Evaluating Climate Risk in Financial Reporting: ACCY902 Assignment

This report provides an executive summary, table of contents, and introduction to the impact of climate change on financial reporting, referencing Williams (2018) and the ACCY902 assignment brief. The discussion section analyzes climate change risks, including their effects on investment decisions, portfolios, and the roles of regulators, preparers, users and the public. It highlights the importance of identifying climate-related factors in investment processes, the need for technological advancements to forecast climate change, and the adoption of climate resilience structures. The report emphasizes the need for business organizations to adapt to climate changes, the impact of climate change on financial statements, and the role of the Australian government guidelines. The conclusion reinforces the significance of proper guidelines for enhancing goodwill and business sustainability. The report discusses climate-related risks, and highlights the impacts on preparers, users, regulators, and the public, and the importance of sustainable strategic plans.

Running head: APPLIED FINANCIAL ACCOUNTING
APPLIED FINANCIAL ACCOUNTING
Name of the student:
Name of the university:
Author Note:

1APPLIED FINANCIAL ACCOUNTING
Executive Summary
The purpose of this report is to assess the case of Williams (2018) and determine the several
climate changes impact issues. The current climatic changes have been discussed and the
impacts of these climatic changes on the business organization have also been stated. The
impact of these changes on the preparers, the users, the regulators and the public has also
been assessed. Thereafter the importances of following a climate resilience structure and
sustainable strategic plans have also been mentioned. The report has been concluded by
highlighting on the case study and by stating that a proper guideline if followed will increase
the goodwill and the sustainability of the business organizations.

2APPLIED FINANCIAL ACCOUNTING
Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................3
Conclusion................................................................................................................................10
References................................................................................................................................12

3APPLIED FINANCIAL ACCOUNTING
Introduction:
Most of the companies in the recent period have started to focus on the
sustainability but it is also important and crucial to put greater emphasis on resiliency(Moser
2014). There is a high probability of facing oil crisis, water crisis as well as crisis of various
earth metals in the coming future. Climate change is a significant factor in the environmental,
social and economic risks which creates great impact on the physical environment in the long
term basis. This situation must be address by the top level management and decision
regarding the same must be taken. The rapid change in the political, regulatory and the
economic landscape elevates the significance of climate change as a potential material of
investment risks (Bulkeley and Betsill 2013).
Discussion:
As per the conducted research there are some of the key findings about some of the
parameters which are definitely going to impact the potential investors in the market. Based
on the climate change assets allocation analysis highlighted, the average public pension
portfolio in US became weak up to 2C transformation scenario which further means that
average portfolio is meaningfully exposed to such kind of risks associated with the change to
the low carbon economy precipitated by the modern technological advancements (Krueger,
Sautner and Starks 2018).
From the research of the articles industry superfund REST found major glitches while
taking investment decisions due to the fact that failure to identify the potential climate change
related risks. Throughout the article REST considers that the risks related to this is a part of
the assessment of all the operating and the investment related risks in the business about what
is the best financial interest of all the members (Hopkin 2018).

4APPLIED FINANCIAL ACCOUNTING
Identifying the climate related factors plays significant role in case of the investment
decision making process. Potential investors before taking any kind of decisions take some of
the major consideration a part of the investment process. The investors of the company try to
identify the fluctuation in the markets. As a result the potential investors of the company
analyses the major changes and the potential threats in the investment process and then only
implement the plans and techniques in the investment process.
Among all the risks ascertained by the potential investors of the company the
investors must also take into consideration about the major climate changes during the
investment process. This kind of change will definitely put impact on the regulator and the
public. Change in climate is such a risk which creates impact on the overall portfolio
management of the company (Epstein 2018).
The articles deals with the failure in the management system to identify the potential
threats regarding the climate change. Investors of the company have to remain cautious about
such kind of change in the system. In case of portfolio management the company has to
ascertain some the significant threats like the climate change otherwise it will be a
miscalculations of the company. Manipulating the changes which the upper level
management of the company needs to make and further take decisions based on such kind of
significant changes.
Due to this reason it will definitely impact the financial operations of the company
and further harm the overall performance of the company in the near future. Hence it is
important to identify the environmental changes which may create an impact on the current
economy further harming the stock market resulting in the fall in the shares of the company.
In such a situation the company needs to adopt some the technological advancement which

