such disclosures may be useful to users of the financial statements
  • Each section includes ESMA’s observations on areas of continued focus
  • The report does not set out best practices or prescribe how the disclosure of climate-related matters should be made in the financial statements
  • It did not address sustainability disclosures.

Where to find examples?

Please refer to Section 4 of the Report for illustrative examples on how climate-related disclosures should be incorporated into disclosures related to topics noted above.

Need help? 

Our IFRS & Corporate Reporting team is available to discuss and evaluate the impact of climate-related factors on your financial statements. We can also assist in enhancing disclosures related to climate considerations. Please contact us for assistance.