CFOs confronting growing pressure to disclose climate change risks can find in their analysis opportunities to improve capital allocation and risk management.
CFOs face rising heat to combat climate change from a range of stakeholders.
Activists demand commitments to shrink carbon footprints. Investors want both green operations and robust profits. Regulators — including the Securities and Exchange Commission (SEC) — are gearing up to require detailed disclosures on climate risks.
CFOs face several challenges as they follow regulatory pressure and try to translate climate-change data into actionable metrics for strategic planning such as capital allocation and risk management.
When considering the impact of climate change, financial executives need to shift to a much longer time horizon. Rather than focus on quarterly or year-end reporting, they need to think in periods extending a decade or several decades in the future, according to Rebecca Self, director of sustainable finance at South Pole, a carbon finance consultancy.
CFOs also need to keep in mind that when they extend the forecast duration, they need to adapt to greater imprecision and uncertainty.
“Accountants are used to dealing with very rigorous audit requirements, compliance requirements — very precise sets of reporting," according to Self, an accountant and former CFO for sustainable finance at HSBC Holdings. “Turning that to climate change and these long time-frame scenarios like the Paris Agreement is really challenging."
Edited for length. Read the full article on CFO Dive