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The current complexity and unpredictability of global markets has brought environment and climate matters to the forefront of trends affecting companies and capital markets. Additionally, there is growing recognition that organisations need to consider whether environmental and climate-related matters are financially material, including the potential impacts from the risks and opportunities associated with climate change.

Major events and initiatives are driving the climate agenda forward. In 2015, a landmark global agreement was reached enshrining into international law the need to limit mean annual global temperature rise to 2°C or lower. Both financial and non-financial groups, through the auspices of the Financial Stability Board, have attempted to address this systemic risk through delivering on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

The new, multi-faceted perspectives and criteria being used to judge corporate performance are having profound effects on the way in which companies prepare and include content in their corporate reports, particularly in relation to links between climate and financial information. There is growing demand for information about how corporate activity jeopardizes or contributes to long-term sustainability goals, including dependencies and impacts on the natural system. There is also growing demand for information that helps us understand the potential impact of climate change on the financial system.

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The demand for decision-useful climate-related information by a range of participants in the financial markets has continued to grow over the last decade. However, evidence suggests that the lack of consistent information hinders investors and others from considering climate-related issues in their asset valuation, allocation and decision-making processes.

The Task Force on Climate-related Financial Disclosures (TCFD) was set up in 2015 to deliver a set of recommendations for voluntary company financial disclosures of climate-related risks. Provided they are used by investors, creditors and underwriters, disclosures on climate-related risk can:

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This course is now available in Portuguese – Compreender as Recomendações da Task Force on Climate-Related Financial Disclosures (TCFD).

Climate change poses significant risks to the stability of the financial system. To mitigate and appropriately price these risks, companies are asked to disclose decision-useful climate-related financial information to the market. This type of reporting shifts climate change from a corporate social responsibility or sustainability issue, to one that also engages finance, risk management, and senior management.

Despite certain progress, there is an information deficit for investors and other decision-makers who are unable to make the capital allocations that can drive change across economies and societies. Initiatives like the TCFD have been set up to enhance the understanding of the economic impacts associated with climate change and to provide a framework for disclosing decision-useful information to investors.

This course follows the courses Introduction to climate-related disclosures – starting your climate journey and Understanding the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and provides further insight into how to prepare climate-related financial disclosures.

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Companies are increasingly under pressure to manage their climate-related risk exposure. Mandatory climate risk disclosure (in line with the TCFD recommendations) is quickly becoming compulsory across a number of jurisdictions. For example, it is compulsory for certain listed companies in the UK and New Zealand, and is currently being reviewed by the European Union, amongst others.

A key feature of the TCFD recommendations is the requirement to test strategic resilience into the future using scenario analysis. The TCFD believes that scenario analysis can enable organisations to secure a clearer understanding of the strategic implications of climate-related risks and opportunities. It can also promote greater engagement with stakeholders, investors, lenders, and insurance underwriters, as to how the organisation is positioning itself in light of these risks and opportunities.

Scenario analysis facilitates the identification of opportunities offered in the low-carbon economy. Companies that act first to adapt to changing market conditions will be ahead of the competition, and will be able to take advantage of new market, regulatory and policy incentives, as well as access to growing green finance markets.

This course follows the courses Introduction to climate-related disclosures – starting your climate journey and Understanding the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and provides further insight into how to conduct a scenario analysis.

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As markets begin to understand and appreciate the risks and opportunities associated with climate change, there is a growing recognition that these are connected to wider natural capital issues. This includes risks associated with water stress and the loss of biodiversity, amongst others.

The risks from loss of nature have the potential to disrupt both society and the financial system, with more than 50% of global gross domestic product being moderately or highly dependent on nature and the goods and services it provides.

Disclosure on biodiversity is currently far less prevalent than other environmental topics, most notably climate. However, biodiversity-related corporate reporting is a fast-moving, developing area, and there is ongoing work to create harmonisation, particularly related to measurement and disclosure. Organisations are now being asked to assess, manage and disclose their impacts and dependencies on biodiversity, and wider natural capital elements, so that investors can appropriately value assets and allocate capital towards more sustainable practices.

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Water is a foundational element to life on Earth. As competition for water resources grows due to greater socio-economic demand, the water system is experiencing significant changes in availability, accessibility and quality. In particular, businesses are beginning to experience the financial impacts associated with the degradation of water resources and ecosystems which, in combination with climate-related risks, create systemic risk to the financial system.

With an increasing understanding of the risks to the financial system and to broader society, more regulators are prioritising mainstream disclosure of climate and environmental information in an effort to drive action and to prevent significant environmental degradation. At present, there is an information deficit for stakeholders and investors on the reporting of water-related risks and opportunities that are financially material to an entity that are disclosed via mainstream report. This shortfall in high quality, decision-useful water-related information means that investors are unable allocate capital that can effectively instigate change and ensure resilience across economies and societies.

