Date posted: 02/02/2024

Climate risks becoming the norm in financial statements

More than a third of companies worldwide are now disclosing climate-related risks in their financial statements, according to new data released by peak accounting body Chartered Accountants ANZ (CA ANZ), in a joint study with The University of Melbourne and The University of Queensland.

The proportion of companies in the Australian, New Zealand and global sample making financial statement disclosures on climate risk has seen an unprecedented increase since 2021, stabilising in 2023 at around a third of companies analysed.

“Climate risks are impacting companies’ disclosures concerning asset valuations, impairment testing, financial risks, and provisions,” said Chartered Accountants ANZ’s Reporting and Assurance Leader, Amir Ghandar.

“As you would expect, emissions intensive industry sectors such as energy and utilities have a larger proportion of companies impacted, but we’re also seeing sectors such as consumer staples and financials calling out climate risks as a key financial consideration,” Mr Ghandar said.

However, reporting of climate-related risks in financial statements is least prevalent in the information technology and communication services sectors.

“Interestingly, none of the 10 largest global tech companies mentioned climate-related risks in their financial statements.

“These results demonstrate the impacts of climate risk as a financial issue, and investors have increasingly been calling for greater transparency and consistency.

“This is no doubt a primary motivation behind the Government’s Climate-related financial disclosure draft legislation, and robust assurance will be essential to achieve the level of integrity and investor confidence needed for these new disclosures,” Mr Ghandar said.

The report follows the release of Commonwealth Treasury’s final policy statement on mandatory climate-related disclosures and draft legislation for consultation last month, which is poised to add disclosure requirements over and above existing financial reporting requirements.

Chartered Accountants have a role to play here both in helping businesses meet these significant new disclosure requirements and providing assurance to gain the confidence of investors and other stakeholders.

CA ANZ has recorded a significant uplift in enrolments for Sustainability for Accountants, a Term 1 elective for the CA Program, by 45 per cent since the subject was last offered in May last year.

The more than 1200 candidates will develop their understanding of environmental, social and governance impacts on organisations, which includes practising real-world, simulated experiences.

“CA ANZ is focused on ensuring Chartered Accountants continually evolve their technical skills to support companies as they meet these new government requirements.

“Employers are looking for trainees with a knowledge base that includes financial accounting and assurance as well as sustainability to deal with the full gamut of corporate disclosure,” said Mr Ghandar.