5APPLIED FINANCIAL ACCOUNTING
will help the components to forecast the climate change and also will help the company in
ascertaining the required changes needed to be made.
Improvisation of new technology will help the company to identify such kind of the
major climate change and will further help the company to take correct decisions regarding
the investment process. Effective portfolio management of the company will further help the
company in order to enhance the overall financial position of the company in that case. The
major role while taking any kind of investment decision is ascertaining the economic and the
climate change. These are the two significant parameters apart from the other parameters
need to be considered by the top level management of the company.
Any kind of significant or high level management decision is taken by the members of
the upper level management of the company. Hence it falls under the responsibility of the
management system to improvise and notice the significant changes which will definitely
impact the financial statement of the company in that case (Laine, Korhonen and Martinsuo
2016). Constant upgrade of the technologies is required at the same time to enhance the
analytical aspects to identify the major fluctuations and the risks associated with the climate
of the company.
Improving the techniques and bringing the changes in the rules and regulation of the
company in order reduce such kind of climate change related threats in the investment or the
portfolio management of the company (Slott et al. 2016). Investors must be always cautious
regarding that kind of major changes in the system of the company and accordingly it is the
responsibility of the potential investors to overcome from such risks.
Identifying the economic benefactors which are the political change, business related
factors and many more. Analyzing and tracking such kind of the major issues is significant
for the investors of the company. Forecasting the threats is important otherwise it will harm

6APPLIED FINANCIAL ACCOUNTING
the analysis and the prediction of the fluctuation the share market. The witty investor in the
market always tries to take such kind of advantage regarding the fluctuation in the current
market.
This kind of changes will definitely create impact on the decision of the public
regarding such climate change risks and also the regulators and users at the same time which
have been depicted in the conducted research of the study (Clark et al. 2016). The main focus
of the article has been duly highlighted in the conducted study and further research in the
present scenario is needed by the experts and the professional inclined in such kind of
business. Further enhancement in the advanced technology will also help the potential
investors to ascertain such changes and adopt necessary actions accordingly.
The change in the global climate affects the regular operations of the business
organizations. The climate change factors includes the increase in the global warming, poor
and altered rainfalls, storms, drought, heat waves and extreme low temperatures as well in
certain areas. The organizations must therefore adapt to the climate changes conditions in
order to protect the overall business from the effects of the climate changes as well as in
order to contribute the least as a reason for the climatic change. The Australian Government
Department of the Environment and Energy has a separate guideline for the impact of the
climatic change and the risk management procedure of the organizations based on those
impacts (Sadgrove 2016). The guide is specially made to be followed by the directors of the
company, the general management team, the special risk managers and the external risk
managers. The guide explains in details about the risk in the business that is directly related
to the impacts of the climatic change, prioritization of risk areas that requires more attention
and ensuring that the priorities of a higher concern are managed effectively. These concepts
are prepared by the CSIRO for the region of Australia (Intarakumnerd and Goto 2018).

7APPLIED FINANCIAL ACCOUNTING
The present scenario of climate requires a lot of attention to be given by the business
entities. The change in the climatic condition can cause irreversible damage to the livelihood
of the individuals, the food security, the water supply, the business and the economic growth
(Preston et al. 2015). The business sector must take investment decisions and plan all its
strategic decisions taking the climate changes under consideration. In the current competitive
scenario most of the customers are having an inclination towards those companies who are
socially active and are helping in maintaining the sustainability of the environment. There are
several companies that have made clean energy commitments at present and are trying to
transform the economy into a carbon free economy. The business organization listens to their
stakeholders in order to make the strategic decisions. Climate resiliency techniques should be
adopted now in order to retain the customers now as well as for the futures. The improper risk
management in terms of climatic change can pose a great threat to the preparers, users,
regulators and the public of the company (Byrne 2017).
Several opportunities and threats are to be considered while considering about the
climatic change. For example in case of drought and water unavailability, the beverages
company will suffer a huge loss. If the business is located in a situation where there are
several harmful air pollutants being emitted, then the employees of the organization will get
sick. Any firms that have been relocated at a far place because of a flood at the place of the
origin is rewarded with a insurance premium which is very low (Kousky 2018). There can be
obstacles in the supply chain because of the droughts or because of extreme weather
prevailing in the locality. There can also be a cost of natural disaster that gets add up with the
other operational cost of the business organization. It has been seen that there has been 15
times increase in the insured losses globally because of the climatic changes in the past three
wars (Pittock 2017). The UN IPCC report of 2014, showed that human beings from all
around the world are very much vulnerable to the extreme weather conditions that has

