CLIMATE CHANGE RISK AND CLIMATE-RELATED FINANCIAL DISCLOSURES

Topic

 CLIMATE CHANGE RISK AND CLIMATE-RELATED FINANCIAL DISCLOSURES

Instructions

Explain climate-related risks in terms of:
i. Transition risks; and
ii. Physical risks;
b. How and why are climate related risks different to other emerging risks?
c. Identify and explain climate related opportunities, using examples, in terms of:
i. Resource efficiency;
ii. Energy source;
iii. Products and services;
iv. Markets; and
v. Resilience
d. Identify and explain the financial impacts of climate related risks and opportunities in
terms of:
i. The Income Statement;
ii. The Cash flow Statement; and
iii. The Balance Sheet

  1. Identify and explain the recommended disclosures that organisations should provide in their
    financial statements with regards to:
    a. Governance;
    b. Strategy;
    c. Risk Management; and
    d. Metrics and Targets.
  2. Identify and explain the principles for effective disclosure developed by the TCFD
  3. Analyse the extent to which the TCFD principles for effective disclosure are consistent with
    the IASB / AASB conceptual framework
  4. Select two companies, one from: (a) either the banking or insurance industries; and (b) the
    energy industry (oil and gas, coal, electric utilities) and select either their financial,
    sustainability or integrated report for the financial year ending June 30, 2018 and describe,
    compare and contrast the climate change disclosures that they provided with regards to:

BAO 3309 Research Assignment Block 4 2020

3

a. Governance;
b. Strategy;
c. Risk Management; and
d. Metrics and Targets.

  1. How could the voluntary disclosures that were analyzed in question 5 be explained from the
    perspective of either legitimacy theory, stakeholder theory or institutional theory?

Answer Preview

. Physical risks

The physical risks that emerge from climate change can either be acute or chronic. Critical risks arise from specific events such as severe weather conditions, including cyclones, floods, and hurricanes. These risks will have financial impacts such as reduced revenue due to reduced production capacity due to disruptions in transport and supply chain.  Chronic risks are physical risks that occur in the long-term due to the changes in patterns of climate conditions such as prolonged high temperatures, which may increase sea level (TCFD 2017, p. 6).

b. How and why climate-related risks are different from other emerging risks

Climate-related risks arise from physical risks, including acute and chronic events, as well as changes in technology, market, policies, and legal reforms. Emerging risks, on the other hand, include issues such as risks of a data breach and cybersecurity as well as regulatory and broad technological risks. While the climate-related risks are not adequately addressed in the organization’s annual reports, investors often use this type of uncertainty rather than emerging risks to make decisions (AUASB 2018, p. 6). Therefore, more weight is put on climate-related risks than emerging risks. Investors and businesses demand more specific information regarding the climate-related risk exposures and management of the same.

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