Climate change and impairment

Climate change is not just an environmental issue – it is also a strategic and financial one.

A company’s strategic response to climate-related risks and opportunities – whether to act or not – may impact its cash flows in the short, medium or longer term, and the value of its assets. That is why users need relevant information to make informed decisions – including whether and how climate-related risks and opportunities have been considered in impairment testing.

In performing impairment testing, significant judgement may be needed to determine the recoverable amount of an asset or cash-generating unit, including reflecting the impact of those risks and opportunities in key inputs and assumptions (e.g. cash flows, discount rate and terminal value).

Clear and transparent disclosures are key to meet users’ expectations of the financial statements. Companies also need to ensure their financial, sustainability and other reporting tells a connected story.

Use the steps in our how-to guide – with practical insights and examples – to help you consider the impact of climate change on the impairment testing of non-current assets under IAS 36 Impairment of Assets.