8APPLIED FINANCIAL ACCOUNTING
occurred because of the climate change. The users of the financial statements get hugely
affected by the impacts of the climatic changes. The users of the financial statements usually
invest money on the companies by assessing the overall condition of the company. The
company’s profitability can be affected because of the climatic changes. Heavy rain can
cause flood and it can damage the structure of the company building, thereafter making the
company incur huge expenditure in renovation of the building (Ryu et al. 2017). It can also
lead to the huge changes in the temperature. If the temperature increases and the company’s
internal structure does not have a proper set up to protect itself and the others inside from the
extreme heat, then the employees working within the organization gets severely affected. The
investments in few assets of the company are therefore done by taking under consideration
the impacts of the climatic change (Cadez, Czerny and Letmathe 2019). All these changes in
the capital expenditure of the business and sudden emergency situations affect the
profitability of the business based on which the public makes the investment. The type of the
product to be produced or manufactured also depends on the climate to some extent. There
are certain kinds of products that are very much suitable for the summer season. If the risk
managers do not assess the risk of the climate changes properly then there can be a loss in
that business. Heavy rain in the summer season can reduce the demand for the products that
are generally demanded at that time and the demand for the products that are required in the
monsoon season increases. The increase in the global warming will also reduce the global
domestic production. There are also certain firms that create environmental pollution because
of its activities. These firms usually tend to emit harmful pollutants in the environment that
can affect the health of the individuals. The firms must therefore adhere to certain regulatory
authorities, rules and principles. Non-adherence to those rules will be noted down by the
regulatory authorities and strict actions including the dissolving of the company can be
planned by those authorities.

9APPLIED FINANCIAL ACCOUNTING
With the passage of time, increased transparency is needed from organizations and
investors confronting the effects of climate-related risks and opportunities and the way they
could affect expenses, revenues and estimates of future cash flows, liabilities and assets. Such
transparency could be delivered effectively in significant financial disclosures with the help
of standardized voluntary framework accessible to numerous participants in the market.
Therefore, various draft recommendations are prepared from time to time by the
preparers in terms of climate-related risk. The objective of such disclosures, which is
designed to be applied to all organizations in all sectors, is to deliver forward-looking,
pertinent information to the lenders, investors as well as insurance underwriters on the
potential financial effects of climate-related risks along with opportunities and the techniques
to manage them (Amran, Periasamy and Zulkafli 2014).
The adoption of these suggestions would need the organizations to associate issues
further around climate with investment and corporate strategy, opportunity and risk analysis.
This is a timely development by taking into consideration the recent closure of the COP22
climate. The new guidelines take place from a concern among the different members of the
standard setters regarding the potentially disruptive impact of transition to low-carbon
economy on the stability associated with international financial systems (Ben‐Amar and
McIlkenny 2015).
There are a number of frameworks related to climate disclosure like the global
disclosure platform of CDP, which is involved in capturing climate-related data for above
6,000 global organizations. The vision of the preparers is to assure the fact that these
frameworks align their main disclosure requests with the suggested disclosures, which have
been already committed by CDP and other disclosures. In case of CDP, the recommendations
of the preparers need to be assimilated into climate questionnaires ready for the next cycle.

10APPLIED FINANCIAL ACCOUNTING
This is deemed to be significant, since the preparers have not intended to initiate another
framework in relation to voluntary reporting. Instead, their motive has been to act in the form
of a catalyst for consistent provision of climate-related financial disclosures. This would
assist in raising the volume and accuracy of information available to the users along with
minimizing the reporting burden for the preparers (Hahn, Reimsbach and Schiemann 2015).
The recommendations reinforce the current reporting needs in majority of G20
jurisdictions for organizations having public debt or equity disclosure material risks in
financial filings, constituting of material climate-related risks. The initiation of a standardized
framework for consistent climate-related financial disclosures needs to support such
requirements. The preparers would be placed in better position of accessing the
concentrations of carbon-related assets in the financial sector and the exposures of the
financial system along with management of climate-related risks (Lee, Park and Klassen
2015). Guidance is provided for corporations in sectors like energy, transportation, materials
and building and agriculture, which can be notably full of the physical or transition impacts
of global climate change like water insufficiency, shifts in energy offer or use or extreme
weather events. Thus, climate change is deemed to have significant impact on the preparers.
Conclusion
It can be concluded that the impact of the climatic changes have several serious
impacts on the preparers, regulators, public and the users of the financial statement as well.
The case study consulted here did nit adhere to the climate changes policies and had to face a
lot of troubles and also had to face the legal issue. The companies must therefore keep in
mind about considering all the climatic factors in a manner that the stakeholders of the
business are not affected drastically. The climate changes guidelines must be followed by the

11APPLIED FINANCIAL ACCOUNTING
directors, the managers and the risk managers of the company in order to make the company
sustainable and maintain the goodwill of the company in the long run.