ASTM E2718-21

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Designation: E2718 − 16 E2718 − 21
Standard Guide for
Financial Disclosures Attributed to Climate Change
This standard is issued under the fixed designation E2718; the number immediately following the designation indicates the year of
original adoption or, in the case of revision, the year of last revision. A number in parentheses indicates the year of last reapproval. A
superscript epsilon (´) indicates an editorial change since the last revision or reapproval.
1. Scope
1.1 Purpose—The purpose of this guide is to provide a series of options or instructions consistent with good commercial and
customary practice for climate change-related disclosures accompanying audited and unaudited financial statements. This guide
encourages consistent and comprehensive disclosure of financial impacts attributed to climate change.
1.2 Objective—The objective of this guide is to determine the conditions warranting disclosure and the content of appropriate
disclosure.
1.3 This international standard was developed in accordance with internationally recognized principles on standardization
established in the Decision on Principles for the Development of International Standards, Guides and Recommendations issued
by the World Trade Organization Technical Barriers to Trade (TBT) Committee.
2. Referenced Documents
2.1 ASTM Standards:
E2137 Guide for Estimating Monetary Costs and Liabilities for Environmental Matters
E2173 Guide for Disclosure of Environmental Liabilities
E2725 Guide for Basic Assessment and Management of Greenhouse Gases
E3032 Guide for Climate Resiliency Planning and Strategy
2.2 Financial Accounting Standards Board:
Accounting Standard Codification Topics 350, 410, 440, 450, 460, 820
2.3 Governmental Accounting Standards Board:
Statements 42, 49, 72, 83
2.4 International Accounting Standards Board:
IAS 37, IFRS 13
3. Terminology
3.1 Definitions of Terms Specific to This Standard:Definitions:
3.1.1 asset impairment—formal devaluation of the book value of an asset, stated for example, in US generally accounting
principles in ASC 350, GASB 42.
This guide is under the jurisdiction of ASTM Committee E50 on Environmental Assessment, Risk Management and Corrective Action and is the direct responsibility
of Subcommittee E50.05 on Environmental Risk Management.
Current edition approved Aug. 1, 2016June 1, 2021. Published September 2016August 2021. Originally approved in 2010. Last previous edition approved in 20102016
as E2718–10.–16. DOI: 10.1520/E2718–16.10.1520/E2718–21.
For referenced ASTM standards, visit the ASTM website, www.astm.org, or contact ASTM Customer Service at service@astm.org. For Annual Book of ASTM Standards
volume information, refer to the standard’s Document Summary page on the ASTM website.
Available from Financial Accounting Standards Board (FASB) https://www.fasb.org/
Available from Governmental Accounting Standards Board (GASB) https://www.gasb.org/
Available from International Accounting Standards Board, https://www.ifrs.org/
Copyright © ASTM International, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA 19428-2959. United States
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3.1.2 climate change—any change in climate over time whether due to natural variability or as a result of human activity.
(Definition from the Intergovernmental Panel on Climate Change.) Intergovernmental Panel on Climate Change
3.1.3 constructive obligation, n—concept that past practice creates a valid expectation on the part of a third party.
3.1.4 environmental liabilities, n—asset retirement obligations, accrued liabilities, commitments, contingencies, and guarantees
associated with any natural conditions or man-made incidents, including terrorism, that pose an unacceptable risk to health, safety,
property, or the environment that would be the subject of an enforcement action or other legal action. (ASC 410, 440, 450, 460,
GASB 49, IAS 37)
3.1.5 financial impacts attributed to climate change —material financial impacts on a company’s performance, operations, assets,
and liabilities attributed to climate change effects, including but not limited to real or expected risks of physical damage to
facilities, regulatory costs and incentives, and shifts in the market for products and services (including stranded assets).
3.1.5.1 Discussion—
In this guide, the short form designations of ‘financial impact’ and ‘impact’ are also used to designate this specific concept.
