Climate risk disclosures and financial reporting

The rate of global temperature rise has doubled since 2015 [1] and is primarily attributed to anthropogenic (human-generated) greenhouse gas emissions. The opportunity to limit warming to the 1.5°C threshold – intended to avoid the most severe impacts of climate change - is greatly diminished.

The first 12-month average above 1.5°C was recorded in 2023–2024 [2], and analysis indicates that this threshold may be surpassed on a sustained basis by 2030 [1]. Consequently, the European Scientific Advisory Board (ESAB) recommends that the EU prepare for global warming of 2.8–3.3°C by 2100 and conduct stress-testing for more severe scenarios [3].

CCAC estimates

According to Ireland’s Climate Change Advisory Council (CCAC), Ireland’s investment in adaptive capacity, aimed at reducing exposure and vulnerability to climate risk, remains insufficient relative to escalating climate risks [4].

CCAC estimates that without adequate adaptation measures, coastal flooding could cost the Irish economy €2 billion annually by 2050, while river flooding could cost €60 million annually [5].

Lagging commerical reponse

This growing economic burden highlights the need for effective climate adaptation measures at national, local and entity level to reduce vulnerability and minimise risk.

At entity level, businesses must strengthen assets and systems to higher climate standards, invest in long‑term resilience, update business continuity planning for extreme weather, secure supply chains, and embed resilience considerations into governance and financial planning.

While regulatory compliance under the Corporate Sustainability Reporting Directive (CSRD) has served as a catalyst for organisations to enhance their theoretical understanding of climate-related risks, and has improved identification and assessment of these risks across operations and the value chain, the overall commercial response is lagging.

This gap heightens the risk of asset impairment, constraints on the availability and affordability of insurance, and knock‑on challenges in accessing finance.

Bridging climate risk disclosure and financial strategy

Market expectations and insurance challenges for Irish business

As Ireland grapples with the accelerating impacts of climate change, businesses are confronting new challenges that demand robust strategic responses. An evolving regulatory landscape, coupled with intensifying physical climate risks, is reshaping market expectations and exposing critical gaps in traditional risk management approaches.

Organisations now face heightened scrutiny regarding the transparency and integration of climate-related risks within financial disclosures and are compelled to reassess longstanding assumptions about insurance coverage and asset resilience.

Evolving market expectations

As climate risk disclosure requirements evolve, regulators are scrutinising the potential for information asymmetry between a company’s management and investors regarding climate-related risks.

In 2024, the European Systemic Risk Board (ESRB) signalled that “failing to ensure connectivity between accounting and sustainability standards can have negative effect on the quality of information disclosed to capital markets, with potentially system-wide consequences” [6].

Connectivity is an emerging concept that seeks to create a direct link between impact, risks and opportunities identified within the sustainability statements and the financial statements.

This is particularly relevant where current asset values or projected cash flows are already influenced by climate risks, potentially giving rise to impairment considerations, revisions to the useful economic lives of assets, recognition of provisions, or additional disclosures within the financial statements.

Addressing the insurance gap

Historically, insurance has been perceived as a buffer mechanism for the economy against climate risk exposure. However, evolving climate conditions are challenging traditional underwriting assumptions, affecting both the availability and cost of cover.

As a result, the insurance gap - the difference between the total economic costs from climate-related events and the portion that is insured - is widening.

In Ireland, for instance, the Central Bank’s flood protection analysis notes that one in twenty buildings struggles to obtain flood coverage, with annual inland flooding (surface water and fluvial) costs averaging approximately €101 million, with severe losses of €510 million anticipated every 25 years.

Increasing rainfall intensity and frequency are anticipated to significantly escalate these risks [7]. The Central Bank’s modelling also points to a rise in the number of uninsurable properties by 2050 across all scenarios, highlighting the sector’s relevance to systemic financial stability.

What does this mean for your business?

For businesses, this translates into heightened exposure to uninsured losses, increased potential for asset impairment, and constraints on lending and investment where insurance is a prerequisite.

To meet evolving market expectations, organisations must bridge the gap between narrative climate risk disclosures and underlying financial assumptions, demonstrating a clear understanding of their inherent adaptive capacity and its implications for financial performance and position.

How KPMG can help

KPMG supports organisations in translating physical climate risk insights into actionable business responses, linking climate risk assessments with financial planning, asset strategy, and governance.

Our multidisciplinary teams help clients strengthen resilience, address insurance and financing challenges, and ensure climate risks are consistently reflected across strategy, disclosures, and decision‑making.