The number of companies reporting the effects of climate risks in their financial statements has more than doubled in the last four years, with energy and industrial companies leading the charge in Australia.
The "Effects of Climate-Related Risks on Financial Statements" report, from Chartered Accountants Australia and New Zealand (CA ANZ), the University of Melbourne, the University of Queensland, and the Australian Accounting Standards Board (AASB), reviews the 2024 financial statements of the largest 200 ASX companies and 50 NZX companies, as well as those from around the world.
The report found the number of companies globally now including climate risks in their financial statements has increased from 18 per cent in 2021 to 38 per cent in 2024.
Utility companies, such as water and power networks, recorded the largest increase, from 27 per cent in 2021 to 75 per cent in 2024.
In Australia, 100 per cent of utilities companies disclose climate risks, while the industrial (up 23 per cent since 2021) and energy (up 21 per cent since 2022) sectors recorded the biggest jumps.
CA ANZ's Group Executive of Advocacy Simon Grant FCA said the report underscores the evolving and important role Chartered Accountants play in environmental, social and governance issues.
"Despite the ebbs and flows of global politics, climate risk continues to have a financial impact that is playing out in company financial statements," Mr Grant said.
"In the year that we saw mandatory disclosure of non-financial climate risk commence, we can also see the growing importance of financial reporting of climate risk, and both threads are vitally important to deliver a clear view for investors.
"Australian industrial, energy and even consumer goods companies are joining the utilities sector in increasingly disclosing climate risk in their financial statements.
"Chartered Accountants are pivotal in guiding companies through the complexities of determining the anticipated effects of climate-related risks on the financial statements, ensuring that disclosures are not only compliant with regulatory requirements but also meaningful and actionable for investors and business decision makers.
"This is about telling the full story, not just what's in the balance sheet or profit and loss statement. Accountants play an important role in sustainability and climate reporting that enables investment and business decision making. It's about the long-term environmental impact, and for many companies, reporting on their ambitions to reach a net zero position."
AASB Chair and CEO Dr Keith Kendall emphasised the importance of these findings for investors in the overall reporting framework.
"It's important for investors to understand that these are traditional disclosures on the financial statement and that new mandatory, non-financial climate-related disclosures will help further explain connections between climate risks in the broader business, and those in the financial statements," Dr Kendall said.
"These results demonstrate for investors that climate is not just an ethical or principled consideration, but one that carries a heavy and increasing financial significance.
"This underscores the importance of consistent, comparable and investor focused disclosures for decision-making, and the role of strong standards and well-trained accountants in planning, preparing and auditing these disclosures."
Key findings from the report include:
- Financial implications: Climate risk is reflected in company financials in various ways, including potential asset impairment (38%), critical accounting estimates (22%) and in estimating the useful lives of assets (13%). For example, heavy emitting manufacturing facilities need to rethink asset deployment, upgrade equipment to mitigate emissions, or set timelines for taking assets offline to meet commitments and policies.
- Worldwide change: Across Australia, New Zealand, and the rest of the world, the energy (77%) and utilities (75%) sectors have the highest prevalence of climate risk disclosures. However, other sectors such as consumer staples (57%), health care (35%), and real estate (30%) have also seen significant growth in climate risk disclosures over the study period.
- Broader financial effects: Climate change impacts, such as altered weather patterns and extreme weather events, have financial implications for company operations, assets, and financing.
