Rise in companies reporting climate risks evident: CA ANZ

Chartered Accountants Australia and New Zealand (CA ANZ) has released the 2023 reporting research on climate-related financial impacts, revealing the number of companies disclosing climate risks has increased.

Of the 356 companies reviewed across Australia, New Zealand and the rest of the world, 35 per cent of them in total are now disclosing climate-related risks in their financial statements. This figure is slightly higher when considering New Zealand on its own (40 per cent), with Australia and Rest of World all at 34 per cent separately.

This is a significant uptick across the four criteria since 2021, with Rest of World originally at nine per cent, New Zealand previously at 16 per cent, Australia at 23 per cent and the total at 18 per cent.

The data, compiled as part of a joint study between CA ANZ, the University of Melbourne and the University of Queensland, also found that the top area of financial statements affected by climate risks was “impairment of non-current assets” – mainly recoverable amount calculations, which relates to “how they have affected the key assumptions on which cash flow projects have been based”

The research found critical accounting estimates, financial risks, environmental restoration provisions and useful lives of non-current assets were also affected by climate-related risks.

“Climate risks are impacting companies’ disclosures concerning asset valuations, impairment testing, financial risks, and provisions,” Chartered Accountants ANZ’s Reporting and Assurance Leader, Amir Ghandar, said.

“As you would expect, emissions intensive industry sectors such as energy and utilities have a larger proportion of companies impacted, but we’re also seeing sectors such as consumer staples and financials calling out climate risks as a key financial consideration,” Mr Ghandar said.

Of the total sample size of 356 companies, the largest 200 companies listed on the Australian Stock Exchange (ASX), the largest 50 companies listed on the New Zealand Stock Exchange (NZX) and the largest 106 companies from the rest of the world were analysed across the energy, materials, industrials, consumer discretionary, consumer staples, healthcare, financials, information technology, communication services, utilities and real estate industries.

In Australia, 100 per cent of utilities companies sampled in the research disclosed climate-related risks in their 2023 financial statements; New Zealand real estate companies saw the highest number of disclosures at 71 per cent of those sampled in the data; and energy companies in the Rest of World categories also had the highest rate of disclosures (67 per cent).

The three sectors reporting the lowest number of climate-related risk disclosures were information technology (only 19 per cent of Australian companies, 0 per cent in New Zealand and Rest of World), Communication Services (11 per cent in Australia, 50 per cent in New Zealand and 10 per cent in Rest of World), and Consumer Discretionary (11 per cent in Australia, 20 per cent in New Zealand and 40 per cent in Rest of World).

“Interestingly, none of the 10 largest global tech companies mentioned climate-related risks in their financial statements,” Ghandar said.

“These results demonstrate the impacts of climate risk as a financial issue, and investors have increasingly been calling for greater transparency and consistency.

“This is no doubt a primary motivation behind the Government’s Climate-related financial disclosure draft legislation, and robust assurance will be essential to achieve the level of integrity and investor confidence needed for these new disclosures.”

The report comes as Treasury released its final policy statement on required climate-related disclosures and draft legislation open for consultation in January, which is set to strengthen mandatory disclosures on top of existing financial reporting requirements.