MEDIA RELEASE (NZ)

A new report has revealed the number of NZX50 companies reporting the effects of climate risks in their financial statements has more than quadrupled in the last four years – powered by a big jump in 2024 across utilities and companies providing consumer staples and discretionary goods.

The "Effects of Climate-Related Risks on Financial Statements" report, from Chartered Accountants Australia and New Zealand (CA ANZ), the University of Melbourne, the University of Queensland, and the Australian Accounting Standards Board (AASB), reviews the 2024 financial statements of the largest 200 ASX companies and 50 NZX companies, as well as those from around the world.

And New Zealand leads the way, with 60 per cent of NZX 50 companies disclosing climate risk in financial statements, up from 40 per cent last year. This compares to 34 per cent of ASX200 and 36 per cent across the rest of the world, each with single-digit growth since 2023.

Globally, the number of companies globally including climate risks in their financial statements has increased from 18 per cent in 2021 to 38 per cent in 2024.

Specific sectors are driving New Zealand’s increased reporting year on year, including utilities up 43 per cent, the discretionary consumer sector up 60 per cent, and consumer staples up 35 per cent.

CA ANZ Reporting and Assurance Leader Amir Ghandar FCA said the report underscores the role of Chartered Accountants in this evolving landscape.

“Despite the ebbs and flows of global politics, climate risk continues to have a financial impact that is playing out in company financial statements,” said Mr Ghandar.

“Since mandatory disclosure of non-financial climate risk continues has commenced in New Zealand, we can also see the growing importance of financial reporting of climate risk, and both threads are vitally important to deliver a clear view for investors.

“New Zealand’s utilities and consumer companies are joining the energy sector in increasingly disclosing climate risk in their financial statements.

“This research delves into the traditional financial reporting world, as distinct from the new non-financial climate-related disclosures that are being mandated in New Zealand and globally to help further explain companies’ climate risks and impacts.

“The report shows that when it comes to capital allocation decisions, climate risk is not just about doing good or a philanthropic ethos, but it’s a significant financial and strategic factor.

"This is about telling the full story, not just what’s in the balance sheet or profit and loss statement. Accountants play an important role in sustainability and climate reporting that enables investment and business decision making. It's about the long-term environmental impact, and for many companies, reporting on their ambitions to reach a net zero position.”

“The results highlight the need for high-quality climate-related disclosures that investors can have confidence in, backed up by robust standards, assurance and oversight,” Mr Ghandar said.

Other key findings from the report include:

• Financial implications: Climate risk is reflected in company financials in various ways, including potential asset impairment (38%), critical accounting estimates (22%) and in estimating the useful lives of assets (13%). For example, heavy emitting manufacturing facilities may need to rethink asset deployment, upgrade equipment to mitigate emissions, or set timelines for taking assets offline to meet commitments and policies.
• Worldwide change: Across Australia, New Zealand, and the rest of the world, the energy (77%) and utilities (75%) sectors have the highest prevalence of climate risk disclosures. However, other sectors such as consumer staples (57%), health care (35%), and real estate (30%) have also seen significant growth in climate risk disclosures over the study period.
• Broader financial effects: Climate change impacts, such as altered weather patterns and extreme weather events, have financial implications for company operations, assets, and financing.

Mr Ghandar said the report underscores the role of Chartered Accountants in this evolving landscape.

“Chartered Accountants are pivotal in guiding companies through the complexities of determining the anticipated effects of climate-related risks on the financial statements, ensuring that disclosures are not only compliant with regulatory requirements but also meaningful and actionable for investors,” he said.