3.1.6 financial statement(s)—include, but are not limited to, statements associated with shareholder reporting, periodic reports,
registration statements, loans, mergers, acquisitions, or divestitures. Financial statements may include statements outside of SEC
filings.
3.1.7 greenhouse effect, n—the trapping of the sun’s warmth in a planet’s lower atmosphere, due to the greater transparency of
the atmosphere to visible radiation from the sun than to infrared radiation emitted from the planet’s surface.
Oxford Languages
3.1.8 greenhouse gas—a gas that has been shown through measurement to generate the greenhouse effect and is currently higher
in concentration in the atmosphere than it was in the demonstrated atmosphere of 1860, and which includes carbon dioxide,
methane, nitrogen trifluoride, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.hexafluoride, amongst
others.
3.1.9 materiality—the significance of an item to users of a financial statement that considers all relevant and surrounding
circumstances. A material item is one that its omission or misstatement is of such a magnitude in the surrounding circumstances
that either the judgment of a reasonable person relying on the financial statement would have been changed or influenced by its
inclusion or correction, or there is a substantial likelihood that the item, after assessing the inferences, and their significance, drawn
from the given set of facts associated with the financial statement, would be viewed as significantly altering the information made
available to the investor or shareholder. (For additional information on materiality, see Guide E2173.)
3.1.10 scenario—a entity’s selection and description of a set of guiding assumptions (commonly, GHG level(s) or temperature
levels associated with upcoming dates) to enable valuations of forecasted impacts caused by climate change; an entity may select
a third-party set of assumptions.
3.1.11 stranded assets—an asset that has become obsolete or non-performing, as is accounted for to reflect its reduced
value.bringing a recent or pending asset impairment (devaluation of the stranded asset). The asset may be obsolete or
non-preforming for any reason, including societal, technical, monetary, regulatory, or judicial impediment.
3.1.12 supply chain—the sequence of processes involved in the production and distribution of a commodity, for example, raw
materials to manufactureresmanufacturers to customers/retail outlets.
3.1.13 reporting entity—any business or public agency preparing a financial statement.
3.2 Acronyms and Other Abbreviations:
3.2.1 FASB—US Financial Accounting Standards Board
The Intergovernmental Panel on Climate Change (IPCC) https://www.ipcc.ch/
Oxford Languages https://languages.oup.com/dictionaries/#oed
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3.2.2 GAAP—US Generally Accepted Accounting Principles
3.2.3 SEC—US Securities and Exchange Commission
4. Significance and Use
4.1 Uses—This guide is intended for use on a voluntary basis by a reporting entity that provides disclosure in its financial
statements regarding financial impacts attributed to climate change. The degree and type of disclosure depends on the scope and
objective of the financial statements. This guide is intended to apply to U.S. and international operations at the discretion of the
reporting entity. The user should be aware that there may be contractual obligations, court decisions, or regulatory directives that
may affect the flexibility in use of this guide. The user should also maintain an awareness of international regulations that may be
relevant to disclosures, such as those of the International Accounting Standards Board and International Financial Reporting
Standards.
4.2 Principle:
4.2.1 The following principles are an integral part of this guide and are intended to be referred to in resolving any ambiguity or
dispute regarding the interpretation of financial disclosures regarding financial impacts attributed to climate change.
4.2.1.1 Uncertainty Not Eliminated—Although a reporting entity, as of the time when its financial statements are prepared, may
have evaluated the existence and extent of financial impacts attributed to climate change, there remains uncertainty with regard
to the final resolution of scientific, technological, regulatory, legislative, and judicial matters, which could affect its financial
impacts attributed to climate change. These Where, as defined by the reporting entity, such uncertainties cannot be eliminated.
