It is not always on the obvious side of the business world, but climate risks and sustainability are among the considerations to look into in dealing with financial functions within an organisation.
As with many, if not all, risks surrounding a finance leader's decision-making process, climate risks should be taken with due carefulness and caution to reduce setbacks that can directly impact the business.
A finance leader must be able to fully understand the trends in sustainability and the challenges associated with climate change, incorporating such practices in the organisation's overall audit process.
Risk Assessment
A business leader must start conducting a comprehensive risk assessment that includes climate risks. This involves understanding the company’s exposure to climate risks and having a review on the potential impact on its financial performance. Factors such as physical risks, transition risks, and liability risks associated with climate change should be considered.
Integration of Climate Risks into Financial Reporting
After risks have been identified, finance leaders must integrate them into the company’s financial reporting. This includes disclosing climate risks in the company’s financial statements and other public disclosures.
It should be noted that such disclosures should be clear and transparent, detailing the potential financial impacts of climate risks on the company’s operations, assets, and liabilities.
Continuous Monitoring and Review
Climate risks are dynamic and can change rapidly, that's why finance leaders must continuously monitor and review these risks and update the financial reporting accordingly.
A regular assessment of the organisation's exposure to climate risks is important to ensure that the financial statements reflect any significant changes or developments.
Technology's role
As with how the business world is rapidly changing, technology can play a crucial role in identifying and assessing climate risks. Auditors can leverage off-the-shelf tools encompassing audit data analytics capabilities and artificial intelligence to seamlessly integrate climate risk assessment into their audit processes. These tools can help analyse large volumes of data, identify potential climate-related risks, and provide valuable insights for auditors and companies.
