Counting Carbon Molecules: The New IFRS Sustainability Disclosure Standard and Why Canadian Hydrocarbon Companies Must Respond to Consultations Now

Contributed by Dr. Tammy Nemeth © 2022

This report is also available on Dr. Nemeth’s site.

• At every level of government, the Canadian bureaucracy is deeply committed to meeting its 2030 Net-Zero goals at all costs and as such is set to adopt the forthcoming IFRS Sustainability Disclosure Standard which is currently in draft format and open for feedback.

• The IFRS Sustainability Disclosure Standard consists of the following draft documents:
IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information,
IFRS S2 Climate-related Disclosures, and S2 Appendix B Industry-based Disclosure Requirements.

• The stated purpose of creating a new global baseline for sustainability and climate-related disclosure is to fight “greenwashing” by bringing sustainability into all accounting, thus the whole economy.

• Underwritten by the principles of stakeholder capitalism, and championed by the Big Four accounting firms, the proposed standards are purported to be: simple, applicable to every entity, in line with the UN’s Sustainable Development Goals, and legally enforceable. The goal is accuracy, verifiability, and comparability, creating a single gauge by which consumers, investors, insurers, bond holders, lenders, and others can compare entities and hold them accountable for their carbon-behaviour.

• There are four areas that comprise the core content of this new disclosure standard: governance, strategy, risk management, and metrics and targets. There are several issues within each of these areas, especially for hydrocarbon companies, for example:

1. They demand that duplication be avoided yet insist, at times, that other standards and requirements be considered.
2. There are contradictory statements, mixed messages, and vague terms.
3. There are serious problems with mandating scenario analysis such as its evolving applicability to climate as well as cost.
4. By insisting on the disclosure of all gross Scope 1, Scope 2, and Scope 3 emissions any industries that manufacture any kind of product, or produce, handle, or utilize hydrocarbons in any way are targeted and likely penalized. Scope 3 emissions reporting is not only notoriously difficult to quantify it also leads to a duplication in accounting such that emissions are counted several times over and are not an accurate representation of climate-risk.
5. Entities could be made financially liable for any perceived misstatement on emissions, future scenarios, future global developments and future weather events, the behaviours and actions of those who use an entity’s products, and reputational damage from “controversies.”
6. By focusing on gross carbon emissions and emissions intensity, and offering no place to quantitatively account for net emissions, the standards preclude the possibility that a company employs technology that actually reduces its carbon emissions, and discriminate against companies that have more emissions than others.
7. Under risk assessment, hydrocarbon companies must estimate and account for the cost of early asset retirement under varying policy scenarios. There is no specific provision for asset end-of-life/retirement/disposal calculations for solar, wind, or battery technology manufacturers or project developers.
8. Given recent geopolitical developments with respect to the Russian invasion of Ukraine and the subsequent sanctions against Russian oil and natural gas, energy security is a stunning omission within the draft disclosures.

• The deadline for submitting feedback on drafts of the IFRS Sustainability Disclosure Standard is July 29, 2022 and all feedback is being published on the IFRS website for public viewing.

• Once the IFRS Sustainability Disclosure Standard is enforceable, the finances and operations of hydrocarbon companies, and any industry that utilizes hydrocarbons, will be seriously compromised to the point of extinction.

• Every Canadian hydrocarbon company should respond to and provide feedback on the drafts by the deadline.

About the Author

Dr. Tammy Nemeth is a strategic energy analyst based in the UK. Trained as an analytical historian, she has a PhD in history from the University of British Columbia. Dr. Nemeth was a guest lecturer at a university in Germany, where she taught on the geopolitics of energy and the environment, and has published articles and book chapters on Canadian and international energy issues. She has served as a peer reviewer for academic presses and journals. She has been honoured twice by the Petroleum History Society with an article of the year award and an international achievement award. She contributed two contextual insight studies to the Public Inquiry into Anti-Alberta Energy Campaigns or the Allan Inquiry. Dr. Nemeth is the host of the “The Nemeth Report”, a podcast discussing energy and geopolitical issues.

Listen to Dr. Tammy Nemeth’s podcasts: https://thenemethreport.com/reports/