While this standard recommends eliminated, the reporting entity shall provide its justification. In addition, the reporting entity shall
provide estimates of the risks involved regarding uncertainties. Typically, this is accomplished through the development of
reasonable scenarios or ranges to recognize and address uncertainties, it is unlikely that all uncertainties. While one or more climate
change uncertainties will be foreseeable. However, it is likely that somemay be unforeseeable for any reporting period, once
recognized, financial impacts attributed to climate changesubsequent reports will include any previous material exclusions. Further,
a discovery of significant impediment to the reporting are foreseeable and that alternatives, boundaries, or ranges of potential
impacts can be assessed and quantified. entities stakeholders, as and when discovered by the reporting entity, may require an
interim statement.
4.2.1.2 Comparison with Subsequent Disclosures—Subsequent disclosures that convey different information regarding the extent
or magnitude of the reporting entity’sfinancial impacts attributed to climate change should not be construed as indicating the initial
disclosures were inappropriate. Disclosures shall be evaluated on the reasonableness of judgments and inquiries made at the time
and under the circumstances in which they were made. Subsequent disclosures should not be considered valid standards to judge
the appropriateness of any prior disclosure based on hindsight, new information, use of developing analytical techniques, or other
factors. However, information on trends between disclosure years may be of value to a user of financial statements.
4.2.1.3 Not Exhaustive—Appropriate disclosure does not necessarily mean an exhaustive disclosure. There is a point at which the
cost of obtaining information or the time required to gather it outweighs the usefulness of the information and, in fact, may be a
material detriment to the orderly preparation of financial statements and the ability of readers to understand the information
contained therein. However, all relevant and reasonably ascertainable information should be used to determine the content of
appropriate financial impacts attributed to climate change.
5. Determining Whether a Disclosure is Warranted
5.1 Circumstances Associated with Financial Impacts Attributed to Climate Change:
5.1.1 The following are examples of major circumstances that might give rise to financial impacts attributed to climate change
that may be subject to disclosure:
5.1.1.1 Enforcement of laws or regulations regarding greenhouse gas emission levels (for example, caps, trade systems, emission
taxes), investigations, controls, resource use, technology use, compliance, reporting, and other costs attributed to climate change.
See for example, Securities and Exchange Commission (SEC), Commission Guidance Regarding Disclosure Related to Climate Change (Release Nos. 33–9106;
34–61469; FR-82), 17 CFR Parts 211, 231, and 241, February 8, 2010.
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This includes predicted changes in federal, state, and local regulations that are anticipated to have a material effect upon the capital
expenditures, earnings and competitive position of the company and its subsidiaries, as well as statutory and common law
developments imposing liability for past emissions of greenhouse gases
5.1.1.2 Predicted changes/trends in resource costs or availability that may change a company’s products, processes, and/or markets
or services (including both positive and negative impacts).
5.1.1.3 Predicted changes in a company’s assets due to financial impacts attributed to climate change, including but not limited
to changes in weather, sea levels, disease and pest levels, drought and fires, stranded assets, and resource availability (for example,
food, labor, energy, water).
5.1.1.4 Predicted changes in the value of a company’s assets due to societal or market forces (for example the price of energy, sales
boycotts).
5.1.1.5 Contractual assumption of risk or risk transfer agreements. The most familiar forms of risk transfer agreements are
insurance contracts, hold harmless agreements, indemnity agreements, and similar terms within contracts for the transfer of
property or liabilities.
5.1.1.6 Commencement of litigation or assertion of a claim or assessment by a party alleging legal liability related to climate
change on the part of the reporting entity.
5.1.1.7 Information known by the reporting entity indicating that financial impacts attributed to climate change have been
incurred or are likely to be incurred.
5.2 Sources of Information—This guide identifies standard sources that should be reviewed by a reporting entity to properly
determine if conditions warrant disclosure. Such sources may include but are not limited to the following categories:
5.2.1 Publicly Available Environmental Record Sources—Any environmental record available from a government agency or
commercial entity.
5.2.2 Internal Reporting Entity Records—The reporting entity’s internal records regarding greenhouse gas emissions and financial
impacts attributed to climate change (for example, see management and planning records in Guide E2725 and Guide E3032.)
