Revised Liability and Climate Change Disclosures Standards

ASTM International’s environmental assessment, risk management, and corrective action committee (E50) has approved revisions to two of its standard guides on disclosure of environmental liabilities and disclosures attributed to climate change. 

ASTM International member John Rosengard says that the guide for disclosure of environmental liabilities (E2173) was revised to reflect the following concerns:

  • Changes in practices for site counts and liability valuations of asset retirement obligations (decommissioning liabilities) and other environmental obligations (remediation and restoration liabilities).
  • How to document – even if just for internal use – an organization’s assumptions about inflation, discounting, credit quality, and liability valuation policies, so that even minor changes have visibility over time.

“This update was driven by the many concurrent needs for valuations and disclosures of environmental liabilities: due diligence, post-acquisition integration, budgeting, reverse forecasting, financial assurance and feasibility studies, says Rosengard. “It is still possible for a portfolio of environmental liabilities to have a fair value ranging from zero to highly material, creating room for litigation and inefficiencies in settling environmental liabilities in timely and cost-effective ways.”

Rosengard says that the revisions to the standard guide to financial disclosures related to climate change (E2718) will help users to determine how recent and upcoming climate change adaptation impacts, both good and bad, will in aggregate be immaterial, manageable, or unaffordable to a given enterprise.

According to Rosengard, the most important change to E2178 is the description of two approaches to climate change adaptation disclosures (low impact and high impact) so that disclosure preparers can communicate findings through one to four pages of reporting tied to the current balance sheet, income statement, and cash flow statement. 

“Since we already see 200- to 500-page annual reports, E2718 recommends how to replace indistinct qualitative (“boilerplate”) language with specific quantifications of recent and forecasted climate change adaptation impacts to the already-published financial statements,” says Rosengard. “Investors and creditors can’t absorb the nuances of 100 available climate change scenarios, but can interpret financial impacts when expressed through one or two scenarios in use for business planning. 

Manufacturers, their investors and creditors, along with government agencies responsible for addressing environmental liabilities, and agencies responsible for building and replacing resilient infrastructure will benefit from the revisions made to E2173 and E2718.

ASTM welcomes participation in the development of its standards. JOIN ASTM.

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