The current complexity and unpredictability of global markets has brought environment and climate matters to the forefront of trends affecting companies and capital markets. Additionally, there is growing recognition that organisations need to consider whether environmental and climate-related matters are financially material, including the potential impacts from the risks and opportunities associated with climate change.
Major events and initiatives are driving the climate agenda forward. In 2015, a landmark global agreement was reached enshrining into international law the need to limit mean annual global temperature rise to 2°C or lower. Both financial and non-financial groups, through the auspices of the Financial Stability Board, have attempted to address this systemic risk through delivering on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
The new, multi-faceted perspectives and criteria being used to judge corporate performance are having profound effects on the way in which companies prepare and include content in their corporate reports, particularly in relation to links between climate and financial information. There is growing demand for information about how corporate activity jeopardizes or contributes to long-term sustainability goals, including dependencies and impacts on the natural system. There is also growing demand for information that helps us understand the potential impact of climate change on the financial systemEnrol in this course to learn out about the basics of climate-related disclosure.
The demand for decision-useful climate-related information by a range of participants in the financial markets has continued to grow over the last decade. However, evidence suggests that the lack of consistent information hinders investors and others from considering climate-related issues in their asset valuation, allocation and decision-making processes.
The Task Force on Climate-related Financial Disclosures (TCFD) was set up in 2015 to deliver a set of recommendations for voluntary company financial disclosures of climate-related risks. Provided they are used by investors, creditors and underwriters, disclosures on climate-related risk can:
- Improve market pricing and reduce the potential or large, abrupt corrections in asset values that can destabilise financial markets;
- Reveal underlying system wide exposures; and
- Help market participants and other stakeholders assess to what extent companies are considering and managing climate-related risks and opportunities.
The history of accountancy is a story of responding to new market opportunities, changing demands and expectations, and new legal requirements. Climate change is increasingly becoming an important consideration as capital providers better understand that climate change presents both material risks and opportunities to businesses in the short-, medium- and long-terms.
Climate change can no longer be viewed in isolation from business processes, functions or reporting channels, presenting both new challenges and opportunities for the accountancy profession. Companies and investors are looking towards accountants to provide the expertise on how to incorporate climate-related issues into financial planning.
Accountants are already well-equipped to play an essential role in preparing company policies, developing business cases, and in identifying, measuring and managing climate-related business risks. This includes developing and using management accountancy systems to collate climate-related data and information with the same rigour as financial data and information. Accountants can guide reporting entities to meet the demands of increased transparency, by helping to provide and present relevant and reliable information in a meaningful, consistent and comparable manner.
Enrol in this course to obtain a better understanding of the role of accountants and how this might be applied to your role.
First complete Course 1 and Course 2 to obtain a better understanding of climate-related reporting.