Investors and regulators are keen to understand how companies are addressing the impact of climate (both transitional and physical). What risks and opportunities have been identified, what assumptions have been made in their analysis and how have strategies been flexed or redefined to minimise risks and maximise opportunities?
Our key financial regulators and standard setters, ASIC, APRA and the ASX Corporate Governance Council, have all recently issued guidance emphasising the importance of considering climate change – not just as a matter of corporate sustainability reported outside of annual reports but as a matter that should be considered as part of the preparation of the annual reports. Guidance developed jointly by the AuASB and AASB indicate a need to describe how material climate risks have been considered in the Financial Statements and therefore be subject to audit.
Assessing how, when and where climate risks and opportunities may impact your business model is a critical first step. Disclosure of these potential impacts and your strategic responses in your Annual Report and Financial Statements is the second.
Climate disclosures within the Annual Report – An Australian focus (PDF 1.9MB) is a guide to help businesses communicate the impacts of climate on their business models, strategy, financial performance, and future prospects in their Annual Reports and Financial Statements. It will help you navigate the different disclosure requirements and recommendations applicable in Australia that may be impacted by climate risks.
- Climate risk is here – climate change is impacting current corporate strategies, valuations and investor decisions.
- Climate risks may be material even if you do not think they are – materiality is assessed from a user's perspective.
- Regulators expect climate impacts to be disclosed in the Annual Report – climate risk impact on governance, business model, strategy, risk management, and performance and prospects should be made in the your Annual Report (where material).
- Disclose impacts and key assumptions in the Financial Statements – assets and liabilities should be measured and recognised taking into account the impact of climate change. Material climate related assumptions and associated uncertainties should be disclosed even if there are no quantitative impacts on recognised balances.
- Be consistent – disclosures in the Financial Statements need to be consistent with statements and strategies outlined in the Front-end of your Annual Report (where relevant and material to a user's understanding).
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Please contact us if you'd like to discuss this report, your climate change strategy or ESGs.