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Over the last two decades, it has become clearer that climate change will have a significant impact on business as it threatens the bottom line and creates risks to balance sheets and supply chains. The disruption caused by physical impacts (i.e. extreme weather, rising sea levels) in addition to impacts associated with the transition to a low-carbon economy (i.e. increased policy, stranded assets), could potentially lead to a variety of risks and opportunities for business. It is the role of the board and senior management to understand these potential positive and negative impacts and to ensure appropriate actions are taken to address climate-related risks and opportunities.

It is the duty of corporate boards to safeguard the long-term viability of their business. All members of the board, both executives and non-executives, need to gain a better understanding of climate change and how it might impact their business. By considering the potential impacts of climate change on their business, boards are able to get ahead of the curve and be in a better position as the impacts of climate change are realised. Intrinsically good governance should automatically include effective governance of climate-related risks and opportunities. Climate-related risk, defined as part of financial risk, should be addressed in existing governance and risk management processes. However, the unique and complex nature of climate change and the systemic risk it poses to business and society also requires special attention, and therefore a new corporate mindset is needed.

Increasingly, investors are scrutinising the actions taken by companies to manage climate-related risks and opportunities. An important element of this is the role of the board and senior management in the oversight and management of climate-related issues. To make a judgement on the efforts taken by companies and to inform investment decisions, investors rely on effective corporate disclosures. Companies are expected to disclose information about the governance and risk management processes adopted by companies to ensure climate-related risks and opportunities are embedded into strategic decision-making and business and financial planning.

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The consequences of climate change are likely to impact us all as the potential physical and transition risks are far reaching in breadth and magnitude. The complexities associated with the changing climate, in addition to the transition to a net-zero carbon economy, pose a unique challenge for households, businesses and governments across industries and geographies. However, the magnitude and nature of the future impacts of these risks will be determined by the actions taken today, which need to be credible and forward-looking.

In particular, businesses are increasingly facing financial risks associated with climate change. Financial losses, sudden adjustments in asset values, and the increasing cost of capital are just some examples of the financial implications if these climate change risks are not effectively identified, measured, managed, monitored and disclosed. By incorporating climate financial risks into existing risk management processes and by considering the potential future pathways, organisations will be able to make their businesses resilient.

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The history of accountancy is a story of responding to new market opportunities, changing demands and expectations, and new legal requirements. Climate change is increasingly becoming an important consideration as capital providers better understand that climate change presents both material risks and opportunities to businesses in the short-, medium- and long-terms.

Climate change can no longer be viewed in isolation from business processes, functions or reporting channels, presenting both new challenges and opportunities for the accountancy profession. Companies and investors are looking towards accountants to provide the expertise on how to incorporate climate-related issues into financial planning.

Accountants are already well-equipped to play an essential role in preparing company policies, developing business cases, and in identifying, measuring and managing climate-related business risks. This includes developing and using management accountancy systems to collate climate-related data and information with the same rigour as financial data and information. Accountants can guide reporting entities to meet the demands of increased transparency, by helping to provide and present relevant and reliable information in a meaningful, consistent and comparable manner.

First complete Course 1 and Course 2 to obtain a better understanding of climate-related reporting.

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The appreciation and demand for decision-useful environmental, social and governance (ESG) information has risen over the last two decades. Companies are increasingly expected to provide evidence about how they are contributing to achieving the UN Sustainable Development Goals, and how they are responding to complex and interwoven socio-economic and environmental challenges. This information can then be used by capital providers (investors, lenders and insurers) to efficiently allocate capital towards a more sustainable future and underwrite associated risks.

The European Union (EU) introduced the Directive 2014/95/EU on the Disclosure of Non-Financial and Diversity Information (NFR Directive), amending the Accounting Directive Accounting Directive 2013/34/EU. Companies are obliged to disclose sustainability information across a number of content categories including, their business models, policies, risks, outcomes and KPIs. This covers environmental matters, social and employee aspects, respect for human rights, anti-corruption and bribery issues. The NFR Directive is a key element of the EU’s Sustainable Finance Action Plan and is designed to enhance corporate transparency.

This e-learning course specifically focuses on the disclosure of climate and environmental matters as required under the NFR Directive.

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ESG- and climate-related matters are becoming increasingly material to companies, both from the perspective of the organisation’s environmental and social impacts, and how such matters can impact the organisation’s ability to create and maintain value. As such, the role of accountants has never been more important.

This course covers topics such as why ESG is strategically important to business, drivers of ESG and the importance of reporting on ESG-related information, the role of accountants in integrating sustainability into decision-making, as well as diving into climate-related and TCFD narrative reporting and financial statements.

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