Climate-related risks increasingly factored into financial reporting

New Zealand leads the way, with 60% of NZX 50 companies disclosing in their financial statements that they have considered the financial effects of climate-related risks, a 50% increase from the previous year. This compares to 34% of ASX 200 companies and 36% for the rest of the world, both of which have seen only single-digit growth since 2023. 

Climate-related risks are mainly being considered in NZX 50 financial statements in relation to asset impairment (41%), critical accounting estimates (22%) and in estimating the useful lives of assets (22%). 

For example, heavy emitting manufacturing facilities may need to rethink asset deployment, upgrade equipment to mitigate emissions, or set timelines for taking assets offline to meet commitments and policies.

Specific sectors are driving New Zealand’s increased reporting year on year, including utilities up 43%, consumer discretionary up 60% and consumer staples up 35%. The energy (100%), utilities (86%), consumer discretionary (80%) and consumer staples (75%) industries have the highest rate of disclosure that the effects of climate-related risks have been considered in the preparation of their financial statements.

Global key findings

• More than a third of companies (38%) have flagged climate risk in their 2024 financial statements, which has more than doubled over the four-year study period (from 18% in 2021).
• Companies are flagging climate risk in relation to asset impairment (38%), critical accounting estimates (22%) and in estimating the useful lives of assets (13%).
• Energy (77%) and utilities (75%) are the sectors with the greatest prevalence of companies flagging climate risks in their financial statements.

Directors’ responsibilities for financial reporting

Directors are required to consider climate-related risks when the effect is material in the context of the financial statements as a whole (see Climate-related matters in financial statements). However, climate-related risks are often perceived as remote, long-term risks and may not always be appropriately considered in the financial statements (see Connectivity in practice). 

Investors are demanding more qualitative and quantitative information about the effect of climate-related risks on the carrying amounts of assets and liabilities reported in the financial statements.

However, no companies are currently quantifying the effects of climate-related risks on the financial statements. Climate-related risks often form an integral part of the methodologies and models used to perform estimates in the measurement of certain financial statement items. Attributing any change in the valuation of a particular asset or liability directly to any one specific factor, such as climate-related risks, is often challenging.

There is variation in how companies disclose the outcome of their consideration of the effect of climate-related risks on their financial statements. Some companies disclose an explicit conclusion that climate-related risks have not had an impact on the financial statements. Other companies disclose that the effects of climate-related risks have been considered but do not conclude whether there was an impact on the financial statements.

There is also variation in where companies disclose that the effects of climate-related risks on the financial statements have been considered. There is a shift from it being a specific factor affecting a particular financial statement item, to a systematic factor affecting all financial statement items.

Connectivity

The introduction of mandatory climate-related disclosures in New Zealand is likely bringing the possible financial effects of climate-related risks into sharper focus, prompting directors of climate reporting entities (CREs) to increasingly make connections between their climate-related disclosures and their financial statements.

CREs are required to disclose in their climate statements the current financial impacts of their physical and transition impacts (see paragraph 12(b) of NZ CS 1 Climate-related Disclosures). From the third climate statement onwards (NZ CS 2 adoption provision 2, paragraph 12), CREs will also be required to disclose the reasonably expected anticipated financial impacts of climate-related risks and opportunities (Climate-related disclosures, paragraph 15(b)). To support this new requirement, the XRB intends to provide guidance later this year (see consultation document).

The challenge for directors is understanding the range of financial implications that climate-related risks can have on company operations, assets and financing. Risk identification and quantifying anticipated financial impacts are complex tasks – involving forward-looking information with significant uncertainties – and can take time to crystallise into a clear process. 

Read the full report, ‘Effects of climate related risks on financial statements’, here (Chartered Accountants Australia and New Zealand (CA ANZ), University of Melbourne, University of Queensland, Australian Accounting Standards Board (AASB) (March 2025)).