Companies will soon be expected to reflect climate risk in their profit and loss (P&L) accounts, revealing to investors how floods, storms and droughts affect bottom lines.
The International Accounting Standards Board (IASB), whose rules are used in some 169 jurisdictions across the globe, is due to have a finalised set of examples by October to show companies how to disclose the impact of a hotter planet on P&L items, including impairments and provisions.
It’s technical and may make “people’s eyes glaze over”, said Natasha Landell-Mills, head of stewardship at Sarasin & Partners, which manages US$23 billion in assets. But this kind of financial rewiring ultimately “drives decision making”, she said.
The development marks a step up from the standard reporting model to date, whereby companies have released financial earnings and mostly left things like climate risk to separate sustainability reports. Forcing companies to merge the two means “getting to the heart of how the system operates”, Landell-Mills said.
More than half of the companies surveyed by Morgan Stanley in June said their revenue took a hit due to climate-related events last year. Photo: Shutterstock
Investors with a focus on sustainability have complained for years that corporate reporting falls short. The IASB decided back in 2023 to identify what could be done to address such concerns, and in July published a draft list of examples.