Sustainability and climate change
The sustainability and climate change domain tests whether you can connect climate science, sustainability frameworks and corporate reporting to accounting judgements and assurance evidence. Questions typically ask you to classify emissions, evaluate a disclosure against TCFD or ISSB expectations, or explain how physical and transition risks affect the financial statements.
Core rules and concepts
- TCFD four pillars: governance, strategy, risk management, and metrics and targets. Disclosure should explain board oversight, climate risks and opportunities over short, medium and long term, scenario analysis (including 2°C or lower), processes for identifying risk, and targets with baselines.
- ISSB IFRS S1 and S2: S1 sets general sustainability disclosure requirements; S2 covers climate. Key concepts include materiality (information that could affect primary users' decisions), connectivity with financial statements, and industry-based metrics.
- GHG Protocol scopes: Scope 1 = direct emissions from owned or controlled sources; Scope 2 = indirect emissions from purchased electricity, heat or steam; Scope 3 = all other value-chain emissions, including purchased goods, business travel, use of sold products and investments.
- Assurance: ISAE 3410 for greenhouse gas statements; ISAE 3000 for broader sustainability information. Evidence may include meter readings, invoices, emission factors and recalculation.
Worked example
A manufacturer reports Scope 1 of 12,000 tCO2e, location-based Scope 2 of 8,000 tCO2e and Scope 3 of 90,000 tCO2e. Its draft report says "total emissions 20,000 tCO2e" and omits Scope 3. The correct total, if all scopes are included, is 110,000 tCO2e. Scope 3 is 82% of the total and is likely material to users assessing transition risk. Omitting it while claiming a complete inventory is misleading and may support a greenwashing finding. The auditor should test the Scope 3 boundary, the emission factors and the completeness of categories, not just recalculate Scope 1 and 2.
Traps that cost marks
Treating Scope 2 market-based and location-based figures as interchangeable; assuming Scope 3 is always optional; ignoring the financial statement link (asset impairment, useful lives, decommissioning provisions); accepting management's scenario without challenging assumptions; and describing a target without a baseline, timeframe or assurance.