5.2.3 Current and proposed foreign, national, state, and local environmental laws or rules related to climate change.
5.2.4 Publicly available and internal studies on benchmarking, modeling, trends, and forecasts.
5.3 Estimation of Financial Impact Attributed to Climate Change—Once a reporting entity has identified potential financial
impacts attributed to climate change, it should determine whether these impacts (1) have a likelihood that is more than remote,
(2) could have a severe impact that would disrupt the normal functioning of the entity or the entity’s financial position, cash flows,
or operations, and (3) are near-term, occurring during the next year. If these criteria apply, the reporting entity should estimate the
likelihood, magnitude, and timing of potential impacts to the entity’s financial position, including assets, liabilities, and income.
(For additional guidance on estimating environmental costs and liabilities, see Guide E2137). Note that iIfif the level of uncertainty
or the time horizon of the financial impact is determined to be too great to allow meaningful estimation, disclosure may still be
warranted as described below in Section 6.
NOTE 1—For longer-term financial impacts attributed to climate change, the company should, when possible, estimate the likelihood, magnitude, and
timing of potential impacts.
5.4 Estimation of Materiality—The materiality of the financial impacts attributed to climate change should be evaluated in the
aggregate to determine whether disclosure is warranted. While there currently is no bright-line or simple formulaic test for
materiality, guidelines for this analysis are provided in the appendix of Guide E2173. In general, FASB states in Statement of
Accounting Concepts No. 2 that an item is material if “the judgment of a reasonable person relying on the information would have
been changed or influenced by the omission or misstatement.” The U.S. Supreme Court ruled in 1976 that a disclosure is material
if there is “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as
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having significantly altered the ‘total mix’ of information made available” or if there is “a substantial likelihood that a reasonable
shareholder would consider it important in deciding how to vote.”
6. Content of the Disclosure Accompanying Financial Statements
6.1 Application:
6.1.1 The content of the disclosures addressed by this guide are provided by management and are meant to supplement, rather than
replace, the disclosure requirements as prescribed or regulated through GAAP, SEC, or any other agency or regulatory body.
Disclosures may occur in many places, including but not limited to the notes and narrative text of financial statements. Some
third-party reporting standards are listed in Related Materials.
6.1.2 Reporting entities should disclose the financial impacts attributed to climate change and the impacts of both existing and
anticipated future regulation of greenhouse gas emissions on their business, results of operations, and financial condition, or
disclose their basis for determining that such an assessment is not warranted.
6.2 Disclosures to be Made for Financial Impacts Attributed to Climate Change:
6.2.1 Disclosure should be made when an entity believes its financial impacts attributed to climate change in the aggregate are
material. These amounts include, but are not limited to, damages attributed to the entity’s products or processes, regulatory
compliance costs (including changes in resource costs, technology costs, distribution and transportation costs, and costs in its
supply chain), physical costs (including asset impairments and stranded assets), assets, and adaptation costs), changes in income
due to changes in markets for products and services, and litigation and management costs. Costs include both initial response costs
as well as long-term costs (for example, operations and maintenance costs, changing energy costs).
6.2.2 The following disclosures should be made by the reporting entity for material circumstances described in 6.2.1:
6.2.2.1 Statement concerning management’s strategic analysis of the company’s financial impacts attributed to climate change,
including but not limited to:
(1) An assessment of regulatory risks and opportunities (for example, greenhouse gas emission limits or reduction, taxation,
trading systems, resource limitations, greenhouse gas emissions allowances and/or credits),
(2) An evaluation of physical risk to company’s facilities (for example, asset impairment) and operations,
(3) A discussion of risk/opportunities related to the reporting entity’s resources,
(4) An assessment of risks related to financing,
(5) An evaluation of risks/opportunities (both positive and negative impacts) related to the company’s products or services,
(6) An assessment of legal proceedings (includi
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