Climate related Financial Disclosures
Introduction to Climate-Related Financial Disclosures 🌍💰 As climate change continues to reshape economies and industries, businesses must assess and disclose their financial exposure to climate-relate
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2 min read
The large-scale and complex nature of climate change makes it uniquely challenging, especially in the context of economic decision-making. Further, many companies have incorrectly viewed the implications of climate change to be relevant only in the long term and, therefore, not necessarily relevant to decisions made today. Those views, however, are changing as more information becomes available on the potential widespread financial impacts of climate change.
Climate-related risks are a source of financial risk, and they therefore fall squarely within the mandates of central banks and supervisors to ensure the financial system is resilient to these risks.
Risk Drivers & Potential Impacts
| Risk Drivers | Potential Impacts |
|---|---|
| Physical: Rising temperatures, Higher sea levels, More destructive natural catastrophes | Economic impacts, Business Disruptions, Lower Productivity, Higher commodity & energy prices, Replacements and reinvestments |
| Transition: Climate policy change, Innovation in technology, Shifts in consumer preference, Reputation | Lower property values, Asset devaluation, Lower profits, Financial market losses |
Demand for Climate-Related Financial Disclosure
Demand for climate-related disclosure has increased significantly. Many private-sector financial institutions, investors, and others continue to make progress on incorporating climate-related disclosure into their financial decision-making. Demand for climate-related disclosure from investors and others is critically important. In particular, large asset owners and asset managers sit at the top of the investment chain and, therefore, have an important role to play in influencing the organizations in which they invest to provide better climate-related financial disclosures.
Risks & Opportunities
| Risks | Opportunities |
|---|---|
| Technology: Substitution of existing products with lower emissions, Unsuccessful investment in new technologies | Use of more efficient transport, Recycling, Energy-efficient buildings, Reduced water usage |
| Policy and Legal: Carbon pricing, Regulation, Exposure to litigation | Use of lower-emission energy, Supportive policy incentives, Participation in carbon markets |
| Market: Changing customer behavior, Market uncertainty, Increased raw material costs | Development of low-emission goods, Climate adaptation solutions, R&D innovation |
| Reputation: Shift in consumer preferences, Increased stakeholder concerns | Access to new markets, Public-sector incentives, New assets needing insurance |
| Physical: Acute (extreme weather), Chronic (changing climate patterns) | Participation in renewable energy, Resource diversification |
Disclosures
| Category | Description |
|---|---|
| Governance | Disclose governance around climate-related risks and opportunities. |
| Strategy | Disclose the actual and potential impacts of climate-related risks on business and financial planning. |
| Risk Management | Disclose how the organization identifies, assesses, and manages climate-related risks. |
| Metrics & Targets | Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities. |
