The financial reporting of climate change - introduction

Corporate social responsibility (CSR) and good environmental citizenship have been buzz phrases for some time but to date these have remained largely issues of corporate reputation handled by companies in the realm of public relations.

Taking climate risk into account is rapidly becoming a crucial ingredient of smart financial management. Failure to do so will soon be tantamount to abdication of fiduciary responsibility. It is clear that these issues are rapidly being moved into the hands of corporate officers with responsibility for shareholder value, financial reporting and investor relations.

However, a number of interest groups including sell-side analysts, buy-side analysts, pension funds, equity portfolio managers, bond investors and direct investors are growing increasingly preoccupied with the bottom-line impact of environmental issues.

The ability to effectively report the financial implications of environmental issues will soon become essential. As the investment industry begins to include climate change in financial models, companies will also need to become transparent in terms of the climate impact on business strategy.